Fuel, it is an integral part of every economy, and to us it is invaluable. Petroleum is an important natural resource in which our country is rich in, and that contributes greatly to our country's economy. However, it is also an important part of our daily lives, as petrol for our cars and motorcycles, and playing major roles in the transportation of goods in our country. It is something that we all need, whether directly or indirectly. Fuel is something that we need, yes, but it is also something that we dread buying. This is because fuel is expensive, it is an added cost to our lives. For some, the cost of fuel could be easily omitted, but for most of us, it is a significant cost we must bear.
Recently, in Indonesia, the government has announced
that the subsidies given for fuel prices will be removed, and petrol prices are
to increase by 44%, from 4,500 rupiah per liter to
6,500 rupiah. This is an action taken as a last resort by the Indonesian
government in order to deal with the economic crisis and the fall of the national
currency.
This drastic action taken
by the Indonesian government has taken the citizens by surprise and has caused
an outrage towards the government. Riots have broken out in protest of the fuel
price hike. Protesters have taken to carrying out attacks on government
buildings and against the policemen and other authorities. According to surveys
carried out, nearly 80% of Indonesians are against the fuel price hike.
Fuel is a necessity and thus an inelastic good. If the
price of fuel rises, demand will decrease, but not by much because one way or
the other, the Indonesians still need fuel.
This is precisely why the Indonesians are protesting,
because of its role as a necessity and its inelastic demand, when the price of
fuel is increased, the Indonesian people still have to buy fuel, they do not
have the simple option of simply not buying fuel.
Although the current price of fuel in Indonesia is
among the lowest in Southeast Asia, (4,500 rupiah) such a
drastic change will heavily impact the economy and it will most likely cause an
inflation. Fuel is integral in every sector of the economy, most notably in
terms of transportation of goods and factory its role in factory production.
Thus, when the price of fuel is increased, it will cause a subsequently cause
an increase in price for most other goods and consequently cause an inflation.
However, this is a
necessary step taken by the Indonesian government as the increase in fuel
prices is predicted to strengthen the Rupiah currency and is a step towards
strengthening the national economy. The fuel-price increase
will strengthen the rupiah and the trade balance as oil imports fall while
removing the incentive for smugglers to sell subsidized products abroad. The
nation is expected to meet its budget assumption of the rupiah averaging 9,600
per dollar this year.
Written by : Keeve Wong (0315620)
References:
How large would the impact of the increase in fuel price be ? I mean if you look at it from a larger perspective, fuel is only one product in the whole economy.
ReplyDeleteWell Kimberly, fuel is only one type of product, that's true. However, if you look at the roles that it plays in the overall economy, the impact is rather significant. The use of fuel is widespread in the transportation of goods. Therefore, if the price of fuel rises, the cost to transport those goods will rise as well. Considering most products consume fuel to transport, the impact is very large as the prices for almost all products will increase, thus leading to an inflation.
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