The Political Economy of Energy Subsidy Reform

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Indonesia: Pricing Reforms, Social Assistance, and the Importance of Perceptions

Figure 4.4 Government Revenue, Expenditure, and Fuel Subsidy Trends in Indonesia a. Revenues, expenditure, and energy subsidies as a share of GDP, 2005–13

Share of GDP, percent

25 20 15 10 5

Expenditure Revenue

13 20

12 20

11 20

10 20

09 20

08 20

07 20

06 20

Energy subsidies (fuel + electricity) Fuel subsidies

b. Spending on energy subsidies, education, and health as a share of central government expenditure, 1995–2011

Share of government expenditure, percent

35 30 25 20 15 10 5

Education

Health

20 15 a

20 10

20 05

20 00

19 95

Fuel subsidies

Sources: Bank Indonesia Special Data Dissemination Standard (SDDS), http://www.bi.go.id/sdds/; Bi et al. 2014, updated by the World Bank for this chapter. Government of Indonesia budget documents, various years, http://www.bpk.go.id/lkpp.

The Political Economy of Energy Subsidy Reform • http://dx.doi.org/10.1596/978-1-4648-1007-7

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The Political Economy of Energy Subsidy Reform

Published on Mar 3, 2017

World Bank Publications

"This book proposes a simple framework for understanding the political economy of subsidy reform and applies it to four in-depth country studies covering more than 30 distinct episodes of reform. Five key lessons emerge. First, energy subsidies often follow a life cycle, beginning as a way to stabilize prices and reduce exposure to price volatility for low-income consumers. However, as they grow in size and political power, they become entrenched. Second, subsidy reform strategies vary because the underlying political economy problems vary. When benefits are concentrated, satisfying (or isolating) interest groups with alternative policies is an important condition for effective reform. When benefits are diffuse, it can be much harder to identify and manage the political coalition needed for reform. Third, governments vary in their administrative and political capacities to implement difficult energy subsidy reforms. Fourth, improvements in social protection systems are often critical t

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