Arief Anshory Yusuf

Structuring economic incentives to reduce emissions from deforestation within Indonesia

We estimate and map the impacts that alternative national and subnational economic incentive structures for reducing emissions from deforestation (REDD+) in Indonesia would have had on greenhouse gas emissions and national and local revenue if they had been in place from 2000 to 2005. The impact of carbon payments on deforestation is calibrated econometrically from the pattern of observed deforestation and spatial variation in the benefits and costs of converting land to agriculture over that time period. We estimate that at an international carbon price of

World food prices and poverty in Indonesia

10/tCO2e, a “mandatory incentive structure,” such as a cap-and-trade or symmetric tax-and-subsidy program, would have reduced emissions by 163–247 MtCO2e/y (20–31% below the without-REDD+ reference scenario), while generating a programmatic budget surplus. In contrast, a “basic voluntary incentive structure” modeled after a standard payment-for-environmental-services program would have reduced emissions nationally by only 45–76 MtCO2e/y (6–9%), while generating a programmatic budget shortfall. By making four policy improvements—paying for net emission reductions at the scale of an entire district rather than site-by-site; paying for reductions relative to reference levels that match business-as-usual levels; sharing a portion of district-level revenues with the national government; and sharing a portion of the national governments responsibility for costs with districts—an “improved voluntary incentive structure” would have been nearly as effective as a mandatory incentive structure, reducing emissions by 136–207 MtCO2e/y (17–26%) and generating a programmatic budget surplus.

Reducing Indonesia’s Deforestation‐Based Greenhouse Gas Emissions

Spikes in international food prices in 2007-2008 worsened poverty incidence in Indonesia, both rural and urban, but only by small amounts. The paper reaches this conclusion using a multi-sectoral and multi-household general equilibrium model of the Indonesian economy. The negative effect on poor consumers, operating through their living costs, outweighed the positive effect on poor farmers, operating through their incomes. Indonesia’s post-2004 rice import restrictions shielded its internal rice market from the temporary world price increases, muting the increase in poverty. But it did this only by imposing large and permanent increases in both domestic rice prices and poverty incidence. Poverty incidence increased more among rural than urban people, even though higher agricultural prices mean higher incomes for many of the rural poor. Gains to poor farmers were outweighed by the losses incurred by the large number of rural poor who are net buyers of food and the fact that food represents a large share of their total budgets, even larger on average than for the urban poor. The main beneficiaries of higher food prices are not the rural poor, but the owners of agricultural land and capital, many of whom are urban based.

Twenty Years of Expenditure Inequality in Indonesia, 1993–2013

Indonesia has set the target that by the year 2020 its emissions of greenhouse gases will be reduced by 26 per cent relative to business-as-usual conditions. This article analyses the effectiveness of a subsidy to the use of land in forestry as a means of achieving this goal. The analysis uses a general equilibrium model of the Indonesian economy characterised by explicit treatment of land use, disaggregated by industry and by region. The results of the analysis indicate that the subsidy cost of permanently reducing carbon emissions by 26 per cent is a little over US

Growth, Poverty, and Inequality under Jokowi

1 per metric tonne of carbon emissions abated. This cost needs to be compared with that of alternative instruments and with the price of carbon that might be agreed under the proposed Reducing Emissions through Deforestation and Land Degradation (REDD) scheme, to be administered through the World Bank and the United Nations.

Reducing Petroleum Subsidy in Indonesia: An Interregional General Equilibrium Analysis

In this article, we consider the recent increase in inequality in Indonesia. We make new, consistent estimates of expenditure inequality for 1993–2013, using several measures that draw on household expenditure data from the National Socioeconomic Survey (Susenas) for 1993–2013. In doing so, we note that the central statistics agency, Badan Pusat Statistik (BPS), used grouped data for its estimates of inequality until 2009 and that this underestimated inequality up to then. Thus the rise in inequality reported since 2009 actually has a longer history. We argue that Indonesia experienced divergence and convergence at the same time: the magnitude of the rise in inequality was significant (divergence), but the rise was greatest in provinces or districts with low initial levels of inequality (convergence). We consider the literature on drivers of changes in inequality and identify a set of hypotheses, with an empirical basis, which we introduce as potential Indonesian-specific drivers of rising inequality for future exploration.

Toward a Low-Carbon Economy for Indonesia: Aspirations, Actions and Scenarios

SUMMARY The political authority of President Joko Widodo (Jokowi) was bolstered in the third quarter of 2015 by a cabinet reshuffle, his coalitions gaining a parliamentary majority, and several foreign-policy developments. Indonesias request to rejoin OPEC, for example, after having left in 2008, seemed more about international relations than oil prices, while official visits to the Middle East and the United States allowed Jokowi to project his presidency on the international stage. He still faces resistance from within his own party, however. Jokowis politically bold reshuffle of economic ministers in August soon yielded a range of policy announcements. In September and October, his government introduced its first substantial set of reforms—a number of economic policy packages intended, among other things, to attract investment and stimulate domestic demand. If even half of these policies are put in place, the impact on Indonesias economy should be tangible. Few countries have escaped the effects of falling global commodity prices and Chinas growth slowdown. At 4.7%, year on year, in the third quarter Indonesias rate of economic growth again fell short of the governments target. Slowing growth and a negative outlook have lowered market expectations and weakened the rupiah, which is also burdened by the large outstanding external debt held by corporate borrowers. Indonesias real effective exchange rate has recently begun to depreciate, however, which may stimulate exports. Growth prospects will also improve if the substantial increase in capital and infrastructure spending allocated in the state budget is realised. Against this backdrop, we focus on what has happened to poverty and inequality in Indonesia since Jokowi took office. The distributional impacts of the current macroeconomic climate are likely to be hardest felt by the poor. Indonesia is well known for its record on poverty reduction, but between September 2014 and March 2015 the share of the population in poverty increased, even though economic growth was close to 5.0%. Slowing growth, rising food prices, the falling real wages of farmers, and the delayed disbursement of fuel-price compensation all had an effect. Such impacts may be mitigated in the medium term by Jokowis budget reallocations to infrastructure, if realised, and his expansion of social spending.

Is Reducing Subsidies on Vehicle Fuel Equitable? A Lesson from Indonesian Reform Experience

This chapter discusses the political economy of petroleum subsidy reform in Indonesia. It starts with a general review on the energy subsidy debate, followed by historical summary of subsidy regimes in Indonesia under different administrations. Using an inter-regional general equilibrium model we simulate two scenarios of petroleum subsidy reform: with and without revenue recycling through indirect tax cut. The results are evaluated at national and regional levels. We show that petroleum subsidy reform through removing the subsidy and recycling the revenue to the economy benefit the overall economy. However, the impact will vary across regions and across industries. Furthermore, we argue that public support for such reform will depend on the sectoral distribution of the resulting economic outputs.

The Direct and Indirect Effect of Cash Transfers: The Case of Indonesia

We review the current policy with respect to carbon emission reduction in Indonesia. This objective is put in the context of the current development challenges. The study involves analysis on trends and drivers of emissions, as well as a series of simulation with regards to fuel subsidy elimination, connectivity improvement, and provision of better public transportation. The policy review includes a discussion on the recently issued INDCs (Intended Nationally Determined Contributions). We conclude that Indonesia’s aspiration to achieve a low carbon economy still face significant challenges and that the INDC needs significant improvement.

Indonesia's Moratorium on Palm Oil Expansion from Natural Forests: Economy-Wide Impacts and the Role of International Transfers

........................................................................................................................ 2 Abbreviations and Acronyms................................................................................... 3 Table ofFuel Taxes and the Poor challenges the conventional wisdom that gasoline taxation, an important and much-debated instrument of climate policy, has a disproportionately detrimental effect on poor people. Increased fuel taxes carry the potential to mitigate carbon emissions, reduce congestion, and improve local urban environment. As such, higher gasoline taxes could prove to be a fundamental part of any climate action plan. However, they have been resisted by powerful lobbies that have persuaded people that increased fuel taxation would be regressive. Reporting on examples of over two dozen countries, this book sets out to empirically investigate this claim. The authors conclude that while there may be some slight regressivity in some high-income countries, as a general rule, fuel taxation is a progressive policy particularly in low income countries. Rich countries can correct for regressivity by cutting back on other taxes that adversely affect poor people, or by spending more money on services for the poor. Meanwhile, in low-income countries, poor people spend a very small share of their money on fuel for transport. Some costs from fuel taxes may be passed on to poor people through more expensive public transportation and food transport. Nevertheless, in general the authors find that gasoline taxes become more progressive as the income of the country in question decreases. This book provides strong arguments for the proponents of environmental taxation. It has immediate policy implications at the intersection of multiple subject areas, including transportation, environmental regulation, development studies, and climate change. Published with Environment for Development initiative. (Less)