Tuesday, March 27, 2012

Good Intention Gone Bad -- or Argumentum ad confusion #785

Following Aco's earlier posting, let me add another fallacy on fuel subsidy removal in twitland.

What about this: ".. I am against fuel subsidy removal because (poor) fishermen still buy fuel at exorbitant price..".

I fail to understand this logic at many levels. Fuel subsidy shall make the price low, not high. If our fellow fishermen pay high price, there must be some sort of fuel supply shortage.

One of them is probably the failure of government to deliver fuel through its distribution network. But the solution is to fix the distribution and it has nothing to do with fuel subsidy inefficiency removal -- in fact, this is more reason for liberalizing fuel retail business.

But even so, if the government can deliver the fuel to the buyers, at low subsidized price there is big incentive to smuggle it. Why? Because once you're out of Indonesia water, you can resell the fuel at higher international price and seize the margin. At the same time, it reduces fuel supply for local fishermen.

Now I hope you can see the bigger picture that boils down into this: Higher fuel subsidy raises incentive/profit margin for smuggling the fuel. (Domestic) fuel supply in places near international water declines. The fishermen are forced to buy even higher than international price.

Is that really what you want by asking for higher fuel subsidy?

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