INDONESIA RISING. Policy Priorities for 2010 and Beyond 53479 Protecting Present and Future Generations from Poverty Key Messages Indonesia has made progress in reducing poverty and is expanding its range of social protection programs. Economic growth, expanded access to health and education services, and improvements to infrastructure have helped to reduce poverty. Community block grants have successfully accelerated poverty reduction in rural areas. A range of social protection programs (economic assistance and insurance) have been introduced to protect households from risks and shocks. Further efforts are needed to protect present and future generations who remain vulnerable to the threat of poverty. 32.5 million Indonesians continue to live below the poverty line and half of the population remains highly vulnerable to poverty. Individual social assistance programs are too fragmented to adequately protect families from shocks or to help them effectively manage risk. To address these challenges and maintain the pace of poverty reduction, programs and resources need to be concentrated in poorer regions. Key Actions The new government is in a strong position to accelerate poverty reduction and develop the next generation of social protection programs. As growth continues and fiscal space expands, Indonesia can invest further in programs that successfully reduce poverty. The social assistance and insurance programs currently in place are the potential building blocks for a comprehensive social protection framework. With this in mind, the key policy and program priorities for the next five years are to: 1. Sustain an enhanced, national community-based grant program that focuses on channelling resources to the poorest areas. Increase the size of PNPM-Mandiri (Program Nasional Pemberdayaan Masyarakat - Mandiri) community investment grants for the poorest 2,000 sub-districts (kecamatan). Support PNPM innovations to more effectively reach the poor living in non-poor areas, both rural and urban. 2. Prepare emergency safety nets to help stabilize the income of families vulnerable to shocks (economic and health shocks, natural disasters, and policy changes). Develop mechanisms that monitor shocks and trigger the deployment of emergency safety nets such as unconditional cash transfers (UCT) and/or public workfare programs. 3. Create an integrated framework of social assistance programs to break inter-generational poverty. Deploy health assistance programs, scholarships for the poor and conditional cash transfers (CCT). Establish a coordinated "one-roof " management system and create a unified database from which beneficiary lists can be drawn. Strengthen the capacity of implementing agencies to accurately target and implement social assistance programs. 4. Develop a fiscally responsible second generation of social insurance programs. Assess the implications of broader coverage and clarify the institutional reforms needed to deliver social insurance programs. Then, gradually phase in reforms, ensuring that the system is clear, feasible and affordable. 2 | INDONESIA RISING poor households. The Bantuan Langsung Tunai (BLT), Where Indonesia Stands Now an unconditional cash transfer safety net, helped over 19 million households (one-third of the total population) Indonesia has made progress in reducing poverty but cope with the inflationary shock caused by the fuel subsidy many people remain poor and vulnerable. Sustained removal. The government is also piloting other types of economic growth has helped more Indonesians escape social assistance programs that prevent families from poverty by creating more jobs and increasing public resorting to negative coping strategies such as decreasing expenditures for health, education and infrastructure. basic food- and health expenditures, or pulling children Since the 2004 national elections, the poverty headcount from school to join the workforce. These include Program has fallen from 16.7 percent to 14.15 percent (2009). Keluarga Harapan (PKH) and PNPM-Generasi, pilot Despite these gains, 32.5 million Indonesians currently programs that make grants to households and communities live below the poverty line and approximately half of all conditional on school attendance and the use of public households remain clustered around the national poverty health facilities. line (IDR 200,262/month). The gap between the poor and non-poor is also widening. The Gini Ratio, a measure of Safety nets have been also introduced, but no broad- consumption inequality, has increased from 31.7 percent based system exists that can be quickly deployed in 1999 to approximately 35 percent in 2009. Regional to protect families from the shocks. The impact on disparities also persist; eastern Indonesia lags behind other households of unexpected events such as a sudden health parts of the country, notably Java. crisis, natural disasters or the global financial downturn, and expected shocks resulting from policy reforms can National community grant programs have reduced undermine Indonesia's progress in reducing poverty. poverty by allowing the poor to help themselves. Padat Karya, a short-term workfare program launched in The government scaled-up the National Community response to the 1997 financial crisis, failed to protect the Empowerment Program (PNPM-Mandiri) between poor because of its ineffective targeting and fragmented 2007 and 2009 to provide block grants to rural and urban structure. The subsequent BLT was more successful sub-districts (kecamatan) that support community-level targeted and designed and was thus more effective in development projects. The approach successfully leverages buffering households during the fuel subsidy reduction. In local knowledge to identify obstacles to development while the absence of a coordinated safety net or formal risk- building capacity for coordinated action. PNPM-Mandiri pooling mechanisms, vulnerable households largely rely on has successfully accelerated the pace of poverty reduction informal, inter-household savings to protect themselves. and is especially effective in remote, rural areas that need labor-intensive and productive infrastructure, such as roads Social assistance programs protect families from risks that connect villagers to markets and services. but must be better coordinated and implemented to break the inter-generational cycle of poverty. Pilot PNPM is now providing national coverage, but resources conditional cash transfer programs (CCT) have shown need to be focused on poorer areas to maintain the pace promise in ensuring that families are able to manage of poverty reduction. The PNPM-Mandiri program now risks while continuing to invest in health and education reaches all 6,514 sub-districts across the country, but fails services. Expanding these programs however, requires to focus on the poorest communities. The size of the block addressing implementation issues and ensuring that health grants in these areas remains too small and has not kept and education services are ready to absorb more clients pace with inflation. At the same time, many impoverished from poor and near-poor families (addressing supply side people live in sub-districts that are not considered poor. issues). Other individual social assistance programs such Grant programs need to be better tailored to reach the as fee waivers for health services also face implementation poor who live in these `non-poor' rural and urban areas. challenges and have not worked well. The present With increasing urbanization, much needs to be learned fragmented social assistance system does not consistently about the nature and causes of urban poverty, as well as target, or adequately cover the most vulnerable families. of the types of programs that can best help city-dwellers escape poverty. As more Indonesians escape poverty, a new generation of social insurance programs is needed. The building blocks The government has launched some social assistance of a social insurance system are already in place, including programs to protect vulnerable households from shocks Askes, a health insurance program, and the Jamsostek and inter-generational poverty. In 2005, it began shifting pension program for formal sector workers. Although resources from regressive subsidies to a first generation of the Social Security (SJSN) Law (No. 40/2004) outlines social assistance programs that targeted poor- and near- national aspirations to provide universal coverage, there Policy Priorities for 2010 and Beyond | 3 is no clear plan for how to build a coherent and feasible kecamatan will benefit an estimated 16 million to 18 national system. There are questions regarding program's million families. PNPM however, needs to continuously efficacy and effectiveness, the level of benefits provided, innovate with new approaches to reach poor households the scope of coverage, and its affordability and fiscal that are located in non-poor areas, both rural and urban. sustainability. Without adequate preparation, Indonesia Further research is required to better understand the issues may find itself in the same position as other middle- around urban poverty and to more effectively tailor the income countries that offer generous social insurance PNPM programs to help the urban poor move out of benefits but are now struggling with large contingent poverty. liabilities. Expanding the scope of social protection programs Develop an emergency safety net to requires clear institutional arrangements to ensure mitigate the impact of shocks they are delivered effectively. Responsibility for the development of a social protection strategy ­ consisting Develop mechanisms to monitor shocks and trigger of social assistance and social insurance programs ­ is the deployment of emergency safety nets. The quarterly fragmented. Although BAPPENAS is center-stage monitoring system that is being developed to assess in developing a social protection strategy, it lacks the the impacts of the current global financial crisis should mechanisms needed to coordinate across programs and be institutionalized to detect and track future shocks. ensure inter-agency accountability. The Ministry of Techniques that survey smaller groups on a rolling basis Finance (MoF) is involved in allocating resources but can improve the cost-effectiveness of the monitoring does not have a role in program delivery or management. system without compromising the quality of the data, The two bodies charged with the implementation of social and should be adopted. Under such a system, data will be assistance and social insurance programs ­ the Ministry of collected more frequently, and it will be easier to pinpoint Social Welfare (Depsos) and the National Social Security affected regions and households. The data collated through Council (DJSN), respectively ­ face special challenges. the quarterly monitoring system will improve the decision- Weak administration and limited management capacity making processes that trigger emergency safety net within government agencies has also constrained the programs, their duration and scope. effective implementation of CCT programs such as PKH. Create a complementary set of emergency safety net programs to deliver in-time assistance to those most Where Indonesia Wants to Be affected by shocks. There is a need for an integrated emergency safety net system that can be quickly deployed Tackling poverty and reducing vulnerability requires a to protect affected households. The programs can be used comprehensive and coordinated response. Maintaining individually or in parallel, based on the response strategy economic growth, tackling labor reform to create more defined for any given intervention. jobs and better train workers, improving access to health and education services, and expanding infrastructure The BLT can be used to quickly distribute cash are all essential components of the fight against poverty. assistance to poor and near-poor households. This section, however, focuses on how national poverty Experience demonstrates the need for improved reduction programs and social protection systems can socialization before and during implementation accelerate the pace of poverty reduction and better protect to maximize public support and political buy-in. families from the risks they face. It will be important to maintain an up-to-date list of beneficiaries so that the program can be quickly deployed and accurately targeted. Improve existing national poverty A national workfare program that can be launched reduction programs quickly to provide short-term income generating opportunities for the poor should be developed under Finance an enhanced national PNPM-Mandiri a single administrative agency. Care should be taken program and concentrate resources in the poorest 2,000 to ensure that wages paid by such a program are below kecamatan. The national PNPM network offers a proven market levels for unskilled workers to avoid attracting mechanism through which the government can effectively people who are already employed. Through this form of create jobs for the poor and channel resources to their self-targeting, workfare can be used to reach the newly communities. Increasing the block grant allocations and poor who are not included in program recipient lists. providing additional resources for the poorest 2,000 Programs such as PNPM can be used as a mechanism 4 | INDONESIA RISING for registering participants and channelling funds for labour-intensive projects, including tasks that attract Lay the groundwork for a second the participation of women. generation of programs Develop a second generation of social insurance Create an integrated framework of social programs that are fiscally responsible. Much preparation assistance programs to break inter- work needs to be done before Indonesia is ready to unify and extend a comprehensive social protection framework generational poverty under the SJSN law. First, review the effectiveness, coverage, affordability and fiscal sustainability of current Develop a framework for an integrated social assistance programs, including Askes and Jamsostek. Second, assess program that is strategically managed by a single reform options for extending coverage including the level central institution. Improve the efficiency and cost- of benefits, contribution rates and collection mechanisms, effectiveness of individual social assistance programs and provider networks. Third, develop a reform roadmap by unifying them in a coordinated framework. "One- to gradually phase-in the second generation of social roof " strategic management will help to ensure that insurance programs. Finally, clarify the institutional programs implemented by various agencies work in arrangements and reforms that will be required to concert to effectively protect families. Subsidies for implement the proposed programs. Incrementally phase-in health services and scholarships for the poor can be the reforms to generate buy-in and ensure they are feasible, deployed in coordination with CCTs. Implementation affordable and sustainable. challenges facing the PKH program must be resolved and improvements made to their technical and managerial oversight before they are scaled up nationally. As coverage How The World Bank Can Help increases, the government should phase out programs that do not distribute assistance to the poor efficiently. Coordination among line ministries is necessary to ensure Current Program that health and education services are prepared to meet increased demand: greater synergies can be generated by The World Bank is currently providing support to the co-implementing these alongside the PNPM-Generasi to Government of Indonesia to improve existing poverty further improve local service delivery. reduction programs and develop social assistance interventions by: Further integrate the programs by developing a unified database of poor and near-poor households. Develop Providing financial and technical support for PNPM- a consolidated national database from which individual Mandiri and several PNPM programs including social assistance programs (including the BLT) can PNPM-Rural, PNPM-Urban, SPADA and PNPM- draw beneficiary lists. This will help avoid duplications Generasi. The World Bank serves as the Trust Fund in assistance delivery and allow beneficiary tracking. Administrator for the multi-donor PNPM Support Regularly update and recertify the database to prevent Facility. fraud, uncover households with too many recipients, and The World Bank teamed with BAPPENAS in the eliminate "ghost" beneficiaries. Transparent and accurate design and piloting of the household CCT program targeting will strengthen public buy-in and build political (PKH). A monitoring and evaluation system will assess support for targeted social assistance programs. the implementation and impact of the program to help make decisions about whether the program should be Sharpen the skills and improve the performance of modified and/or expanded. agencies responsible for delivering social assistance BAPPENAS, BPS and the World Bank are partnering programs. Enhance the program design and management to develop a crisis monitoring system that collects skills, and rigorously monitor and evaluate the performance existing data and generates new data to track the of implementing agencies. Teach them how to use the impact of shocks. Data will be used to inform the unified database and apply appropriate and cost-effective future development of response mechanisms. targeting methods to reach those most in need. Strengthen Together with BPS, the World Bank is reviewing the front-line program delivery by building the capacity of need to improve poverty measurements. The World local service providers and piloting new incentives for Bank is also preparing a research report on how to improved service delivery. improve targeting methodologies used by poverty reduction and social protection programs in Indonesia. Policy Priorities for 2010 and Beyond | 5 The World Bank carries out original research on Technical assistance will be provided in developing a select topics to inform policy dialogue on key poverty social assistance framework that is integrated, efficient issues. Research products included the 2006 Poverty and cost-effective. The World Bank offers technical Assessment and the forthcoming Indonesia Jobs knowledge based on experience in Indonesia and Report. similar programs globally, that can support agencies responsible for the implementation of key programs such as conditional cash transfers. Assistance will also Future Support be offered in refining targeting methods and creating a unified database. Future support will build on ongoing collaborations, The World Bank is exploring options to support the and move towards helping the government to develop government institutions responsible for the design and institutions and systems needed to execute its social implementation of a social insurance system. First steps protection agenda. will include providing preliminary diagnostics, such as a social protection public expenditure review. This Using the outcomes of the crisis monitoring system, the could later be extended to technical studies exploring World Bank can assist the government in modifying reform options based on experiences in extending social the design of existing programs so that they are better protection in other middle-income countries, to inform targeted to regions or groups vulnerable to the effects policy makers responsible for designing the framework of the crisis or other external shocks. The World Bank of the future National Social Security (NSS) system. can also help develop a public works program based on lessons learned from Indonesia's last workfare program, Padat Karya, and international experience. The World Bank Office Jakarta for more information, please contact: Indonesia Stock Exchange Building Tower 2, 12th floor Ms. Vivi Alatas Jl. Jenderal Sudirman Kav. 52-53, Jakarta 12190, Indonesia Senior Economist ph. + 62 21 5299 3000 | fax. + 62 21 5299 3111 valatas@worldbank.org http://www.worldbank.org/id Investing in Indonesia's Institutiond for Inclusive and Sustainable Development