Social Assistance should Reach Targeted Recipients
The government’s swelling spending for energy subsidies has posed a dilemma. The decision to increase subsidized oil prices in order to reduce subsidies must be made carefully.
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President Joko “Jokowi” Widodo warned on Aug. 1 that the government’s spending for fuel subsidies, which would reach Rp 502 trillion (US$33.8 billion) this year, would be too large for Indonesia. “No country will be financially capable to finance such a large subsidy. However, once again, are we still tough enough to hold it in until now?," the President said (Kompas Aug. 2).
After a meeting at the State Palace on Aug. 12, the President mentioned the amount of energy subsidies had been very large. "Will we maintain the figure of Rp 502 trillion? Yes, if we can, thank God. It means the people will not be burdened, but if the state budget is no longer able to handle it. What should we do?” he said (Kompas Aug. 13).
When inspecting the renovation of Taman Mini Indonesia Indah (TMII) cultural park on Aug. 23, President Jokowi emphasized that policies related to subsidized fuel prices concerned the lives of many people. The decision must be made carefully and the impact of rising fuel prices must be carefully calculated (Kompas Aug. 24).
The budget for energy subsidies, which has swelled from Rp 152.5 trillion to Rp 502.4 trillion this year due to the increase in crude oil prices in the world, is ironic, because more than 65 percent of the subsidies are enjoyed by the middle and upper economic class. Low-income families who are entitled to subsidies only enjoy a small part of them. The reason is that fuel and LPG subsidies are not directly distributed to low-income families. For example, most subsidized 3 kilogram LPG canisters do not reach its targeted recipients even if they are stamped with “only for the poor” mark.
The decision to raise the prices of subsidized fuel should be carefully taken, because the increase will have a significant impact on economic conditions and people's lives. Although the Indonesian economy grew 5.44 percent in the second quarter of this year, the people have not yet fully recovered from the COVID-19 pandemic. Annual inflation as of July rose to 4.94 percent. The increase in fuel prices will make the prices of goods and services soar so that inflation will increase further. The burden on the people is getting heavier.
The government has prepared Rp 24.2 trillion to finance social assistance programs to maintain people's buying power. The social assistance will be in the form of direct cash transfer for 20.6 million low-income families, wage subsidies for 16 million workers with a maximum salary of Rp 3.5 million per month, as well as for public transportation. The local governments are also encouraged to use part of the central government’s general transfer funds, to provide social assistance.
The social assistance program is expected to ease the burden of the people in coping with the surge in the prices of goods and services due to the increase in fuel prices. More importantly, social assistance is expected to enable low-income families—which reached 26,2 million people as of March —to deal with the pressures of economic conditions. In order for the goal to be achieved, the distribution of social assistance should reach its targeted recipients.
This article was translated by Hendarsyah Tarmizi.