Time to cut fuel subsidies

Time-to-cut-fuel-subsidies-Stern-Value-Management-Blog

Fuel subsidies are elitism dressed as populism. Thus, they are irresistible to politicians in developing countries.

Why? They sound like a benefit to the poor; yet, they profit the rich who drive. Somehow, lower classes think that the politicians are assisting them. The rich know the politicians have financed them. Thank you. Therefore, lower oil prices allow the politicians to eliminate the subsidy. They will not anger the rich who are enjoying lower real prices. The poor will see no change. To eliminate the fuel subsidies is more a brave “message” than bold policy.  And, the benefit is a windfall in cash to spend elsewhere on better policies that may actually assist the poor or lure strategic value creating investments.

Indonesia’s new president has made this dramatic change in allocation, scrapping subsidies for the rich with what may become universal health care and education. This should help the poorest escape the dregs of poverty. His infrastructure spending plans are even better as these will create jobs and build the foundation for future growth.  The skill development via education should provide more workers for the businesses that better infrastructure should bring. So, whilst some oil producing countries are facing a recession in income, consumer countries like Indonesia are trading in elitist fuel subsidies for genuine ones that will lift up the poorest.

Well done Indonesia.

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