Chapter 4, Indonesia: Pricing Reforms, Social Assistance, and the Importance of Perceptions, The Political Economy of Energy Subsidy Reform
This World Bank book, edited by by Gabriela Inchauste and David G. Victor, brings together detailed chapters on the political economy of subsidy reform in four countries—the Dominican Republic, Ghana, Indonesia and Jordan —and draws overall lessons from their experiences.
IISD's Global Subsidies Initiative (GSI) contributed Chapter 4, "Indonesia: Pricing Reforms, Social Assistance and the Importance of Perceptions," on Indonesia's experiences with overcoming political obstacles to gasoline and diesel subsidy reforms. The chapter begins by reviewing the economic, fiscal and political context surrounding these subsidies. It then places them in their historical context, outlining the history surrounding their creation as well as the six major reform attempts since the 1997—98 Asian Financial Crisis.
Several themes arise in the course of the discussion. One is the importance between analyzing the political economy of, on the one hand, a subsidy policy and, on the other, a specific reform of that policy. Several types of reforms, each facing different sorts of challenges, are identified, which may be introduced independently or in unison: ad hoc price adjustments, introductions of new pricing systems; alternative policies to transfer benefits to citizens; and changing the state of perceptions and understanding about subsidy policy. Another theme is the importance of social assistance in mitigating the impact of reforms over time and the virtuous circle that can take place between subsidy reforms and investments in social assistance capacity. Lastly, the chapter examines the importance of understanding perceptions in order to understand the political challenges of reforming broad-based subsidies: the actual beneficiaries of reform may be very different from the people who think they are the beneficiaries. As such, "informational reforms"—interventions intended to improve the state of information about subsidies, designed with knowledge about popular perception in mind—can serve to increase a government's political operating space over time.
You might also be interested in
COP 29 Outcome Moves Needle on Finance
In the last hours of negotiations, concerted pressure from the most vulnerable developing countries resulted in an improved outcome on the finance target, with a decision to set a goal of at least USD 300 billion per year by 2035 for developing countries to advance their climate action.
The United Kingdom, New Zealand, and Colombia Join Coalition to Phase Out Fossil Fuel Subsidies
Today on the sidelines of the UN Climate Conference in Baku (COP 29), the United Kingdom, New Zealand, and Colombia joined the international Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS).
COP 29 Must Deliver on Last Year’s Historic Energy Transition Pact
At COP 29 in Baku, countries must build on what was achieved at COP 28 and clarify what tripling renewables and transitioning away from fossil fuels means in practice.
How Indonesia's Incoming President Can Advance the Transition to Clean Energy
With Prabowo Subianto inaugurated as Indonesia’s President, speculation abounds about the new administration’s commitment to the clean energy transition and climate targets, given Prabowo’s positioning as the “continuity candidate.” The question is, what, exactly, will be continued?