Endless debate on poverty in Indonesia
The problem of the rising of oil price is not just our nation’s problem but become the world problem [It seems that each sector of economy will suffer but the oil industry]; however, if we continue the discussion on the impact of oil price to the poverty level in Indonesia, then we are dealing with so many aspects, especially political aspects.
Actually I have some opinions about the impact of oil price to the poverty level but I just wanna share in this blog. The reason why I concern in this issue caused by my discussions [or debat] with some of my friends last year on the policy of reducing fuel subsidy. Here the summary of my opinion: Reducing of fuel subsidy is a good thing [In the name of efficiency.The reduction of fuel subsidy will have a good impact on government budget and it will help government to stabilize macroeconomic indicators], compared with reducing education subsidy. However, we should prepare the impact on poverty that could be worse than the government expected. So, the government should consider about the level of subsidy that should be reduced.
The CBS this week annaounced the poverty rate around 17.75% which is higher than before the reduction of oil subsidy, around 15.97%. There are two stand points for the reasons: first, from the one side argue that the higher of the poverty rate is caused by the higher of the food price, while the other side argue that the higher of the poverty rate is caused by the high of fuel prices [subsidy reduction].
According to my opinion, both of them are right, but incomplete. I will try to explain why the level of poverty increase than most of government economists expected. First, the impact of the high oil price will “transfer of the high price to the consumption bundle of poor people”. As we know that most of the poor people consumption is food, then the “fuel price tranfer” to the food price will affect the level of poverty line. This is so-called ”first round impact of fuel price to the poverty level”. This was already recognized and expected by the economist of government, but the second was missed: “second round effect”. Second, this second round effect could affect the poverty level from the income side of the poor and then will be reflected in the low consumption level. The explanation could be seen from this perspective: when the fuel price increase, the business that use the fuel as energy resource will suffer [especially transportation business]. As we know, many business have been collapsed during the first year after the policy, then the first victim of the downturn of business, is the poor people, or the cheap, unskilled labor: some of them will lose their jobs or have business to be collapsed. Then the low level of society have lost their jobs or having their income decreased, then it will affect their level of consumption. The first round was happend around end of 2005 and the second round could be in the current situation or still continue.
The first round effect above could be managed by cash transfer [BLT], however the second one could be more complicated because it is talking about business problems.
I could see one way that government could do in the shortest way to fight our economic problem, including poverty: cutting tax [also rising government spending on massive job projects]. This was the recipe of the US economy in the 1970s, when the high oil prices attacked the US economy.
