DOMESTIC OIL & GAS PRICE ON MARKET PRICE, INDONESIA CASE STUDY

When oil and gas price high, many export countries enjoy the huge amount of foreign exchange for multi purposes. But in the other hand keep the price low for domestic consumption by subsidized in National budget.

Since low price policy done for long period of time, then became a political factor. If any issue that the price will increase, then the public respond hard. So Government tend to keep it low for the sake of the politic.Public then spoiled, crying just like the small babies.

For instance in Venezuela, oil and gas were the lowest in the World and these products became politic issue. Public assumed that they had the right to consume the low price. When export price drop, National budget in crisis due the revenue depend on oil an gas 90%. Inflation predict 200% in 2016. That was why after 2 decades, since February 2016, the price hike from. one penny $ to US$ 60 cent. Still the cheapest in the World.

Another OPEC country, Saudi Arabia ultimately set a new Master plan, that the country switching the sources of National budget, not depend on oil and gas export income any more. Saudi Arabia break even price is $ 106. When the price drop down to $45 per barrel, Saudi Arabia deficit $ 100 billion in a year. For so long their citizen spoiled with subsidy.

Russia who depend the budget 50%  on revenue of oil and gas, in 2015, the budget deficit reach 2,6 %. The inflation rate rise high to 16,9% in March 2015.

For Indonesia, Oil and gas price not a blessing nor a curse. Government set the price level almost in Market price. Budget subsidized since freedom in 1945 switch to Non subsidized price, market price level. New Government under President Jokowidodo or Jokowi aware of  non popular policy to increase the price.
This brave policy based on through analysis that the oil and gas subsidy not consumed by majority of citizen but by the middle and upper class society who had cars. Some smuggled for foreign countries or for illegal fish ships.The principle is that if you are afford to by cars then you are afford to pay market price oil and gas.

From those policy, since year 2015 the huge amount of subsidy switched to build Infrastructure across the country and many big programs priority. Previous Government never ever dare to think of set the price in market price level. Only a very small percentage of oil and gas subsidized.
The economic growth and inflation rate in 2016 predicted 5,3% and one digit inflation.

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Pinondang Situmeang, Email : c2_pin@rocketmail.com