communication strategy of fuel subsidy reforms: lessons from … · 2017-05-10 · fuel subsidy...
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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
3 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 3
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
4 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 4
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
5 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 5
2005: Design of Subsidy Reform All users of fuels were targeted via large price increases
What type of reform?
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
6 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 6
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
7 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 7
2005: Communications Strategy The strategy built broad support and emphasised fairness
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
• 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
8 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 8
What type of reform?
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
9 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 9
2008: Use of Fiscal Savings: Overview Savings again went on health and safety nets
What to do with fiscal savings?
Compensatory measures
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
10 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 10
2008: Communications Strategy With same champions in place, little persuasion was done
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
• No real official communications strategy
- The 2005 champions of reform still in position
- Relatively small price increase
- Little resistance in the media
11 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 11
What type of reform?
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
12 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 12
2012: Proposed Use of Fiscal Savings A third round of UCT was planned, but with new targeting…
What to do with fiscal savings?
Compensatory measures
• 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
13 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 13
2012: Communications Strategy Lack of strategy ultimately doomed the reform attempt
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
• 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
14 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 14
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
15 FUEL SUBSIDY REFORM – COMMUNICATION STRATEGY 15
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