The Valuation of the Future

The government are again reducing the Premium type fuel price. After the oil shock at 2008, the government decided to increase the price to Rp6.000,- and now, due to the decreasing world oil price, it is reduced again to Rp5.500,-. Such a very good news for private vehicles owners. But, I think it is not a very wise desicion.

Once, when I was in the Prof. Emil Salim lecturing about Economics of Natural Resources and Environment, I learned about how we value the future generations with the actions and policies that we execute in the present time. The professor said that we have to value more about the future. That's why, when conducting a natural resources and environment related policies, we conducted high Discount Rate on the calculation as a symbol that preserving more is important (for future generation).

With the knowledge he shared to me, I began to think about this fuel prce decision. Can we said that this policy put a high value on the future? I think not. Cuz, in my opinion, this policy is only targetting on Short Term Benefit.

Let's see the cost of this policy. By reducing the fuel price, people began to consume more and slowly become comsumptive. What is the implications? Due to the increasing consumption of fuel, the first thing is an increasing volume of polution. The usage of fuel will exhaust air pollution with the form of Carbon Monoxide (CO). With this increasing usage, the volume of CO in the air will eventually increase.

The second implication is that there will be no incentives for inventing new resources of energy. People will think that oil is still the most economical fuel in Indonesia. Then, people will feel comfort witht he usage of oil fuel and stop thinking about alternative resources of energy. This has been proven fot about 60 years in Indonesia. Due to the subsidy of oil fuel since the New Order era, we haven't promote any invention of alternative energies like geothermal, wind, water, etc. We have to learn that oil is not that cheap. Oil is a non-renewable resources and its supply in this motherearth has begun to depleting slowly.

I once sent a message to Prof. Sri-Edi Swasono about this problem. The professor said that we shouldn't reduce the price of oil fuel, but we have to promote invention or allocated the subsidy to another sector. Yes, I agree! Now, imagine if the subsidy from oil fuel is allocated to the education sector. If that happened, the 20% bugdet of education development would have been achieved. Or maybe we can allocate it to health sector. We are still lack of health service in Indonesia, especially outside the Java island. We can allocate it to build new hospital or to promote the production of generic medicines.

Now, if the government planned to promote real sector, why don't we just allocate the subsidy of oil fuel to the production sector. We must not play a self-targetted subsidy for oil fuel since the fuel will eventually used for consumption (and the worse one is that these consumptions were done by rich, not poor people), not for production sector. The government must state that this subsidy is especially for producers not consumers. Therefore, the government can still promote real sector.

Those are the proofs that reducing oil fuel price is not a wise desicion especially for future generation. By reducing the price, the government have made people consumptive, creating a deeper danger of Oil Crisis, and then reducing the motivation of inventing new resources of energy for future generation.

I fear that this desicion were made for political actions. From what I've learnt from FEUI, politicians tend to conduct short term benefit based policy since the benefit can be felt in present time to promote their political conditions. Indonesia is going to face an election in the near future. Taking a such a policy will give the government a good credit from the people. Therefore, they can strengthen their political conditions.

We must not let this happens. We have to think for long term benefits. We have to value more about the future. Therefore, we must not easily reduce the price of oil fuel just because the world oil price began to reduce. We must be careful with or decisions about energy since energy is the blood of our life, especially in this era of electricity. We don't wat to return to Stone Age just because we don't have enough energy to use for daily activities. Therefore, VALUE MORE ABOUT THE FUTURE!

Smile eternally,
Wirapati