Friday, December 2, 2022

The social effect of fuel subsidies

The Government’s decision to subsidize fuel prices has been positive. Not only has it been well received by the population because it represents relief for family finances, which in fact have been hit by inflation, but this fiscal support is a retaining wall for any act of social protest.

We know that the Government has made historic sacrifices in recent months due to the high prices of a barrel of oil. We also know that it is not free either and that perhaps inflation has been more beneficial for the State administration, since an increase in raw materials translates into more taxes collected.

However, what is right is to say that fuel price subsidies have a multiplier effect that translates into calm in the market.

The most delicate thing when talking about a vulnerable population in economic terms is touching their pockets, that is, affecting their ability to purchase or consume the basics for their subsistence. Although inflation has a positive effect on government revenues, mainly on the Customs side, no one in their right mind would want prices to rise.

In the case of the Dominican Republic, this phenomenon is worse, since the raw materials of many of the things that are manufactured locally are imported, without counting the cost of energy that depends on petroleum derivatives. Regardless of how costly it might be for public finances to maintain hydrocarbon price subsidies, it would be more costly and painful if the country entered an unstable scenario due to social protests. This would be expensive for everyone, without exception.

There is nothing more valuable for an economy than the stability and confidence of economic agents, so maintaining them is essential to continue on the path of development.

One only has to remember what happened a few months ago when the Government began to apply the quarterly adjustment in the electricity rate. Complaints for high billing were in the hundreds of thousands at the distribution companies. In some areas of the country there were protests, including some vandalism against the meters.

In a general sense, maintaining fuel subsidies is an intelligent and strategic decision at a time when, apparently, inflation has served to cover the resources allocated to keep fuel prices unchanged.

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