Indonesia's Energy Policy: A Lesson in Failure
Disruption, high prices, and dislocations of all sorts have led to call for a new "energy policy." Let us consider the case of Indonesia, writes K.Y. Leong, which has an energy policy of an unusual sort. As the Sunday Times of Singapore reported on September 4, 2005: "Jakarta subsidizes heavily the cost of fuel for ordinary Indonesians and faces a subsidy bill of as much as 138.6 trillion rupiah this year because of high crude oil prices." This begs the question: Just how much is 138.6 trillion rupiah? FULL ARTICLE
Comments (24)
It took guts for Mr. Leong to write this article as he resides in Singapore who doesn't look kindly on those that question the state. Good on you!!!
Published: September 15, 2005 8:26 AM
Fairly good article about Indonesia's disastrous fuel policy. Except for one thing: Mr. Leong have made a calculation error which exaggerates the per capita cost and therefore the cost relative to average income by a factor of 10.
140 trillion rupiah divided by 241 million people is not roughly 5.8 million rupiah but 580,000 rupiah which in turn translates into $55 rather than $550 which in turn is 1/15 of average income rather than 2/3 as the article says (Being the equivalent of 3½ weeks of work rather than 8 months).
Diverting 1/15 of GDP into fuel subsidies is bad enough, but it pales to the complete disaster that diverting 2/3 of GDP to fuel subsidies would have been.
Published: September 15, 2005 8:28 AM
Jonathan Liem: I don't think it took much guts of Mr. Leong to question the *Indonesian* state if he lives in Singapore. Even the worst totalitarian regimes (A category to which I don't really think Singapore belongs) usually don't mind if *other* states are questioned.
Published: September 15, 2005 8:33 AM
Stefan, read the last paragraph again. It is left ambiguous for a reason, i.e. live with the subsidy rather than follow Singapore's example of state expansion.
Published: September 15, 2005 8:36 AM
You're right, Jonathan. Looking at the article closer, I see that it contains criticism of Singapore's policies too, although it is expressed in a rather weasel-worded way.
Published: September 15, 2005 9:26 AM
It has to be for "Big Brother" keeps pretty close tabs on those who reside here.
Published: September 15, 2005 9:29 AM
Interesting then that you are so blunt in your critical remarks. You seem to braver than Mr. Leong.
From what I've heard otherwise, Singapore have no laws which formally forbid criticism of the government, but it does occassionally use libel laws against critics of the government.
In a related manner, the description of Singapore's energy policies -which while not being as foolish as Indonesia's is highly interventionist- in the article does again underline why I think the designation of Singapore as being the second freest economy in the world after Hong Kong according to both the Heritage Foundation economic freedom index and the Fraser Institute economic freedom index is wrong.
Published: September 15, 2005 10:03 AM
I don't think I have said anything to damning. Furthermore, I am an expatriate living here not a subject of the state.
My understanding with respect to the legal situation is the same as yours. However, I would like to add that any state, through excessive legislation, can always get you if they so desire.
The Heritage & Fraser Index is bogus. Neither Hong Kong nor Singapore could be classified as economically free. Unfortunately, there is no such thing as "economic freedom" anywhere in this world of ours, that I am aware of.
Published: September 15, 2005 10:14 AM
Interesting how an article encouraging state intervention should be posted on the mises.org website
Published: September 15, 2005 10:28 AM
Advocate intervention? Never! The point of the article is to show the endless problems that are created by state interventions in this sector. Once you created these kinds of programs, they are very difficult to back out of, which is a strong case against them. Perhaps the author might have been more explicit about that but this is, after all, Mises.org, if you know what I mean.
Published: September 15, 2005 12:05 PM
Exactly. And how about this as a confirmation that the masses love a stinking subsidy; when the government reduced gas subsidies in March of this year it "sparked wide spread rioting":
"Now, how about the third option of reviewing the policy of gasoline subsidies? This is not very popular politically as the last time the government reduced gasoline subsidies in March 2005, it sparked wide spread rioting in Jakarta and the police and military had to be mobilized to take control of the capital city. In fact, when the President announced that he would have to consider further reducing gasoline subsidies recently, angry protesters flooded the streets of Jakarta..."
Moral: Never attempt reason on a mob. And don't dabble in democracy because the mob is not qualified to spend your money wisely.
Published: September 15, 2005 12:25 PM
Jonathan, I don't think saying explicitly and unequivocally that Singapore's energy policy is bad is more damning than saying it has a "big brother" government that censors people from saying critical things about it.
As for the economic freedom issue it is true that no economy is fully free-or for that matter that no economy is fully state controlled. But there is a very substantial difference in degree between Hong Kong who has the least state controlled economy and North Korea which has the most state controlled economy. So there is a case in principle for a economic freedom. However, as I have pointed out on this site, both the Heritage Foundation index and the Fraser Institute index contains serious flaws, which is why they have come up with the false conclusion that Singapore is the second freest economy in the world.
Published: September 15, 2005 3:47 PM
Singapore already has a state-owned bus company. I don't seewhy Mr Lee had to nationalize all taxi companies.
With Indonesia borrowing US$ from China to buy oil, China will gain influence over future Indonesian government policy. China has already expressed interest in having through-trains travel from Beijing to Bang-Kok, to Kuala Lumpur and Singapore. There are proposals to build undersea rail tunnels between China and Taiwan, between Indonesia's 2-biggest islands (Sumatra and Java), between Singapore and Malaysia and even between Sumatra and Singapore or Malaysia.
China will certainly gain a lot of influence in the region . . . and they're gaining it slowly and gradually, by letting local political leaders gain the influence for them. This is exactly what Indonesia's president is achieving by borrowing from China's central bank . . . . giving Beijing long term power and influence. The Beijing leaders are achieving far more economically than what they could have hoped to achieve militarily in this part of the world.
Harry Valentine
Published: September 15, 2005 3:52 PM
I suspect that most Indonesians don't have motor vehicles larger than a moped so this subsidy is a transfer of assets from the poor to the rich?
Published: September 15, 2005 6:46 PM
props to mr. leong, a rare libertarian in a authoritarian-socialist state. i'm looking forward to more of his writing.
Published: September 15, 2005 9:40 PM
Singapore, the 2nd "freest" economy in the world....is a libertarian's worst nightmare. Somalia's economy has no state control whatsoever but I wouldn't call a country where some punk will "let" keep half your money in exchange for him not blowing your head off, free either. Which tells me that it's not enough to push for less govt but also we must strive to produce a more civil, educated society.
Published: September 16, 2005 2:40 AM
The catch is, while this article is good, it lacks that vital component; a true Austrian way to get out of this mess!!! Austrians advocate private roads and the one country with them in abundance is still in a mess. How in an Austrian model do we get from here to where we want to be, a minarchy with free market alternatives to tax and bureaucrasy in place, without getting lynched on the way?
Published: September 16, 2005 6:48 AM
"How in an Austrian model do we get from here to where we want to be, a minarchy with free market alternatives to tax and bureaucrasy in place, without getting lynched on the way?"
As an Indonesian, I would be willing to pay money for that blue print.
Published: September 16, 2005 7:05 AM
The real Austrian model is to let the market distortions correct themselves in the long run. Meanwhile in the short run we work within a democratic process to initiate change.
Maybe Leong KY should be posting replies?
Published: September 16, 2005 8:54 AM
Stefan Karlsson is right. As soon as I saw the number "8 months", I knew something was wrong. This is simply impossible. The article needs a re-write.
Published: September 16, 2005 9:03 AM
Thank you all for a lively thread. I truly appreciate it.
Wesley Bruce: I'd like to take Jonathan's money, but there's no blue print. There can be no blue print, and if there is one, it'd defeat the purpose of this article, and you wouldn't find it on mises.org. But you'd like an answer? The answer is in the article itself, or you can find it in Mises' writings. So, read on.
David McRae: Stefan is correct, there is indeed a maths error. My apologies. (It is a cranky hypothetical calculation after all). But don't let this detract you from the gist of the article i.e. state intervention does not pay. Market forces will always come back to haunt statist government and demand/extract the necesary corrections for past excesses, sooner or later. Unfortunately, in the case of Indonesia, it will be the ordinary folks who will have to bear the brunt of the painful economic adjustments in the years ahead.
Stefan & Jonathan: I don't think it's a question of guts. I'd prefer intellectual honesty, calling a spade a spade, if you like. What really motivated me to write the piece was what Hans-Hermann Hoppe said: "..so long as false ideas rule…a catastrophe (is) unavoidable."
BTW, I don't mean to be disrespectful to the leaders of these countries in anyway. How can one be a true "Austrian" and not a libetarian at the same time?
KY Leong
Published: September 16, 2005 7:25 PM
It's seriously outrageous to let every Indonesian citizen pay, making money worthless, for everyone owning fuelconsuming vehicles. In a freemarket economy everyone should pay the price, the worldmarket is asking, without burdening his fellowcitizens.
Energytoll should be billing debtors.
Published: September 18, 2005 1:33 AM
Dear KY, thanks for writing the article - your "cranky" econometric example taken in the spirit of things. I'm surprised - I guess I'm not the only S'porean to occasionally visit mises.org ;-)
S'pore is indeed unique. Hoppe likes it because it runs as a city state. The govt encourages entrepreneurship, but itself is a big player in business (using tax payer appropriations)... but taxes are low (a matter of degree of course).
The biggest surprise to me is finding, in our National Library Hayek's books translated into Chinese. Ok, ok, Hayek is statist... But Walter Block? He's definitely not statist, and yet "Defending the Undefendable" is available in Chinese, at the library.
As an aside... here's how to make money from subsidised fuel:
Hire oil tankers. Bribe govt official in Indonesia. Buy the cheap subsidised fuel, pay in rupiah, and set off to sell the fuel at just below market prices...
Cheers!
Published: September 21, 2005 6:10 AM
Very good article. Please visit my blog http://idmonitor.blogspot.com/ for info on the latest news of Indonesia,
Thanks
Published: September 22, 2005 4:53 AM