Poverty in Indonesia

Prepared by Asrul Sidiq ST 113961

1. Is poverty reduction in your country distinctive? Indonesia has experienced strong economic growth over the last forty years. At the same time, the proportion of Indonesians living below the poverty line has fallen dramatically. 12.5 percent of Indonesians remain in poverty and another 30 percent remain highly vulnerable to falling into poverty in any given year. In addition, Indonesia has experienced a number of crises in the last two decades, and such shocks are likely to continue in the future in an increasingly integrated global economy. The national poverty line is around Rp. 233.700 (~$PPP 1.20) per person per month in 2011. In measuring this poverty line, Indonesia uses The Cost of Basic Needs Method (CBN). A few years ago, overcome poverty in Indonesia has become a priority and a basic agenda that mobilizes various resources development. During that time, the dynamics of poverty and mitigation in Indonesia were also developed. As of March 2012, the poverty rate has dropped to 11.96 per cent (29.13 million). Previously, up to March 2011, the national poverty rate declined to 12.49 percent, from 13.33 percent in 2010. Furthermore, the period of September 2011, the poverty rate fell again to 12.36 percent. Indonesia's poor are unevenly distributed. The largest number of poor people at 57.8 percent is in Java. So as much as 21 percent in Sumatra, Sulawesi 7.5 percent, 6.2 percent in Nusa Tenggara, 4.2 percent in Maluku and Papua, and the smallest number of 3.4 percent spread in Borneo. The poverty rate cannot fall significantly because inflation is felt by the poor is also high. Global conditions which impact on the national situation, leading to higher prices, the increase in the raw material of the highest among the expenditures for other materials. Poor household expenditure for essential items is vulnerable to rising food prices. Even in 2005, despite the growth, but the poverty basket inflation recorded up to 12.78 per cent due to rising fuel prices, sparking a rise in prices of basic commodities that have an impact on the rise in poverty. Therefore, the stability of food prices should be controlled. In 2006, the poverty rate rose from 15.97 percent to 17.75 percent. Furthermore, based on the time series of poverty status for the past 4 years, it appears that the number of extremely poor people shrink every year. This can be seen in the year 2010 the population is very poor at 4.56 percent down to 4.37 percent in 2011. In contrast, the near-poor population increased as a result of the poor out of poverty, but still vulnerable to falling back into poverty. Recorded in 2011, the number of poor by almost 11.28 percent of the 9.88 percent in 2010.

Table 1. Poverty and Vulnerability Headcount Rates, 2008-2011

Sources: Susenas, World Bank, 2012 Over the past decade Indonesia has made impressive strides in poverty reduction, cutting the overall poverty rate by over two-fifths since the turn of the decade (1999/2000). Even today, however, nearly 30 million people live below the official poverty line while an additional 65 million remain vulnerable to falling into poverty. The Government of Indonesia is committed to tackling these challenges while further accelerating the pace of poverty reduction. There are three salient features of poverty in Indonesia. First, many households who were around the national poverty line, which is equivalent to $PPP 1.20-a-day, so many people who although not classified as poor but are vulnerable to poverty. Second, the measure of poverty based on income that is not a portrait of the real poverty threshold. Many people who is not classified as income poor as poor can be categorized on the basis of lack of access to basic services and poor development indicators of human development. Third, given the very broad and diverse area of Indonesia, regional disparities is a fundamental characteristic of poverty in Indonesia. Today, the majority of Social Assistance (SA) spending is accounted for by eight major programs. While Indonesia does not have a social safety net sector per se, in recent years the government has articulated its poverty alleviation strategy around three clusters of programs. Cluster I consists of household- and family- focused programs, Cluster II includes community based programs, and Cluster III are mostly enterprise-based, providing assistance for microand small-sized enterprises. Cluster I programs form the foundation of an emerging, permanent social safety net system which supports poor and near-poor households. BLT (when active), Raskin and Jamkesmas are the three biggest programs and each covers almost a third of the population. Following its rapid expansion in recent years, BSM is the fourth largest program in terms of coverage, followed by four smaller pilot programs: PKH, PKSA, JSPACA and JSLU. These programs are described in more detail below.

Table 2. Eight Major Social Assistance Programs

2. What has happened in terms of Social development: reduced extreme poverty? or increased, why, increased inequality or not why? Accelerating poverty reduction remains a key objective of the Indonesian government. Indonesia has included poverty reduction as a national development goal since the mid-1990s and has signed various laws, treaties, and international agreements committing itself to equal treatment and pro-poor development. Most recently, the RPJM (Rencana Pembangunan Jangka Menengah, the Medium-Term Development Plan) for 2010 to 2014 sets goals of reducing the poverty rate to between 8 and 10 percent by 2014 and reducing income inequality. Strengthening the Cluster 1 SA programs is a key component of this poverty- and inequality-reduction strategy; the government is currently developing a roadmap to this end. Indonesia represents a complex targeting environment and new data collection can enhance outcomes in all the household-based programs.34 Nearly 240 million individuals are dispersed across at least 18,000 islands and over 500 districts (each of which has considerable ownership and operational control of public spending and social sector programs since decentralization). Targeting should be able to identify the chronically poor, the near poor, and the especially vulnerable (but not currently poor) in all these localities and across a relatively equal consumption distribution. In 2011, a large survey which collected data from over 40 percent of Indonesian households has allowed BPS (Statistics Indonesia) to meaningfully update its list of poor, near-poor and vulnerable households and families and it is hoped it can serve as the foundation for a unified Cluster 1 beneficiary registry and an initial eligibility database. This massive improvement in data collection (called the PPLS11 survey), which combined results from previous lists of poor households with 2010 population census results and community nomination, is expected to result in significant targeting improvements over previous methods. Two of the three largest SA programs have delivered benefits to households when needed. BLT was well timed, reaching households during the month when the largest increases in fuel prices occurred; the cash transfers received were quickly spent on necessities, including on education expenses and preparation for religious holidays if either happened to occur during disbursement periods. Jamkesmas is always available to households; however beneficiaries need to cover the costs of access. Raskin is also continuous, with subsidized rice designed to be delivered monthly. However, local-level implementation practices with rotation and sharing of rice amongst households regardless of strict eligibility negatively impact Raskins dependability for poor or vulnerable households. Socialization to all stakeholders, including on eligibility criteria, has been weakly provided. Information about eligibility rules, program objectives, and beneficiary rights and responsibilities is typically spread thinly among beneficiaries, eligible households, communities, and local-level program implementers. The large majority of Jamkesmas beneficiaries, for example, do not know which of the common services and medicines are covered by the program. While most PKSA recipients (abandoned or vulnerable children) knew the purpose of the program, they do not know about their rights and responsibilities and were

unaware of the conditionalities and penalties associated with the program. Research on socialization practices for the BLT, Raskin, and Jamkesmas programs from World Bank found weak socialization of program objectives, beneficiary rights and benefit amounts to all levels of government and community.37 For BLT, researchers concluded It could be said that socialization to communities essentially did not take place. Figure 1. Public Expenditure on Household Social Assistance, 2001 - 2010

Sources: Kemenkeu, BPS and World Bank staff

Social Assistance spending is spread across eight major programs but is dominated by the inkind rice subsidy, Raskin. The three largest programs together account for approximately 85 percent of all SA expenditures.

Figure 2. Household Social Assistance Expenditure Shares, 2010

Sources: Kemenkeu and World Bank. *Refers to all spending in the directorate implementing these programs Total household benefits from the major Social Assistance programs are much lower than cumulative income gaps of poor and vulnerable populations as well as lower than all energy subsidy spending. Figure 3. Income Gaps and Total Social Assistance Benefits Transferred, 2010

Sources: Kemenkeu, Susenas 2010 and World Bank

3. What are the Public policies and politics: less important than economics? Originally orientation Indonesia is a welfare state, but after the '45 amendment to the Constitution to be a little shifted. Shifting the direction of the welfare state to the state that promotes economic growth caused by the shifting of the approach in realizing the dream of what this country was founded. Chapter XIV which was originally titled Social Welfare changed to the National Economy and Social Welfare. The implication is an opportunity to change policies that rely on economic approach to welfare. So, Indonesia is more focusing in economic growth than human development regarding to the policies. That the growth-oriented economic approach is more promising realization of welfare is an inevitable fact. However, what happens is not a dichotomy but rather complementary. When we put forward the economic approach, we cannot escape the global policy dominated by the principle of free market economy and the influence of international institutions such as the IMF, World Bank and WTO. Orientation of economic policy as it turned out to bear a disproportionate growth. His form is precisely the gap is widening, the further away from the ideals of social justice. Indeed there is economic growth, but the growth was not distributed well and only benefits to a handful of people. There is growth, but the number of poor people is increasing. GINI index Indonesia 2011, the largest in the history, namely 0.41 - at least since 1999, as noted in the BPS. This index shows the disparity between the populations with the lowest income (40 percent in number) with the largest revenues (20 percent) more broadly. This is increasingly unequal income. For years, Indonesia GINI index in the range of 0.31 points in 1999 and to 0.38 in 2010. No decrease in inequality index has shown that the economic pie turnover, the composition and priorities of addressing inequalities, there is never a repair. Still leads in the highest income groups. Percentage of economic domination by the largest 20 percent of the income continues to rise. When in 2007 his command was 44.79 percent of the total national income last year was 48.42 percent. Then how are owned by 40 percent of people with the lowest incomes? Obviously decline. In 2007, their command was still 19.1 percent. In 2011, the 40 percent of lowest incomes has been eroded and the remaining 16.85 percent. The gap between rich and poor is widening cake shows uneven development in Indonesia. Distribution of economic assets is concentrated on a small group of people who belong to high income. Mastery of the economic assets outside the largest income group increasingly eroded. Both groups of people with the lowest incomes and the amount of income are being 40 percent respectively. So the rich get richer, the poor getting worse. Indonesia's future dreams will come true when the available policies on the national economy and social welfare. It prevents social disparities and inequalities.

4. What has happened to the politically vulnerable welfare regimes? Reforming individual programs is not enough; developing a true social safety net requires ensuring that all poor and vulnerable are consistently and reliably protected in the face of risks. The current range of SA programs provides partial and non-guaranteed protection to the poor and vulnerable from some, but not all, of the risks faced. In other words, Indonesia will not be able to create a social safety net via reforms to existing programs alone. However, Indonesia benefits from a strong macroeconomic and fiscal position and an administration committed to poverty reduction and social protection, which makes the development of a comprehensive social safety net feasible. Social safety nets should target all chronically poor households with greater assistance and be able to provide basic protection to the 40 percent of all households that are most at risk of becoming poor in any given year. The current range of SA programs does not go far enough in protecting income and promoting healthy behaviors in chronically poor households. PKH, for example, currently provides assistance to only a fraction of households that are poor year in and year out. Nor do current programs protect all households that are highly vulnerable to shocks. Some target the near-poor (1.2 times the poverty line), but about 70 percent of the newly poor (in 2009) came from households with per capita consumption below 1.5 times the poverty line, or from the bottom 40 percent of households. To cover all vulnerable households with some basic protection, the social safety net needs a broader reach. Social safety nets should ensure a minimum level of income and provide a cushion during difficult periods so vulnerable households will not be forced to make difficult choices. Persistently poor households have difficulty generating sufficient income to lift themselves out of poverty. Vulnerable households are likely to turn to negative coping mechanisms sending more members to work and pulling more members out of school, switching consumption to less nutritious but cheaper foods, and foregoing health care precisely when their incomes are threatened. Indonesia needs income support initiatives that reliably address both difficulties. Pilot a national workfare program so that all vulnerable households can rely on a guaranteed number of working days when difficult times occur. The majority of vulnerable households does not face income risk every month, but are likely to enter poverty if they are not appropriately protected. When unemployment, illness, bad harvest, or other idiosyncratic shocks interrupt regular earnings or productive activities, expenditures are also often disrupted. With a workfare program that vulnerable households can opt into when stipulated wages become attractive, the ever-present risk to income generation is partly addressed. A workfare program is also a good time and place for contact by a facilitator who could enroll eligible households in Jamkesmas and BSM (if applicable). Well-designed workfare programs set wages below the prevailing market wages so only households with no better outside opportunities apply. A coordinated and authorized list of projects and sites where labor is needed must be available at all levels of government. Individuals should be alerted very early on that they have a maximum number of days of guaranteed wage labor per year (45 days, for example) while households have at most a higher guaranteed total (90 days, for example), so that workfare serves as a bridge through periods when other income-generation activities have failed (and not a permanent source of wages). Finally, while the existing social safety net programs focus on long-term poverty and

vulnerability, they need to be coordinated with the development of a crisis monitoring and response system for short-term shocks. National and regional economic crises, price shocks, widespread layoffs, natural disasters, poor harvests or weather, and food insecurity can occur rapidly. A permanent crisis monitoring and response system needs to be established which will alert government to how shocks are being transmitted to households, how they are responding, and what the impact on socio-economic outcomes is. In turn, this can guide policy makers in determining which responses are most appropriate, where to deploy them, and when. Monitoring is only half the story: a successful vulnerability mitigation tool will be one that can respond precisely when a crisis forces vulnerable households into negative coping strategies. Some of the response might include temporary scaling up of social safety net programs, but government should develop protocols and cement the legal basis for the automatic and rapid disbursement of a pre-identified SA package (and associated targeting procedures) before the next crisis or downturn hits. The response should be automatic and not open to political manipulation or bargaining, and should be a coordinated response involving all relevant agencies and ministries and not be subject to further deliberation or politicking when crisis occurs. References: World Bank. 2012a. Targeting Poor and Vulnerable Households in Indonesia. Jakarta, Indonesia: World Bank. World Bank. 2012b. Protecting Poor and Vulnerable Households in Indonesia. Jakarta, Indonesia: World Bank. World Bank. 2012c. Social Assistance Program and Public Expenditure Review 1: Public Expenditure Review Summary. Jakarta, Indonesia: World Bank. Number and Percentage of Poor People, Poverty Line, Poverty Gap Index, Poverty Severity Index by Province 2007-2009 (March), 2010-2011 Retrieve from http://bps.go.id/menutab.php?tabel=1&kat=1&id_subyek=23 Bappenas (2012, August 15). Kemiskinan di Indonesia dan Penanggulangannya. Retrieved from http://www.bappenas.go.id/node/165/3630/kemiskinan-di-indonesia-danpenanggulangannya/ The Jakarta Post (2010, July 02) BPS: More than 31 million Indonesians now live in poverty. Retrieved from http://www.thejakartapost.com/news/2010/07/02/bps-more-31-millionindonesians-now-live-poverty.html