Susana Gamez Former Technical Coordinator Gabinete Social de la Presidencia Dominican Republic

1. SUSANA
GAMEZ
September 9, 2014
Build
Effec+ve
Systems
to
Protect
the
Poor
During
the
Reform
of
Subsidies
:
The
Dominican
Republic
Case
MENA Knowledge Sharing and
How-To in Subsidy Reform:
Regional Workshop

2. Reform
of
Subsidies…
Reduc7on
or
immediate
or
gradual
elimina7on
of
exis7ng
subsidies
and
establishing
new
rules
for
these
subsidies.
Rapid
implementa7on
of
the
reform
,
taking
into
account
the
economic
pressures
to
reduce
the
impact
of
subsidies
on
the
fiscal
deficit.
Yet
we
should..
consider
the
impact
of
higher
prices
on
the
most
vulnerable
popula7on
and
evaluate
the
advantages
and
disadvantages
of
the
rapid
implementa7on
of
the
reform.

3. Implementa7on
of
the
Reform
The
speed
of
the
implementa7on
of
the
reform
is
related
to
the
difference
between
the
subsidized
price
and
non-­‐subsidized
price.
Thus,
the
greater
the
difference
the
greater
the
impact
will
be
.
Therefore,
the
progressive
process
ensures
the
mi7ga7on
of
social
impact,
but
it
can
also
mean
that
,
facing
social
pressures
,
the
government
delays
or
cancels
the
reform
.
However,
to
rapid
reform
can
increase
social
impact
but
ensures
the
implementa7on
of
the
reform.

4. Petroleum
products
in
the
Reform…
Regular
and
premium
gasoline
Regular
and
premium
diesel
avtur
fuel
Oil
Fuel
Oil
EGP
Kerosene
Petroleum
gas
liquefied
in
cylinders
Transport
of
goods
and
people
and
power
genera7on
Fuel
for
kitchen
SUBSTITUTION
EFFECT

5. Before
the
Reform…
Prices
of
petroleum
products
Pricing
and
discre7onary
tax
Prices
of
subsidized
LPG
Electricity
rates
subsidized
twofold
Consump7on
LPG
consump7on
and
almost
universal
access
to
electricity
service
Ban
on
u7liza7on
of
forest
and
control
coal
produc7on
Controlled
wood
importa7on
Subsidy
General
subsidy
of
LPG
to
households
Subsidized
electricity
rates
and
cross-­‐subsidies
for
electricity
rates
Grant
to
electrical
service
focused
geographically

6. Stages
of
the
process
in
the
Dominican
Republic
2000:
Stage
1:
Variable
subsidy
(market
condi7ons)
and
generalize
the
liquefied
petroleum
gas
(LPG)
to
households
2005:
Stage
2:
Fixed
and
generalized
to
the
liquefied
petroleum
gas
(LPG)
subsidy
to
consumers
of
less
than
100
pounds.
2008:
Stage
3:
Targe7ng
subsidies
to
poor
households
and
transport
drivers
of
public
vehicles
operated
by
the
private
sector.
2009:
Stage
4:
Targe7ng
of
electric
subsidy
to
poor
households.

7. Stages
of
the
process
in
the
Dominican
Republic
2000:
Stage
1:
Variable
subsidy
(market
condi7ons)
and
generalize
the
liquefied
petroleum
gas
(LPG)
to
households
Adop7on
of
a
law
that
sets
the
retail
price
by
considering
market
condi7ons
(interna7onal
prices
and
varia7on
of
exchange
rate)
Establishment
of
a
direct
subsidy
to
families
for
the
purchase
of
liquefied
petroleum
gas
(LPG)
for
domes7c
use.
The
government
has
begun
to
take
on
some
of
the
final
price
of
LPG

8. Stages
of
the
process
in
the
Dominican
Republic
2005:
Stage
2:
Fixed
and
generalized
to
the
liquefied
petroleum
gas
(LPG)
subsidy
to
consumers
of
less
than
100
pounds.
Removal
of
the
subsidy
to
large
consumers
of
LPG
Maintaining
the
same
structure
of
the
susidy
variable
on
consump7on
on
petroleum
gas
under
100
pounds,
independent
of
its
use
Market
Segmenta7on
(subsidized
price
o
unsubsidized)

9. Objec7ves
of
the
3rd
stage
of
the
Reform…
Protect
the
income
of:
i)
poor
households,
and
ii)
specific
social
groups
(average
lower
class)
taking
into
account
their
vulnerability
to
price
increases.
Improve
the
financial
status
of
the
government
Nego7ate
with
transport
unions
maintaining
fares
on
public
transport
operated
by
private
contractors.

10. Stages
of
the
process
in
the
Dominican
Republic
2008:
Stage
3:
Targe7ng
subsidies
to
poor
households
and
drivers
of
public
transport
vehicles
operated
by
the
private
sector.
Using
a
mechanism
for
targe7ng
and
payment.
Inclusion
of
the
subsidy
to
the
poor
and
vulnerable
households
in
the
context
of
welfare.
Nego7a7ons
with
the
unions
to
ensure
transporta7on
rates
unchanged
through
the
subsidies
to
drivers.

11. Stages
of
the
process
in
the
Dominican
Republic
2009:
Stage
4:
Targe+ng
of
electric
subsidy
to
poor
households
Gradual
implementa7on
of
BonoLUZ
and
inclusion
of
the
subsidy
as
part
of
social
protec7on.
Removal
of
geographically
focused
subsidy
on
"customers
with
a
contract
and
non-­‐contract
customers"
in
areas
considered
poor
with
fixed
rates.
Adop7on
of
a
joint
strategy
between
the
Social
Administra7on
and
Dispensers
of
Electricity
for
inclusion
BonoLUZ
to
the
rest
of
the
poor
households
in
the
country

12. What
are
the
consequences
in
each
step
of
the
Reform?
...
Stage
Consequences
First
Social
and
poli7cal
balance
were
maintained,
because
the
government
undertook
a
por7on
of
the
final
price
of
GLP.
Second
Balances
begin
to
collapse:
a)
civil
society
are
aware
of
the
social
cost
of
energy
subsidies
opportuni7es
b)
the
Government
recognizes
the
impossibility
of
maintaining
the
generalized
subsidy
considering
its
high
cost,
limited
fiscal
capacity
and
urgent
social
demands.
Third
Reinstatement
of
a
durable
new
social
and
poli7c
balance
regarding
the
subsidy
policy.

13. Obviously,
in
the
Dominican
case…
Policy
decisions
taken
at
first
were
not
supported
with
a
system
that
allowed
targe7ng
the
direct
subsidy
to
poor
families
In
the
second
stage,
although
the
government
had
a
mechanism
for
targe7ng
and
payment,
poli7cally,
it
was
not
the
right
7me
to
consider
subsidy
policy
reform.
It
is
only
when
the
tax
burden
has
become
unsustainable,
that
poli7cians
responsible
of
subsidies
and
technicians
responsible
for
targe7ng
agreed
on
the
7ming
and
amount
Finally,
subsidies
to
households
became
part
of
the
social
protec7on
system
established
by
the
Social
Office

14. The
reluctance
of
the
government
to
target
subsidies
can
also
be
explained
by:
Limited
capacity
of
the
government
response,
and
consequently
its
low
impact
on
the
poor.
Lack
of
mechanisms
for
targe7ng
and
payments
for
the
transfer
at
a
na7onal
level.
Lack
of
a
strategy
to
integrate
transfer
programs
and
subsidy
policy.
Licle
or
no
coordina7on
between
the
en77es
that
administer
subsidies
and
social
program.

15. The
reasoning
of
interven7ons
consisted
of:
The
use
of
the
Social
Protec7on
System
to
integrate
the
widespread
consump7on
of
LPG
subsidy.
Reallocate
resources
resul7ng
from
tax
savings
to
increase
the
coverage
and
the
amount
transferred
to
poor
households
to
mi7gate
the
price
increase.
Introduce
gradually,
given
its
complexity,
the
implementa7on
of
the
targeted
subsidy
for
the
electricity
consump7on

16. Strategy
to
bring
together
social
programs
The
government
ini7ated
the
social
Targe7ng
mechanism
protec7on
system
Unique
registry
of
beneficiaries
Payment
mechanism
for
transparent
transfer
Solidarity
bank
card
Implementa7on
of
a
condi7onal
transfer
program
Solidarity
Program
Addi7onal
financial
support
to
social
sectors
Implementa7on
of
programs
to
support
the
households
incomes
Subven7ons
ciblées
aux
prix
des
produits
pétroliers
Transi7onal
jobs
program.

17. Subsidy
to
LPG
was
performed
with
resolu7on
of
the
Ministry
of
Industry
and
Trade,
which
has
established
a
single
rate
for
all
types
of
consumers.
Targe7ng
Subsidies
LPG
Bonogas
-­‐
Households
Program
for
poor
households
and
lower-­‐middle
class
and
based
on
the
single
registry
of
beneficiaries.
Bonogas-­‐drivers
program
for
drivers
of
private
vehicles
to
public
transporta7on,
based
on
the
registered
lists
of
the
technical
department
of
land
transport.
Using
Solidarity
Bank
Card,
which
is
the
payment
mechanism
used
in
the
country
by
the
condi7onal
transfer
program,
Solidarity.
The
transparency
of
these
mechanisms
have
allowed
consensus
on
reform,
even
layers
of
the
"losers"
popula7on
in
the
process.

18. Type
of
subsidy
TYPE
OF
SUBSIDY
QUANTITY
PRICE
SUBSIDY
FIXED
PER
PERSON
The
government
es7mates
an
average
consump7on
from
which
it
decides
the
amount
of
the
subsidy.
The
government
considers
the
difference
in
price
at
the
beginning
of
the
reform,
implying
that
the
price
used
to
calculate
the
subsidy
is
fixed.
FIXED
SUBSIDY,
BUT
REVIEWABLE,
PER
PERSON
The
government
es7mates
an
average
consump7on
and
decided
that
would
be
willing
to
subsidize.
The
government
considers
the
difference
in
price
at
the
beginning
of
the
reform,
but
accept
that
this
difference
may
vary
and
revise
prices
every
3
or
6
months,
depending
on
the
market
price
of
fuel
VARIABLE
SUBSIDY
PER
PERSON
The
government
believes
that
consump7on
is
variable
and
can
not
affect
this
variable
The
government
agrees
to
pay
any
difference
in
price
for
the
dura7on
of
the
subsidy

19. Es7ma7on
Bonogas-­‐
Households
In
es7ma7ng
the
amount
of
subsidies,
it
was
noted
according
to
the
records
of
the
registry
of
poor
average
consump7on
of
6
gallons
per
month
per
poor
household,
by
a
value
equals
to
the
difference
between
the
market
price
and
subsidized
price
,
when
making
the
decision.
Es7mated
amount
to
subsidize
Determine
a
fixed
amount
of
"cash"
regardless
of
the
amount
consumed
it
is
a
subsidized
amount
reviewable,
which
was
and
is
recommended
when
market
prices
are
unstable
households
bear
part
of
the
cost,
long
term
they
acquired
a
minimum
consump7on
leading
to
a
more
ra7onal
consump7on,
since
all
consump7on
above
the
minimum
would
be
taken
by
the
household
Sehng
the
value
of
a
specific
amount
of
used
gallons

20. Similarly
Es7mated
Bonogas-­‐
Drivers
In
es7ma7ng
the
subsidized
amount,
it
was
considered
according
to
informa7on
from
the
Ministry
of
Industry
and
Trade,
the
average
consump7on
of
6
gallons
every
two
days,
by
the
difference
between
the
market
price
and
subsidized
prices

21. Impact
on
households
The
underlying
idea
is
that
the
net
impact
on
the
budget
for
poor
households
is
zero,
since
the
price
difference
before
and
post-­‐
consump7on
is
the
subsidized
amount.
So
that
post
the
implementa7on
of
the
program,
households
pay
the
same
value
per
6
gallons
represen7ng
their
es7mated
monthly
consump7on.
For
households
consuming
more
than
6
gallons
per
month,
the
direct
impact
on
their
budgets,
is
subject
to
fluctua7ons
in
fuel
prices.
However,
given
the
low
weight
(0.0038406)
in
the
basket
of
consump7on,
even
a
significant
price
increase
would
have
licle
impact.

22. Tax
impact
of
the
removal
of
the
GP
generalized
subsidy
Since
the
calcula7on
of
the
subsidy
per
gallon
defines
an
average
consump7on
(6
gallons),
the
amount
of
the
total
grant
is
not
altered
by
changes
in
consump7on
The
increase
of
the
subsidy,
it
would
be
possible
only
by
the
admission
of
a
greater
number
of
beneficiaries
or
the
modifica7on
of
the
standard
price
per
gallon
set.

23. Transparency
in
ac7ons
of
Bonogas-­‐
Households
et
Bonogas-­‐
Drivers
The
selec7on
of
beneficiaries
is
based
on
objec7ve
and
measurable
eligibility
criteria;
Recipients
can
view
their
situa7ons
by
Internet,
or
by
calling
*
462,
or
by
contac7ng
community
officials
regarding
the
status
of
the
subsidy.
The
par7cipa7on
of
civil
society
and
the
transporta7on
unions
in
the
process
of
inclusion
and
exclusion
of
beneficiaries
as
well
as
making
complaints
or
claims
regarding
the
func7oning
of
the
program.
Using
a
credit
card
for
the
beneficiary
with
the
approval
of
VISA
as
payment
and
existence
of
an
en7ty
responsible
for
making
the
link
between
the
central
government,
financial
en77es
and
beneficiaries'
accounts.

24. We
must
not
forget,
when
subsidy
policy
is
designed
...
General
subsidies
were
jus7fied
in
the
stability
of
social
and
poli7cal
balances
Governments
decide
the
amount
and
the
subsidy
recipients
A
subsidy
policy
must
take
into
account
the
financial
capacity
of
the
government.
If
the
tax
capacity
is
exceeded
it
can
generate
a
budget
deficit,
which
affects
the
popula7on.

25. In
conclusion
Each
country
can
go
its
own
way,
but
in
the
Dominican
case,
it
was
decided
to
set
up
a
special
program
for
targeted
subsidies.
And
with
the
savings
obtained,
it
was
decided
to
increase
the
amount
per
month
for
the
Condi7onal
Transfers
Program.
The
results,
in
terms
of
poverty
incidence,
showed
that
this
strategy
was
correct,
since
during
the
2008
crisis,
the
popula7on
in
extreme
poverty
had
con7nued
to
decrease.
In
sum,
the
existence
of
a
network
of
social
protec7on,
the
joint
ac7on
of
different
public
actors
(ministries
of
finance,
energy
and
social
development)
allowed
to
build
a
new
social
contract
around
subsidies
and
therefore
a
new
poli7cal
balance.