Indonesian oil subsidies last year reached $US7.4 billion, or nearly 3 per cent of Indonesia's GDP. As prices of crude go up ($US 55-60 per barrel) the subsidy will probably reach about 130-140 trillion rupiah - about $US13-14 billion - which may be about 30 per cent of the government's budget.(Mohamed Chatib Basri, director of the Institute for Economic and Social Research at the University of Indonesia, see http://abcasiapacific.com/news/infocus/s1464583.htm). While the subsidy supports the development of a strong middle class, vital to the capitalising on Indonesia's potential economic strengths, it will severely hamper important state-run projects such as the post-tsunami recovery and so on.
Thailand has already removed subsidies on petrol. The new price for subsidised premium petrol is 20.59 baht, compared with the actual price of 21.31 baht, and regular petrol is now 19.79 baht, compared with 20.60 baht. The subsidised price for diesel remains capped at 14.59 baht, compared with 19 baht a litre, see (http://www.cleanairnet.org/caiasia/1412/article-58879.html or http://www.bangkokpost.com/News/11Aug2004_news05.php). [a baht = around 1/4th of a dollar]. The Thai government's subsidy of retail oil prices has reached 23.23 billion baht and could reach 40 billion baht by the end of the year.
The argument that state intervention was fostering inefficient oil use is the usual liberalizing privatization cant, easy to assert but hard to prove, but there can be no doubt that subsidies are and will indeed "cause ballooning budget losses, leaving many Asian countries vulnerable to a sudden spike in oil prices. And one can't help but agree that "In the event that oil prices return to above $70 a barrel and stay there until the end of 2006 (and it looks like they will), growth could be cut by more than one percentage point in a number of countries, according to forecasts by bank."
The argument that privatization will end the huge losses sustained by state-owned oil companies because of price controls that set domestic prices well below international prices (and I would add to the losses sustained from gross inefficiency and self-enrichment of government officials and politicians at the public's expense) is true, but the Yukos fiasco among others have adequately exposed the speciousness of so-called liberalization of national resources. It generally means that national resources become the defacto property of forces that even less concern for the public weal than do corrupt local officials and politicians (despite bullshit Shell oil ads to the contrary on CNN).
Thailand's policy of removing subsidies from petrol while holding the line on diesel can only be a temporary solution, but if prices of crude and petrol products continue to rise? Victor
----- Original Message ----- From: "Yoshie Furuhashi" <furuhashi.1 at osu.edu> To: <lbo-talk at lbo-talk.org> Sent: Friday, September 23, 2005 5:00 Subject: [lbo-talk] Political Effect of Hurricane Rita: Struggles over OilSubsidies, Truckers' Direct Actions, Etc.
>> Anyone following petrol prices in Asia and "Eurasia"?
>> Victor
>
> The ruling class are pushing for an end to subsidies and regulations
> that support oil consumption in Asia and elsewhere -- a politically
> explosive issue:
>
> <blockquote>Bank warns Asia over oil subsidies
> By Donald Greenlees International Herald Tribune
> FRIDAY, SEPTEMBER 9, 2005
> <http://www.iht.com/articles/2005/09/08/business/fuel.php>
>
>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
> HONG KONG Asian economies need to deregulate state-administered or
> heavily subsidized domestic energy markets to cope with a likely
> slowdown in growth from permanently higher oil prices, the Asian
> Development Bank said Thursday in a report on the region's economic
> prospects.
>
> The bank said that state intervention was fostering inefficient oil
> use and causing ballooning budget losses, leaving many Asian
> countries vulnerable to a sudden spike in oil prices. In the event
> that oil prices return to above $70 a barrel and stay there until the
> end of 2006, growth could be cut by more than one percentage point in
> a number of countries, according to forecasts by bank.
>
> . . . . .. . . . .. . . . .. . . . .
>
> Bank officials say reform of domestic energy markets is "urgently"
> needed in many Asian countries. The main target of the bank's
> concerns is the heavy subsidies across Asia for oil products like
> diesel used for transport and kerosene and liquefied petroleum gas
> used by the poor, mainly for cooking. In most countries, gasoline
> tends to be less subsidized.
>
> The bank also highlighted the huge losses sustained by state-owned
> oil companies because of price controls that set domestic prices well
> below international prices.
>
> For example, Bangladesh Petroleum is estimated to have lost $445.4
> million - about 0.7 percent of the country's gross domestic product -
> in the 2005 financial year. Subsidies will cost Indonesia about 4.7
> percent of GDP and India about 1.1 percent of GDP this year if there
> is no reduction in either oil prices or subsidy levels, the bank said.
>
> The bank prescribes a range of measures for governments including
> cutting subsidies, dropping price controls, allowing increased
> private-sector competition in oil markets and imposing additional oil
> taxes. It also advocates the development of urban transport and
> energy-efficiency policies to cut oil use and encourage the
> development of alternative fuels.
>
> Some countries, including Thailand, India and Malaysia, have started
> to take steps of varying magnitude to reduce the costs of direct
> consumer subsidies and price controls. But the issue in many
> countries is politically charged. There are fears the removal of
> subsidies would have a serious impact on poor households, even though
> they also benefit the wealthy.
>
> Winding back the power of state-owned oil monopolies and opening
> markets to private-sector competition is also politically hard, in
> most cases requiring far-reaching legal and market changes.
>
> But the bank warned: "Policy inertia and delays in adjusting" to
> higher oil prices "would certainly raise costs."
>
> The country of greatest immediate concern to bank officials is
> Indonesia.
>
> Subsidies have been the subject of contentious debate since mass
> protests took place in 1998 over cuts to oil subsidies by Suharto,
> the former president, which partly contributed to his downfall. A
> senior Indonesian government official said Thursday that subsidies
> could be cut by 50 percent to 60 percent, although the cuts would be
> gradual.
>
> Attending the APEC meeting in South Korea, Johanes Kristiadi,
> secretary general of the Indonesian Ministry of Finance, told Reuters
> that the cuts to subsidies would be made only in conjunction with a
> relief package for the poor so that "the oil price can be adjusted
> fairly smoothly without any social unrest."
>
> President Susilo Bambang Yudhoyono has promised to announce cuts to
> subsidies as early as next month, but he has yet to specify the size
> of the cuts.
>
> The Indonesian rupiah has declined about 10 percent this year, partly
> as a result of the higher oil import bill. Though rich in oil and
> natural gas, the country became a net oil importer in 2004. Bank
> Indonesia, the central bank, has raised interest rates by one-and-a-
> quarter percentage points in the past two weeks.</blockquote>
>
>
>> Mark Bennett wrote:
>>
>> >Really? Here in California gas had been over $3.00 p/g steadily for
>> >nearly a month, and last week it just fell back below that benchmark.
>> >We're that close to the "breaking point"?
>>
>> Every time gasoline has spiked like this, there's been a recession.
>> A complicating factor is that prices for refined products have
>> risen much more than underlying crude prices (in earlier spikes,
>> like 1974 and 1980, it was the reverse). Still, with energy prices
>> up strongly (and natgas is up like crazy too) and the Fed
>> tightening, it doesn't seem outlandish to expect a recession, or a
>> near-recession, in 2006. I don't know if that qualifies as a
>> "breaking point" though. But I suspect the Fed may be trying to
>> engineer something like a recession, to burst the housing bubble
>> and get energy demand down.
>>
>> Doug
>
> If I had money, I'd pay you to write about the above. But energy
> prices will go up higher before the Fed gets around to engineering a
> recession.
>
> "Twenty-one U.S. oil refineries that together account for 27.5
> percent of the nation's refining lie in Rita's path, and more than a
> fifth of the U.S. oil refining capacity of 17.1 million barrels per
> day is now shut in in the region" (Mike Dolan, "Rita's Sucker Punch
> Another Test for US Economy," 22 September 2005, <http://
> today.reuters.com/business/newsarticle.aspx?
> type=tnBusinessNews&storyID=nN22709674>). And we are heading for a
> long cold winter this year, thanks to a climate change. . . .
>
> We have begun to see truck drivers' direct-action protests,
> blockading roads, etc.:
>
> E.g.,
>
> Australia: <http://www.theadvertiser.news.com.au/common/story_page/
> 0,5936,16694946%255E421,00.html>
> Canada: <http://www.macleans.ca/topstories/politics/news/shownews.jsp?
> content=n090945A>
> Ireland: <http://breakingnews.iol.ie/news/story.asp?
> j=156404416&p=y564x5yzz>
> United States (South Florida): <http://www.nbc6.net/news/4832833/
> detail.html>
>
> One was threatened in the UK, too, though that apparently failed.
>
> No doubt more will come.
>
> Yoshie Furuhashi
> <http://montages.blogspot.com>
> <http://monthlyreview.org>
> <http://mrzine.org>
> * Mahmoud Ahmadinejad: <http://montages.blogspot.com/2005/07/mahmoud-
> ahmadinejads-face.html>; <http://montages.blogspot.com/2005/07/chvez-
> congratulates-ahmadinejad.html>; <http://montages.blogspot.com/
> 2005/06/iranian-working-class-rejects.html>
>
>
>
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