Seminar Series: Abstract

12:30-2:00pm
January 28 2009
Seminar Room E

The political economy of rice and fuel in Indonesia
Arianto Patunru (University of Indonesia)

Rice and fuel are arguably the most political commodities in Indonesia. Demand for protection in the case of rice has traditionally taken the form against price decrease; while that of fuel is characterized by government subsidy to avoid price increase. In general, Indonesia has been a rice net importer for a long time; however, resistance to importation is always strongly pronounced. Consequently, government policy tends to bias against the majority net consumers of rice, a group dominated by the poor. This paper argues that the lobby of net producers is stronger than that of net consumers, because the latter group relatively lacks the incentive to fight. Further, the demand for protection is likely to be affected by the movement of real effective exchange rate. As for the case of fuel, the paper argues that the subsidy policy has been mis-targeted, partially thanks to both populist agenda and public ignorance. Again, the poor is disadvantaged because they can not voice up effectively. Finally the paper argues that the poverty incidence has much more to do with rice price increase (thanks to import ban) than with fuel price increase (thanks to subsidy removal).