Soaring commodity prices: Windfall for the oligarchs, suffering for the common folks

Anthony Budiawan
Anthony Budiawan, Managing Director Political Economy and Policy Studies (PEPS).

IO – Global commodity prices have been on fire since mid-2020. An anomaly, indeed, as it happens during the midst of an economic recession and an ongoing global pandemic. 

Towards the end of 2021, the price of crude palm oil hit a record high. Monthly average price for October 2021 was US$1,310 per ton, the highest in history. 

Coal price is also skyrocketing. The benchmark coal price in February 2022 touched a record-shattering US$188.38 per ton, up dramatically from US$49.42 per ton in September 2020. 

The Indonesian people should be grateful, and happy, with this commodity “supercycle” because Indonesia is one of the world’s largest exporters of CPO and coal, in addition to natural rubber. 

Indeed, the government sounds very pleased, even proud. US dollars are pouring in. The government is claiming credit for the GDP growth as proof of its success. Certainly nothing wrong with that, although many know that the reason for this is due to rising commodity prices. 

The government should rightfully be happy. Trade surplus soared to US$35.3 billion in 2021, the highest since 2007 which posted US$39.6 billion, also driven by commodity boom. 

The realization of the state budget (APBN) also increased sharply in 2021, reaching Rp2,003 trillion, 14.1% higher than projected or 21.6% more than in 2020. Quite a feat. 

But even happier are the clique of business oligarchs. The commodity dollars that flow into the country actually belong to them despite the commodities harvested or mined from state land, which also means people’s land. The state only gets small amount of money from tax and nontax revenue. 

While it is a happy story for the government and the oligarchs, it is not the case for the common folks. They actually suffer from the increase in the price of commodities. 

Imagine, state-owned electricity firm PLN almost ran out of coal supplies, risking widespread power blackouts that will heap more suffering to the people during the difficult time. 

As was widely reported, the coal purchase price by PLN is relatively low, at US$70 per ton, much lower than the international price or the government-set benchmark coal price which has exceeded US$150 per ton as of September 2021. This price difference incentivizes oligarchs to sell the prized commodity on the international market, depriving PLN of supplies. 

The solution? According to report, PLN will have to buy coal at international market prices. If this happens, electricity tariff is bound to increase. And people will suffer more. 

High palm oil price has also exacerbated people’s predicament. The price of cooking oil has shot up past the Rp11,000 per liter retail price cap (HET) for simple-packaged type. It even hit above Rp20,000 per liter at one point. However, there are no sanctions. 

The price of cooking oil is now capped at Rp14,000 per liter through government subsidy. This should be appreciated. But unfortunately, it is very hard to find in the market. Purchases are also limited. Thus, it begs a question: Is this real subsidy or mere image burnishing? 

Surprisingly, the cooking oil subsidy was taken from the oil palm estate fund (BPDP-KS) which is supposed to be used to rejuvenate oil palm plantations. Also unclear is the mechanism by which the subsidy should be accounted for and who is responsible behind the cooking oil widespread shortages. It’s a truly chaotic situation. 

If the government is serious, ideally the cooking oil and electricity subsidies should be finance by the state budget. Isn’t the state revenue rising owing to windfall from the commodity boom? This should be returned to the people, in the form of subsidies to offset the high commodity prices. Not to be used to build other things, such as the new capital city in North Penajam Paser. 

It doesn’t stop here as people will be made to suffer more as the government is mulling to increase the value added tax in April. 

On the other hand, business oligarchs are deluged with US dollars at the expense of people’s misery. This is irony on full display in this country. People are suffering in a country blessed with commodities, in the midst of skyrocketing prices. This is like rats dying inside a rice barn, as the Indonesian proverb goes.