Tribunnews Reporter, Malvyandie Malvyandie

TRIBUNNEWS.COM, JAKARTA – World Bank suggested that the Government of Indonesia reduce fuel subsidies such as BBM and 3 kg LPG and replace it with direct transfers, such as direct cash transfers (BLT).

The World Bank claims that Indonesia has allocated a budget of hundreds of trillions of rupiah to provide subsidies for Pertalite, Solar and kerosene fuel types.

“Our recommendations to reduce fuel subsidies and encourage investment in renewable energy, will reduce exposure to volatility in fossil fuel prices and also help countries in the region meet the commitments they have made to reduce emissions,” said the Chief World Bank for the East Asia and Pacific region Aaditya Mattoo in a media briefing yesterday.

The World Bank mentions that the country that provides energy subsidies is not only Indonesia.

Subsidies are seen as distorting policy choices and making prices unclear.

“They don’t just provide support to the poor in need but also to the rich and they draw resources from spending in other areas,” Aaditya said.

Read also: Stafsus Sri Mulyani Calls Diversion of Fuel Subsidies a Breakthrough to Be Right on Target

In Indonesia, World Bank said that the transfer of fuel subsidies into cash assistance to the community could save the budget 0.6 percent of the gross domestic product (GDP).

“If all the money spent on fuel subsidies goes to cash transfers, you get a much bigger (poverty) reduction, and that’s because cash transfers can target the poor, that’s why they’re much more effective,” said Aaditya.

In Thailand, the provision of subsidies and the provision of direct cash assistance can both help reduce poverty.

Read also: Three Suggestions for the Government so that the Distribution of BBM Subsidies to Small People is Right on Target

However, the provision of goods subsidies is more expensive, even requiring five times more budget than providing cash assistance.

Based on data from the Ministry of Finance, the allocation of subsidies and compensation for fuel this year reached Rp 267.1 trillion, assuming Indonesian crude oil (ICP) was US$ 100 per barrel.

The original subsidy allocation did not reach Rp 50 trillion assuming US$ 63 per barrel. However, the increase in world oil prices made the allocation increase.

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