THE increase in world oil prices in the range of US$ 60-70/barrel is increasingly burdening the APBN, especially the fuel subsidy post which has swelled from IDR 76 trillion to IDR 130 trillion. These conditions combined with the weakening of the rupiah exchange rate forced the government not to delay in raising fuel prices.

To reduce the impact of the fuel price increase on poor groups, the government has issued a direct subsidy policy in the form of cash transfers, which will be trialled in October.

Based on the results of the cabinet meeting, the government decided to provide compensation of IDR 100.000/month/head of family (KK) to around 15,5 million families or around 62 million poor people (Media Indonesia, 10/9).

This program will be held from October until the end of the year with total funding of IDR 4,6 trillion.

Theoretically, the cash transfer policy is better compared to fuel subsidies as has been the case so far, where the majority of fuel is enjoyed by non-poor groups. Based on the theory of compensating variation (Varian, 1996), it shows that cash transfers will return the purchasing power of the poor to its original condition, namely the condition of purchasing power before
there is an increase in fuel prices.

Apart from that, politically this policy is a manifestation of the state's responsibility to poor groups as mandated by the 1945 Constitution. Even though the cash transfer policy has strong justification both in economic and political theory, implementation in the field is not as easy as imagined. Because, every policy will have implications, both positive and negative.

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The policy of massive increases in fuel prices and cash transfers to 15,5 million families will put pressure on inflation from the supply and demand sides.

The increase in fuel prices will push up production costs so that the price of goods will rise, while massive transfers will encourage an increase in demand in the goods market. Based on economic law, if demand increases, while the supply of goods remains constant, it will push the price of goods to rise.

The combination of these two factors will push inflation to rise by more than two percent and annual inflation to above double digits. An increase in inflation will encourage the monetary authority to increase the SBI interest rate.

The biggest impact of this policy is the social impact. Although this impact is not easy to quantify, massive transfer policies have great potential to ignite social jealousy, damage order and social bonds at lower levels.

Based on my observations of the case of distributing rice to the poor (raskin) in a village in Pati Regency, Central Java, it shows that when raskin was only given to the poor, it actually caused jealousy among the near-poor and non-poor groups.

This is proven when there are village community service activities, groups that do not receive Raskin do not come to community service because they feel neglected and feel that community service is the responsibility of Raskin recipients alone.

Based on this experience, village government officials, community leaders and the BPD decided to distribute Raskin equally to the poor and near-poor. Village officials are also aware that equal distribution is against central procedures, but this policy was taken to reduce jealousy and maintain social ties among the community.

For poor groups who actually have the most rights to Raskin, they finally realize that it is better to be at peace with the surrounding environment even though they receive rice that does not comply with government regulations. Teaching the public to be aware that only the poor are entitled to receive Raskin and others are not entitled to receive it, may be just as difficult to teach government officials not to be corrupt.

The conditions above cannot be generalized to the Indonesian case, but these conditions can give policy makers an idea of ​​the social problems that might arise from direct subsidy policies.

This policy can also be a disincentive for poor groups receiving subsidies not to look for work or try to become independent to escape the trap of poverty. Apart from that, the direct subsidy policy will also affect the labor market, namely it will encourage an increase in wage levels.

This is because the bargaining power of the poor and unemployed who receive subsidies will become stronger. They will choose to be unemployed and enjoy transfer funds if the wages they receive are not greater than the transfer funds. Increasing wages is a dilemma in itself, on the one hand it will improve the lives of working groups, but on the other hand it will affect the business climate in Indonesia.

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Even if the government does implement a cash transfer policy, the government must emphasize from the start that this policy is only for three months or six months. So, the government does not repeat mistakes such as the fuel policy which is difficult to revoke.

The government's firmness regarding the deadline for the cash transfer policy, apart from easing the burden on the government budget, will also provide incentives for groups receiving subsidies to take the initiative to look for work or open a business to support their survival after there are no subsidies.

Apart from that, uniforming the amount of assistance at IDR 100.000/month/KK is an unfair and discriminatory policy, because this policy benefits families with a small number of members and poor rural residents compared to families with more family members and urban poor residents.

Meanwhile, the impact of the increase in fuel prices is felt more by poor urban groups and families with a large number of members. Adjusting the amount of assistance based on region and number of family members is a wise step and can achieve justice.

The government should also think about policy alternatives that have a big impact on the poor by diverting fuel compensation funds in a productive direction.

For example, the government does not need to carry out cash transfers, but modifies the Raskin policy to Raskin Plus, namely Raskin + money for side dishes (the amount of which is adjusted to the non-food poverty line, around Rp. 50.0000), while the remaining funds can be used for labor-intensive development activities. rural infrastructure, basic education subsidies, development of Posyandu, and other public health programs.

These activities will have a double impact. In the short term, the labor-intensive program will be able to create jobs and accelerate infrastructure development and in the long term it will increase human capital capacity. On the other hand, productive policies will provide valuable lessons for the poor, only one's own strength can change their fate.

Even though the cash transfer policy in various western countries has been quite successful, the government should be careful in implementing this policy, not just copy it without making adjustments to the socio-economic conditions of the Indonesian people.***

Teguh Dartanto
Research Student
Graduate School of Economics
Hitotsubashi University
Jepang