Indonesia s Experience Economic Shocks Harapak Gaol Director, Social Disaster Victims, Ministry of Social Affairs Indonesia
The Progress of Poverty Reduction, 1998-2017 24.2 23.43 Poverty has continue to decrease, but the pace is getting slower 2010-2011 decreased 0.97% 2016-2017 decreased 0.58% 19.14 18.41 18.20 17.42 17.75 16.66 15.97 16.58 15.42 14.15 13.33 12.36 11.66 11.47 10.96 11.13 10.70 10.12 20% 15% 10% CPI vs CPI Poverty Basket (% YoY) CPI 5% 19981999200020012002200320042005200620072008200920102011201220132014201520162017 0% Jan 2005 May 2005 Sep 2005 Jan 2006 May 2006 Sep 2006 Jan 2007 May 2007 Sep 2007 Jan 2008 May 2008 Sep 2008 Jan 2009 May 2009 Sep 2009 Jan 2010 May 2010 Sep 2010 Jan 2011 May 2011 Sep 2011 Jan 2012 May 2012 Sep 2012 Jan 2013 May 2013 Sep 2013 Global fuel and food price increased and reduction of oil subsidy Source: CBS, 2011-2017 was September data 8 March 2018 2
Some Analysis on Subsidy Indonesia s fuel price was the lowest in Asian countries with fuel subsidy enjoyed mostly by the richest Fuel and Electricity Subsidies take funding away from pro-poor development. 8 March 2018 3
Some Milestones of Subsidy Reform 2005 2008 2013 2015 Gasoline and kerosene prices increased by 150-185% Central Bureau of Statistic did a census for the 40% lowest income group (using 14 criteria). UCT/BLT was distributed to 19 million HH, received Rp.1,2 million/year in 4 tranches. Price of gasoline increased by 33%, kerosene by 50%. The Government redeployed BLT, of Rp900K in 3 tranches. BLT did not lead to laziness: beneficiary HH found new jobs at higher rates than non-blt HH. Price of subsidized fuel increased from IDR 4,500 to IDR 6,500 15.5 million HH (the bottom 25%) received a temporaryuct/blsm of Rp600K & extra Rice Subsidy. In addition, scholarship (BSM) and CCT (PKH) were expanded and benefit levels increased. Integrated Social Protection Card (KPS), was used to receive assistance. Poverty would have increased by 2.5 percentage points without BLSM, but the actual increase was only 0.1 percentage point. President Jokowi era: Significant cut of fuel subsidy in 2015 to meet market price The Reform has continued 8 March 2018 4
Social Protection Programs to Response Economic Shock UNCONDITIONAL CASH TRANSFER CONDITIONAL CASH TRANSFER RICE SUBSIDY FOR POOR COMMUNITY-BASED CASH FOR WORK UCT was initiated in 2005. It s relaunched in mid 2013 following another fuel subsidy cut. Targeted to 15.5 million HHs ~ constitute bottom 25% lowest income group. Transfer through post office. In 2007, UCT was transformed to CCT as a regular anti poverty program. Begin in 2007 as pilot program in 6 prov, cover 380K poor HHs. In 2018, it all regions, covers 10 mio HH with pregnant/lactating mother, <5 & schoolage children, disable, and elderly. Currently use electronic payment system via bank. Expand target and/or benefit in crisis. Started in 2002, target bottom 25% of the population. 15 kg/month/hh with purchased of Rp1600/kg. Add frequency of distribution during crisis Main issue: inefficient distribution and missing rice In 2017, it started to transform to electronic food voucher of rice and egg. First time implemented during 1997/98 crisis. Become National community-based program in 2007. Covering 7K subditricts, with 8K< facilitators. Combined advantages: improved village infrastructures & temporary employment creation. In 2015 has transformed to Village Fund. In 2018, cash for work is strengthened 8 March 2018 5
Designing Shock Response toward Subsidy Reform REFORM DECISIONS: SCALE, TIMING, SAVINGS COMPENSATION OBJECTIVES: poverty? fiscal sustainability? WHO TO COMPENSATE? Targeted vs Universal HOW MUCH TO COMPENSATE? Fix/variable benefit HOW LONG TO COMPENSATE? Frequency, reform buy in COMPENSATION DELIVERY METHOD Program effectiveness, delivery factors, global experience 8 March 2018 6
A Roadmap to Ensure Effective Implementation INSTITUTIONAL SET-UP BENEFICIARY OUTREACH ENROLMENT BENEFICIARY IDENTIFICATION & VERIFICATION PAYMENTS MIS, MONITORING & EVALUATION, COMPLAINTS & GRIEVANCES 8 March 2018 7
Some Key Questions for a Crisis Response Crisis Response at Household Level How is the crisis being transmitted? What is the impact on households? How is employment demand being affected? In which sectors? Urban or rural? In which provinces and districts? Through which channels? Wages, hours or jobs? How are prices being affected? Key staple foods? Other prices? How are households responding? Move into agriculture and informality Reduced quantity and quality of food consumption Reduced health and education expenditures Women and children entering the work force Risk-pooling What are the outcomes? School drop-out and absenteeism Malnutrition Infant and child mortality Maternal mortality Disease and illness Psychologic 19.1% Social Aspects 5.1% Seeking other jobs 2.2% Declining Income 16.2% Education 11.8% Declining working condition 15.4% Spending reduction 15.4% Difficulties to fulfill basic needs 14.7% Source: SMERU, 2009 8 March 2018 8
UNIFIED DATABASE IMPROVEMENT Exclusion Error UNIFIED DATABASE *) 40% Almost Poor / Vulnerable 38% 25% Inclusion Error 15% PREMIUM FOR NATIONAL HEALTH INSURANCE (KIS) 94.2 million people FOOD ASSISTANCE/VOUCHER (KKS) 15.6 million families SCHOLARSHIP FOR THE POOR (KIP) 19.7 million students CONDITIONAL CASH TRANSFER (PKH) 10 million families Number of Households 26.742055 Number of Families 28.780.456 Number of People 96.829.022 Poor 10,12% NATIONAL POVERTY LINE (SEPT 2017) 26.6 million people Number of People 427.222 *Notes: 1. UDB consists of the 40% poorest population. It is updated every May and Nov through MoSA Decree 2. The current update is more regular and participatory. Using community-based meetings to update targeting lists to address exclusion errors; verified by local government through verification and validation application 3. New and improved proxy-means testing identified the poor more accurately 4. Available for use by different anti-poverty programs to identify target groups eligible to receive benefits 9 9
Accuracy Of Implementation Target Of Subsidy And Social Assistance Program Social assistance programs (PKH and PIP) are mostly enjoyed by the poor. Rastra subsidy, 3kg of LPG and electricity are enjoyed by all expenditure deciles, even the middle group enjoys more electricity and LPG subsidies. Solar subsidies are mostly enjoyed by rich people who use open distribution (non-targetted) 8 March 2018 10
Subsidy Budget Reform Distribution of State Expenditures (Billion Rupiah) Total State Expenditures 2,220,657 2,111,364 1,864,275 1,984,150 1,770,562 Village Fund 60,000 58,200 46,679 20,766 - Transfer to Region 706,163 697,667 663,578 643,835 573,703 Subsidy 156,228 168,877 174,227 286,385 733,773-1,000,000 2,000,000 2018 2017 2016 2015 2014 Source: Financial Note, various years Fuel subsidy allocation decreased significantly in 2015. The subsidy allocation was transferred for the village fund and regional transfers to reduce inequality. Subsidy Reform has continued to ensure: Right targeting Fiscal sustainability Energy diversification 11
Social Protection Budget, 2010-2018 200 180 160 140 120 100 80 60 40 20 0 Budget Allocation Based on Intervention and Share from Central Government Spending (in Rp Trilion) 11.3% 26.1 52.7 Jaminan Sosial Bantuan Sosial Berbasis Keluarga 10.5% 10.1% 30.6 61.9 38.7 69.2 12.6% 12.4% 13.3% 13.6% 13.5% 60.9 82 57.8 90.1 12.8% 76.7 78.3 81.49 85.99 98.4 99.6 99.6 99.6 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sumber: Bappenas diolah dari berbagai sumber 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Significant subsidy reduction (from 3.4% to 0,8% PDB) between 2015 and 2018 has been allocated for SP: Premium of National Health Insurance for the poor. Social Assistance Programs has been scaled up. In 2018, significant budget goes to infrastructure and economic investment. 12
Continuous Reform Of Targeted Assistance / Subsidies - Food And Energy Integration of bank channel distribution by using one card (with e-wallet) to be more targeted, efficient and effective. A publication of Presidential Regulation 63/2017 on the Non-Cash in Social Assistance. Necessary expansion of telecommunication and signal networks, local bank agencies and local government support (a.l. socialization, availability and smooth food logistics, complaint handling, etc.) Encourage financial inclusion a process of bridging beneficiaries in: Accumulated assets and financial management capacity (reducing direct use of cash for consumption, savings culture) Provide the option for Beneficiary Family (KPM) in terms of: Type, quantity, and quality as needed (eg food with balanced nutrition) Flexibility of time and location of withdrawal 8 March 2018 Increase the effectiveness of subsidy / aid distribution: Targeting Transparent and accountable Encourage better customer management Increased access to financial service Improving regional economic growth through empowering the people's economy: Utilization of stalls / kiosks / retail traders as agents of the Bank. Utilization of Bank agents as a place to purchase food, gas, and electricity payment Entrance to various other financial services (transactions, transfers, credits, microinsurance, remittances) Safety and comfort Minimize illegal levies 13
Integrated Non-cash Transfer Of Social Assistance Food Energy Smart Indonesia Card CCT/PKH Non-cash Assistances Bank Account Cash Assistances Beneficiaries Combo Card The objectives: asset accumulation, financial inclusion, minimize fraud and error. Non-Cash E-wallets Cash Non-cash assistance can only be used to exchange for food assistance, electricity subsidy payments, and other non-cash assistances. The non-cash assistance cannot be withdrawn. e-voucher Merchant Energy Saving ATM 14
Conclusion Crises are extraordinary events a broader focus e.g. on vulnerability and poverty gives more purpose to the system. A need to develop information system that provide dynamic access to various types of socio-economic data and information for policy-making in response of crises. Coordination mechanism for adaptation & response (national, regional, local). Promote macro policies to strengthen resilience to shocks: increase tax collection, redirect spending from regressive subsidies to infrastructure and social spending. Comprehensive and inclusive SP as a strategy to address economic growth, longer term structural poverty, human capital development, and inequality. THANK YOU 8 March 2018 15