Here is a riddle: Although Indonesia continues to produce crude oil in large quantities, it is now importing more than it exports, thanks to a combination of declining output and rising domestic demand. ,
(The Jakarta Post, Tuesday, March 18, 2008 11:05 AM)

But in spite of this change in the nature of our relations with oil, how does the "curse" that befell many oil producing countries continue to be with us? Shouldn't whoever put the spell on Indonesia in the first place remove the curse now we are no longer a major producer? ,

The answer is clear: As long as we continue to pretend to be a major oil producing country, the spell will remain. As it is, Indonesia remains a member of the Organization of Petroleum Exporting Countries (OPEC)
cartel, paying a hefty membership fee each year for the privilege of attending all its meetings, which always take place in luxurious settings.

 

Opinion It gets worse.

At home the government of President Susilo Bambang Yudhoyono continues to subsidize domestic fuel consumption, refusing to come to terms with a subsidy bill that is simply unsupportable as world oil prices soared to above $110 a barrel last week.

The world oil markets are now staring at $120 a barrel as a likely possibility in the near future, noting that the pressure is not only coming from changing supply and demand factors, but also from the rapidly depreciating U.S. dollar, the main currency in the global oil trade.

As a reminder we in Indonesia have hardly adjusted to the reality of high oil prices, most motorists who use premium gasoline are still paying the equivalent of $60 a barrel at gas stations.

The government is actually adjusting the oil price it uses in calculating its 2008 budget.

It now assumes an average $80 a barrel throughout the year instead of $60. The House of Representatives, which has to endorse the budget revisions, is insisting that $85 a barrel is more realistic.

Both of them are of course unrealistic and no one seems to want to take the responsibility of suggesting we use $100 a barrel.

The last time the government presented a budget plan that was totally unrealistic was in 1998. It saw the International Monetary Fund (IMF) interfere and it led to the famous photo in which then president Soeharto was being humiliated in signing a new revised budget, witnessed by then IMF managing director Michele Camdessus, his hands folded across his chest. Perhaps there's a lesson here for the government to get real.

Having agreed to raise the oil price assumption (though only halfway to the more realistic level) the government still refuses to increase the price of domestic fuel. The fuel subsidy bill, which is already estimated at a staggering Rp 102 trillion ($11.3 billion), would soar to Rp 170 trillion if world oil prices averaged $100 a barrel during 2008.

President Yudhoyono, with his eyes already on the 2009 election, has committed to the public that he will not raise domestic fuel prices.

Instead, through Finance Minister Sri Muljani Indrawati, he has instructed every single department to cut back their spending by between 15 and 20 percent. This includes spending on healthcare, education and defense.

If the government has not shown any change in its attitude toward oil, the public cannot be blamed either for behaving as if Indonesia was still flush with oil the way it was in the 1970s and 1980s.

Any suggestion that the government is thinking of raising fuel prices would quickly invite sharp reprimands from politicians, NGOs and student organizations.

In 2005, President Yudhoyono learned that despite the presence of a strong case to raise domestic fuel prices, he still had to fight hard to get the public support to increase them when he felt he had no other options. But he won the battle nevertheless.

Now with world oil prices remaining volatile, it's no longer a question of "if" but more a question of "when" the Yudhoyono government will come to its senses and increase fuel prices, not only to reflect the reality of the world oil market, but also to stem the fuel subsidy bill and to end the gross waste the nation is engaging in burning fuel.

With the margin between domestic prices and world oil prices reaching the equivalent of more than $40 a barrel, the temptation for smuggling is just too large. And smuggling can only take place with the support of the nation's security apparatus.

We believe the discovery of hoarding and smuggling of oil products in parts of the country is just the tip of the iceberg.

The curse of oil is indeed still with us. It will only go away the moment we stop pretending to be a major oil producing country, for we are lying to no one but ourselves.

The rest of the oil consuming world is already making the painful adjustments as oil prices rise. We seem to prefer to shoot ourselves in the foot instead of making the necessary adjustments.