The Decreasing in Oil Subsidies : Is this the best option we have?

Roughly two weeks ago I had an English presentation in class, the presentation to which my group decided to bring the topic of ‘The Government’s Policy to Decrease Oil Subsidies’.

After a prolonged time of the presentation and I had returned to my seat, one friend asked our group a question personally,

“Instead of the decreasing in oil subsidies, why doesn’t the government choose other options, such as the decreasing in banking sector subsidies?”

Maybe my writing here is the answer to people who propose identical questions as hers.

Here in Indonesia, we have numerous options, but few are able to be implemented. Well, you might say “Mr. Yudhoyono, just go get those corruptors and bring back our money!” or “Recapture those money from the banker which we gave them as a bailout during the financial crisis!” (renowned in Indonesia as BLBI).

But, can we really do that? With the poor bureaucracy and law system that we have right now, such options are hard –or even impossible- to be put into action. In United States, Barack Obama campaigns with the ‘Yes We Can’ slogan. And yes he can, and I bet that he will. On the contrary, do Indonesian politicians have the competence as Obama has? No they don’t. They promised various things during the campaigns, but soon after they’d faced with Indonesia’s difficulties, they found out the truth; in this country, the situation is not as easy as it seems.

In fact, instead of the decreasing in oil subsidies, I would rather choose to arrest Suharto’s cronies and recover the money that he took from our country. Do you know that the corruption watchdog Transparency International has estimated that Gen. Suharto embezzled up to $35 billion while president of Indonesia, a figure that is in the same league as the entrepreneurial fortunes of Bill Gates and Warren Buffett!* (taken from the article The Case of Unpaid Parking Ticket; why some people cheat and others don’t – Tim Harford)

But is that possible? Even if you have the authority, it needs massive guts to do the action. Powered with Suharto’s dominance in his 32 years regime, it is publicly known that most of the Suharto’s families and his cronies are regarded ‘untouchable’.

Indonesian leaders should draw inspiration from current Chile’s president who lost her father to the violent regime of Augusto Pinochet; Michele Bachelet. This 56 year-old woman is ranked 27th in 2007 Forbes’ most powerful women in the world and listed as Time Magazine’s 100 most influential people in the world in 2008, inspiring many women as New York’s Senator Hillary Clinton and Spain’s 37 year-old Defense Minister Carme Chacon. As a woman, what she did is absolutely remarkable and even outdid numerous men leaders. By the time she elected as president, she started to bring many Pinochet’s cronies to trial, fearlessly arrested them and leaves Chile uncontaminated from Augusto Pinochet’s regime. In Indonesia, I see background resemblance between Michele Bachelet and Megawati Soekarnoputri because both lost her father to dictators. Unfortunately, I don’t see the same courage, cleverness, and determination. If Bachelet were Indonesian and born as ‘Michele Soekarnoputri’, well, maybe Suharto would not have died so peacefully back then.

Exactly, that is the type of leader that Indonesia need. We need a fearless, accountable, and idealist-type leader, on whom Indonesians are able to depend. We need the leader who can make difference by his or her willingness to act, not to speak, so that he or she has the guts to put such breakthrough options into actions, and the bravery to deal with all the consequences.

Today, the decreasing in oil subsidies is probably not the best option, in my opinion; it merely is the most realistic option we have. People may offer other options, but can those options be put into actions? Or can someone put those options into actions? Yes, trust me, I do know that we have loads of options besides the decreasing in oil subsidies, but I really believe that those options are really hard to be implemented. With Indonesia’s situation right now, we need fearless people as Michele Bachelet, Mahmoud Ahmadinejad, Evo Morales, or Hugo Chavez to put those alternatives into actions successfully.

So, does the government choose the right path by making this decision? Decisions and options, are all about trade-offs. Some agree, and others differ.

The Indonesian Oil

Oil price is still hovering on astronomical numbers these days, as a respond of its high demand which comes incessantly from emerging industrials and manufacturers in the new fast-growing countries like China and India. Many oil exporter countries experience improvement in their economy. Unfortunately, Indonesia is not on that list.

Indonesia is widely known as the only member of OPEC (Organization of Petroleum Exporter Country) from Southeast Asia, which its members export million barrels of oil a year and able to control the market. Indonesia joined OPEC in 1962 and since then consistently exported hundred thousand barrels of oil per year.

With today’s oil price is continuing to hike in the market, oil exporter countries, especially OPEC members, are supposed to gain lots of benefit to its economy. In Venezuela, high price of oil causes an increase in government income and helps to decrease its high inflation rate. In middle-east oil exporter countries, such as United Arab Emirates and Kuwait, economic sectors are booming and views at their metropolis cities are nothing but skyscrapers everywhere.

Regrettably, at the moment Indonesia is struggling because of extraordinary price of oil. Why might that be? The answer of the question is obvious; Indonesia isn’t able to maintain its oil production output. Significant decrease in output induces Indonesia to import the oil to provide the nation’s demand, which continues to rise overtime.

Based on Energy International Agency (EIA), Indonesia’s oil production has started to decline rapidly in recent years. The government targets the level of production of 900,000 barrels per day for 2008, while back in the year of 1991, Indonesia ever recorded a massive number of 1.6 million barrels per day. If truth be told, the country was used to that number of production. During period of 1991-1998, the oil production of Indonesia never stood below level of 1.5 million barrels per day. Then, the situation started to change in the beginning of new millennium. From 2000 until present, Indonesia’s oil production has dropped by 35 percent; from the average total production of 1.4 million barrels per day, to less than a million barrels per day.

This happens because many Indonesia’s oil producing fields are mature and declining in production. While rich-oil countries are trying hard to increase their output with the application of new technologies and intensive explorations, Indonesia seems effortless in retaining or increasing the level of production and isn’t showing any significant attempt to improve technologies needed.

On the contrary, the data on EIA shows the consumption of oil in Indonesia is continuing to rise throughout time. In 1980, Indonesia consumed 400,000 barrels of oil per day. Today, the oil consumption has tripled to the level of 1.2 million barrels of oil per day. With production is on the decrease and consumption is on the increase, it reached its climax in 2004, when oil consumption in Indonesia exceeded the amount of the country’s ability to produce. That year, Indonesia’s oil consumption reached a level of 1.2 million barrels a day, while the production is only measured 1.1 million barrels a day. Since then, Indonesia converted from oil exporter to oil importer country, the situation which has been responded already by OPEC by reviewing Indonesia’s membership in the organization, with Sudan and Brazil are prospective members to replace the position.

As consequence of the alteration from oil exporter to oil importer country, Indonesia has to cope with one substantial problem, it has to support financially people need for oil. In other words; oil subsidize. This is the answer why rising price of oil causes Indonesia an immense loss. Instead of a boost in economy, rising price of oil brings an increase in oil subsidize. In 2007, the rise of oil’s price tag to $96 per barrel caused a vast increase in Indonesia’s oil subsidize budget, which increased from $6.2 billion to $10 billion. Oversize amount of oil subsidize then caused a huge blow to the economy.

In the past, allocated funds in oil subsidize was intangible and didn’t actually exist. Indonesia suffered financial loss because of the loss of opportunity to export its oil, which had to be allocated to supply people need in preference to increase income from selling it abroad. Today, Indonesia’s oil subsidize has changed its meaning from a loss of opportunity to a tangible expenditure, which means a bigger problem to deal with. Whether to improve the number of oil production, to reduce the number of oil consumption, or to shift to an alternative energy, it is time for the government to consider one significant change in the management of Indonesia’s natural resources.