Poverty and Social Impact Analysis in action

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Poverty and Social Impact Analysis in action

• Raising Rice Import Tariffs in Indonesia
• Jennifer Leith, Catherine Porter (DFID)
• Sudarno Sumarto, Asep Suryahadi,
• Agus Priyambada, M.Sulton Marwadi (SMERU)
• Peter Warr (ANU)

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Background Indonesia 1997-2002

• Economic Crisis
• Poverty Increase
• Political Change
• Fragile Democracy
• Policy Decision-making by politicians influenced
  by powerful economic interests/individuals

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Indonesia PRSP Process

• Poverty Reduction Committee
• IPRSP completed in July 2002
• Indonesia not eligible for debit relief
  mechanisms (PRSC/PRGF)

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Indonesia PSIA

• Process
• Choosing the policy
• Background
• Timing
• Team

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The Policy Question

• Should the tariff on imported rice be increased
  from 25 to 45?
• 2 opposing arguments
• High tariff proponents argue that higher rice
  prices lead to higher incomes for farmers
• Rice tariff abolitionists argue that poor people
  (including rice farmers) are net rice consumers
  who suffer from high prices

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What Happened?

• Prior to and during the PSIA Sept 2002 the
  announcement of rice import tariff increase was
  imminent
• On completion of the PSIA Oct 2002 the tariff
  increase was never announced nor implemented

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What did we do? Economic Analysis

• Impact of raising import tariff from 25 to 45
  (ad valorem)
• Use a CGE model
• Affects households mainly through
• Rise in the consumer price of rice
• Income from wage labour
• Profits from farming
• Other relative price/consumption changes

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The techie bit CGE Model

• A standard CGE model
• Analysis of inter-relationships in macroeconomy-
  2nd round effects
• Data from 1995 INDOSAM
• 65 producer goods/20 consumer goods
• 10 household types

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CGE What are the main results?

• Poverty rate goes up- but marginal (0.06 urban,
  0.04 rural)
• Though this is over 100,000 people
• What drives the result?
• Rice price goes up by 2.5
• Rice is 7.5 of consumer basket (30 of poor
  peoples consumer basket)
• Production of rice goes up 0.5
• Unskilled wage goes up by 0.21

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Poverty Rates by household type
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CGE results- building credibility

• General scepticism about CGE models (assumptions,
  data, closure conditions)
• Sensitivity tests of key assumptions
• Validity of dataset from 1995

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Putting the CGE results in context

• Timeframe (medium term)
• Structural dimensions of rice trade
• Regional effects
• Social effects (non-income poverty, gender, age)
• Key question How to address political
  interests/influence?

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Mapping Policy Interests

• Key Players Government, Academia, NGOs, Donors,
  and Politicians
• Policy Objectives
• Rationale or Argument
• Benefits
• Constraints
• Transmission Channel
• Interests
• Degree of Influence

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Policy Interests Matrix

• Process
• Horizontal and Vertical Logic
• What does it Map
• Schools of thought
• Impact of policy positions on poor people
• Natural Coalitions
• Who is key to influence

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Policy Interests Findings 

• Top 4 actors for policymaking by degree of
  influence
• Ministry of Economy- low tariff
• Bulog - high tariff
• Ministry of Agriculture - high tariff
• BAPPENAS- no tariff

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Key Outcomes of Policy Interests Matrix Tool  

• Transparency
• Participatory Involvement

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Why this approach to PSIA?

• Methodology and process
• Context
• Data availability
• Demand from partners
• Staffing
• Timing

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What worked well?

• CGE captures both sides of the rice tariff debate
  well
• Policy Interest matrix increases transparency and
  inclusion
• Working relationships with local partners
• Flexibility and new ways of working
• The tariff wasnt raised (credit due?)

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Lessons Learned

• Context
• Process
• Collaboration
• Integration
• Iteration

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Unanswered Questions

• Demand/Ownership
• Timing/Links to Policy Process
• Who will lead on PSIA?
• Skills Base
• Capacity Building
• Process