Local Corruption and Popular Support for Fuel Subsidy Reform in Indonesia

Poor households mainly spend their income on basic commodities. Those

poor households sometimes receive protection from the government in the form of
consumer subsidy program by reducing the price of commodity. Lower price can
raise standard of living, while in the other hand, subsidies are not always received by
the poor, fuel subsidy for example. Fuel subsidy are captured by the rich and not
beneficiary for the poor, that is why, transforming fuel subsidies would probably
provide greater benefit for the poor. Fuel subsidies are used to prevent fluctuation in
the price of basic goods, because when the price of fuel raises, the price of basic
goods will follow. Fuel subsidy used to be an attractive political tool since the
benefits are highly visible while the costs have low visibility.

Central government has to delegate a range of governing activities, including

distribution of social benefits. The degree of delegation varies by policy, fuel strategy
requires less delegation from central to local government, by contrast, delegation is
more important to targeted social protection programs, local institution is responsible
for determining the eligibility for targeted program and distribute the benefits.
Therefore, it opens an opportunity for local actors to exploit their position for private
gain or corruption, moreover, transforming universal subsidies such as fuel subsidies
to targeted transfer program does not guarantee that the local government will really
fulfill the promises to benefit the poor.

Local politicians who supposed to act as the source of information about

which households to target and as local implementers of the program, leverage this
power to their own interests, to sway the voters or fund campaigns. Therefore, this
kind of corruption will reduce the support from the poor about targeted transfer
program such as health fee waivers, rice subsidy and cash transfer. Only if the
corruption levels are near zero, poor citizens will support rather than oppose fuel
subsidy. Compensating the poor for increases in fuel prices through improved social
policy is generally accepted as key for successful reform. Even though citizens have
low trust on local support, it does not mean if the subsidy is nationally, the citizen will
support the reform, because the trust in national governments is frequently lower
than trust in local government. Citizen will only trust particular institutions that would
be authorized to implement reforms, so, it depends on the citizen’s views.