Taking on Increasing Gas Price in Indonesia

Again, I am missing in action. However, I will start writing some of my opinion regarding serious issues. Possibly more related to economics. Here would be the first of many! I hope it would be useful!!
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On November 17th 2014, the new president of Indonesia, Mr. Jokowi, announced that the gas price is increased by about 30 percent. This decision creates mixed reaction from Indonesian people, some people agree and some people disagree. In this post, I would like to share some opinion about the new regulation.

Here in the U.S, gas price is decreasing. The gas price actually hit as low as $2.7/gallon which translate around Rp9,000/liter. And that is the price of non-led gas which is called "Premium" gas in Indonesia. Then why gas price in Indonesia is increasing? 

 I would mention that lower overall crude oil price has little impact on Indonesia's gas price because gas price in Indonesia has been regulated by Pertamina since forever. The reason why gas price could easily goes up and down in the US is because gas stations in the U.S. are managed by private companies and they need to compete with other companies' price to stay in business. Simply, the competition between different gas companies in the U.S. makes sure that gas price is adjusted to the crude oil price. 

Let's wonder if gas price in Indonesia is adjusted to the crude oil price: Well, we could have price change at least once a week. It could go up or go down, depending on the overall demand of crude oil in the world. Looking at the people's reactions toward increasing gas price, which only happen once in couple years, and the implication towards the economy, I personally do not think that our economy is ready to adjust our gas price based on world oil price. It is easy to criticize the government when they increase gas price while crude oil price is decreasing, BUT are you going to criticized the government when they keep gas price steady when crude oil price is fluctuating? 

Of course there would be some economic effect on the increasing gas price. One real impact would be rising inflation rates. Rising inflation rates means increase in overall prices - which means lowering the value of Rupiah, same amount of money a week ago would not be able to buy the same amount of goods compared to today. This issue leads to much criticism because many people feel the immediate impact of increasing goods' prices. However, the calculation has mentioned that the government will save up to $8 billion next year. 

The short term impact might be rough, but I could see that the long term result would be positive depending on how the government spend the $8 billion savings in the budget.