Communication Strategy of Fuel Subsidy Reforms: Lessons from … · 2017-05-10 · FUEL SUBSIDY...

Ririn S. Purnamasari Poverty and Equity Global Practice, World Bank

Communication Strategy of Fuel Subsidy Reforms: Lessons from Indonesia Experience

APEC Fossil Fuel Subsidy Reform Capacity-Building Workshop 14-15 December 2015, Honolulu, Hawaii

2 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 2

A framework for thinking about fuel subsidy reform

What type of reform?

Which fuels/users?

•Gasoline v Diesel or Motorcycles v Commercial transport

Type of reform

•Price increase

•Indexation

•Fixed subsidy

•Consumption caps

Scale of reform

•Eg 400 percent increase or 60 percent of economic price etc

Staging and timing of reform

What to do with the fiscal savings?

Compensatory measures

•Households

•Targeting vs Universal

•Delivery method

•Timing and length

•Cross subsidy

•Social services

•Expand existing

•Create new ones

•Businesses

•Industry

Structural policy

•Infrastructure

What are impacts on welfare and the

economy?

Poverty and distributional impact

Macroeconomic effects

•Inflation

•Growth

Fiscal balance

•Subsidy savings

•Costing of compensation programs

•Tax implications

Sensitivity analysis

How to communicate the reforms?

Identify key stakeholders

•Who will be affected (oppose)

•Who has most to gain

Coordinate plan across govt

•Messaging

•Implementation

Transparency

•On existing subsidy spending

•On pricing model

•Commission independent PSIA

Public Information campaign


Reforms in three different years took on a similar form, in terms of type of reform and the use of savings

Type of Reform Use of Savings

Fuels: Gasoline, diesel, kerosene

0

50

100

150

200

2005 2008 2012

Gasoline Diesel Kerosene

Retail Price Increase (%)

Deficit Reduction 2005, 2008

Users: Consumer and industrial

Type and Scale: Price increases

Timing: Big bang (single increase)

Cash Transfer for Poor 2005, 2008, 2012

Health Insurance for Poor 2005, 2008

Development Spending 2012: Infrastructure investment,

bureaucracy reform, move to universal pensions


The reforms resulted in significant net fiscal savings, one-off increases in inflation, and moderate poverty reductions

-4-202468

1012

2005 2008 2012

One-off Spending

Annual Savings

Net Savings

Fiscal Inflation Poverty

USD billions

02468

101214161820 2005: 11ppt

2008: 3ppt

2012: 3 ppt -4

-2

0

2

4

6

2005 2008 2012

Without CT With CT

Percentage Point Change

In Poverty

Due to food prices

Significant fiscal savings

Moderate one-off inflation

Poverty Reducing


2005: Design of Subsidy Reform All users of fuels were targeted via large price increases


Which fuels/users?

Type of reform

Scale of reform

Staging and

timing of

reform

• Gasoline, diesel and kerosene • All users

• Price increase

• One-time large increase in October

2005 Prices

Jan Mar Oct

Gasoline 1,810 2,400 4,500

Diesel 1,650 2,100 4,300

Kerosene 700 700 2,000

• Average of 114 percent in October

• Prices for industry raised to international prices


2005: Use of Fiscal Savings: Overview Substantial savings were spent on cash transfers for the poor

What to do with fiscal savings?

Compensatory measures in October

Reduced budget deficit

• Unconditional cash transfer program

• Remaining fiscal savings reduced budget deficit


2005: Communications Strategy The strategy built broad support and emphasised fairness

How to communicate the reforms





•Messaging

•Implementation

Transparency


•On pricing model



• Careful communications strategy for senior officials

• Concerted effort for all senior representatives to speak with one voice on a common message

• Media training provided to senior officials

• FAQs prepared for senior officials

• Comprehensive public communications strategy

• Professional advertising and communications firm engaged

• Prominent economists and public figures signed a full-page newspaper advertisement emphasising need for reform

• Pertinent factoids, such as the number of schools that could be built with the annual fuel subsidies consumed by Mercedes

Protests mild relative to 1998 and 2003



Which fuels/users?

Type of reform

Scale of reform

Staging and

timing of

reform

• Gasoline, diesel and kerosene • All users

• Price increase

• Increases in May • Decreases in December

Oct 2005

May 2008

Dec 2008

Gasoline 4,500 6,000 5,000

Diesel 4,300 5,500 4,800

Kerosene 2,000 2,500 2,500

• Average of 29 percent • Electricity prices for industry

raised to international prices

2008: Design of Subsidy Reform Moderate price increases in May were later largely reversed


2008: Use of Fiscal Savings: Overview Savings again went on health and safety nets



Reduced budget deficit

• Health insurance expanded to 76m poor and vulnerable • Unconditional cash transfer program for 18.5m households

- Largely same beneficiaries as 2005 - Same benefit levels for 9 months - Again delivered through post office

• Remaining fiscal savings reduced budget deficit


2008: Communications Strategy With same champions in place, little persuasion was done






•Messaging

•Implementation

Transparency


•On pricing model



• No real official communications strategy

- The 2005 champions of reform still in position

- Relatively small price increase

- Little resistance in the media



Which fuels/users?

Type of reform

Scale of reform

Staging and

timing of

reform

• Gasoline and diesel • All users

• Price increase

• Single increase in April

Mar 2012

Planned April 2012

Gasoline 4,500 6,000

Diesel 4,500 6,000

Kerosene 2,500 2,500

• 33 percent

2012: Proposed Design of Subsidy Reform A single price increase of 33 percent was proposed


2012: Proposed Use of Fiscal Savings A third round of UCT was planned, but with new targeting…



• Unconditional cash transfer program for 18.5m households - New targeting system in place to select beneficiaries - IDR150,000 per month per household for six months - Largely delivered through post office, but with

possibility of piloting banking to boost financial inclusion

• Remaining savings to be diverted to government’s medium-term development plan - Infrastructure investment - Bureaucracy reform - Movement towards universal pension coverage


2012: Communications Strategy Lack of strategy ultimately doomed the reform attempt






•Messaging

•Implementation

Transparency


•On pricing model



• Lack of communications strategy for officials and politicians • Senior officials did not respond to inaccuracies in media

criticism of reform proposals • One governing parliamentarian inadvertently undermined

coalition support for the reform through careless statements

• No public communications strategy • Frequent criticisms of reform proposal by opposition

politicians and some economists - Attacks usually identified the poor as being the most

affected, even though not true after compensation - These arguments largely went uncountered

• No attempt to link the fuel subsidy reform with badly needed funds for popular development sectors - Investment in infrastructure - Bureaucracy reform - Movement to universal pension coverage


Communications strategy drove the successful 2005 reform. Communications and political strategy lost the 2012 one

2005 Strategy

Senior Officials and Politicians

• Senior champions

• Common message

• Media training

• FAQs

2009-11 Missteps

President Re-elected

• CT campaign topic

• Popularity seen as key

• But no link with subsidy reform

2011 Foregone

• Opportunity for third reform in 2011

2012 Strategy

Senior Officials and Politicians

• No strategy

• Undermined coalition support

Public Communications

• No strategy

• No response to media

• No link with funding investments

- Infrastructure - Bureaucracy reform - Pensions

Public Communications

• Communications firm

• Public figures

• Use of factoids

• Emphasising equity


The Indonesian experience holds a number of key lessons for thinking about subsidy reform in other countries

• Indexation can lock in reform gains

• A cash transfer can protect the poor

• Government champions essential

Reform Design Use of Savings Communicating

• Single increase may be better than gradual process

• Take first opportunity, as timing may not come again

• Once begun, stick to it. Very hard to recover gains

• Temporary transfer can protect the poor and build support

• Effective targeting needed to protect poor

• If targeting not feasible, use a flat universal transfer

• Champions need to understand the reform

• Stick to single message and speak as one

• Media training to avoid fatal statements

• Link compensatory measures and savings

• Effective communications will reduce protests

Thank you

Communication Strategy of Fuel Subsidy Reforms: Lessons from … · 2017-05-10 · FUEL SUBSIDY...

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