Indonesia’s ExperienceEconomic Shocks

Harapak GaolDirector, Social Disaster Victims, Ministry of Social Affairs

Indonesia

Source: CBS, 2011-2017 was September data

Global fuel and food price increased and reduction of oil subsidy

24.2 23.43

19.14 18.41 18.20 17.42 16.66 15.9717.75

16.5815.42

14.1513.33

12.36 11.66 11.47 10.96 11.13 10.70 10.12

19981999200020012002200320042005200620072008200920102011201220132014201520162017

Poverty has continue to decrease, but the pace is

getting slower2010-2011 decreased 0.97%2016-2017 decreased 0.58%

0%

5%

10%

15%

20%

Jan

2005

May

200

5Se

p 20

05Ja

n 20

06M

ay 2

006

Sep

2006

Jan

2007

May

200

7Se

p 20

07Ja

n 20

08M

ay 2

008

Sep

2008

Jan

2009

May

200

9Se

p 20

09Ja

n 20

10M

ay 2

010

Sep

2010

Jan

2011

May

201

1Se

p 20

11Ja

n 20

12M

ay 2

012

Sep

2012

Jan

2013

May

201

3Se

p 20

13

CPI vs CPI Poverty Basket (% YoY)

CPI

The Progress of Poverty Reduction, 1998-2017

8 March 20182

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.

Some Analysis on Subsidy

8 March 20183

Some Milestones of Subsidy Reform2005 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.

• 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.

• President Jokowi era: Significant cut of fuel subsidy in 2015 to meet market price

• The Reform has continued

Poverty would have increased by 2.5 percentage points

without BLSM, but the actual increase was only 0.1

percentage point.

BLT did not lead to laziness: beneficiary HH

found new jobs at higher rates than non-BLT HH.

8 March 2018 4

UNCONDITIONAL CASH TRANSFER

• 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.

• Started in 2002, target bottom 25% of the population.

• 15 kg/month/HH with purchased of Rp1600/kg.

• Add frequency of distri-bution during crisis

• Main issue: inefficient distribution and ‘missing rice’

• In 2017, it started to transform to electronic food voucher of rice and egg.

RICE SUBSIDY FOR POORCONDITIONAL CASH

TRANSFER

• 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 & school-age children, disable, and elderly.

• Currently use electronic payment system via bank.

• Expand target and/or benefit in crisis.

• First time implemented during 1997/98 crisis. Become National com-munity-based program in 2007.

• Covering 7K subditricts, with 8K< facilitators.

• Combined advantages: improved village infra-structures & temporary employment creation.

• In 2015 has transformed to Village Fund. In 2018, cash for work is strengthened

COMMUNITY-BASED CASH FOR WORK

Social Protection Programs to Response Economic Shock

8 March 2018 5

COMPENSATION OBJECTIVES: poverty? fiscal sustainability?

Designing Shock Response toward Subsidy Reform

REFORM DECISIONS: SCALE, TIMING, SAVINGS

WHO TO COMPENSATE?

Targeted vs Universal

HOW MUCH TO COMPENSATE?

Fix/variable benefit

HOW LONG TO COMPENSATE?

Frequency, reform buy in

COMPENSATION DELIVERY METHODProgram effectiveness, delivery factors, global experience

8 March 2018 6

INSTITUTIONAL SET-UP

BENEFICIARY OUTREACH ENROLMENT

MIS, MONITORING & EVALUATION, COMPLAINTS & GRIEVANCES

PAYMENTSBENEFICIARY

IDENTIFICATION & VERIFICATION

A Roadmap to Ensure Effective Implementation

8 March 2018 7

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

Education11.8%

Spending reduction

15.4%

Difficulties to fulfill

basic needs14.7%

Declining working

condition15.4%

Declining Income16.2%

Seeking other jobs

2.2%

Social Aspects

5.1%

Psychologic19.1%

Source: SMERU, 2009

Crisis Response at Household Level

Some Key Questions for a Crisis Response

8 March 2018 8

UNIFIED DATABASE IMPROVEMENT

10,12%

38%

40%

Poor

25%

Alm

ost P

oor /

Vul

nera

ble

15%

Exclusion Error

PREMIUM FOR NATIONAL HEALTH INSURANCE (KIS)94.2 million people

FOOD ASSISTANCE/VOUCHER (KKS)15.6 million families

CONDITIONAL CASH TRANSFER (PKH)10 million families

NATIONAL POVERTY LINE (SEPT 2017)26.6 million people

Inclusion Error

UNIFIED DATABASE *)

*Notes: 1. UDB consists of the 40% poorest population. It is updated every May and Nov through MoSA Decree2. 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 application3. New and improved proxy-means testing identified the poor more accurately4. Available for use by different anti-poverty programs to identify target groups eligible to receive benefits 9

9

Number of People427.222

Number of Households26.742055

Number of Families28.780.456

Number of People96.829.022

SCHOLARSHIP FOR THE POOR (KIP)19.7 million students

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)

Accuracy Of Implementation Target Of Subsidy And Social Assistance Program

8 March 2018 10

Subsidy Budget Reform

11

733,773

573,703

-

1,770,562

286,385

643,835

20,766

1,984,150

174,227

663,578

46,679

1,864,275

168,877

697,667

58,200

2,111,364

156,228

706,163

60,000

2,220,657

- 1,000,000 2,000,000

Subsidy

Transfer to Region

Village Fund

Total State Expenditures

2018 2017 2016 2015 2014

Distribution of State Expenditures (Billion Rupiah)

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

Source: Financial Note, various years

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.

52.7 61.9 69.282 90.1 98.4 99.6 99.6 99.6

26.130.6

38.7

60.957.8

76.7 78.3 81.49 85.9911.3%

10.5% 10.1%

12.6% 12.4%13.3% 13.6% 13.5%

12.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0

20

40

60

80

100

120

140

160

180

200

2010 2011 2012 2013 2014 2015 2016 2017 2018

Jaminan Sosial

Bantuan Sosial Berbasis Keluarga

Sumber: Bappenas diolah dari berbagai sumber

Budget Allocation Based on Intervention and Share from Central Government Spending (in Rp Trilion)

12

Social Protection Budget, 2010-2018

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.)

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

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

a process of bridging beneficiaries in:

• Accumulated assets and financial management capacity (reducing direct use of cash for consumption, savings culture)

• Entrance to various other financial services (transactions, transfers, credits, microinsurance, remittances)

• Safety and comfort

• Minimize illegal levies

Encourage financial inclusion

Continuous Reform Of Targeted Assistance / Subsidies - Food And Energy

8 March 201813

Food Energy

Bank Account

Beneficiaries

Non-cash Assistances

CashNon-Cash

Merchant Energy Saving ATM

e-voucher

Smart Indonesia

Card CCT/PKH

Cash Assistances

The objectives: asset accumulation, financial inclusion, minimize fraud and error.

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.

Combo Card

E-wallets

Integrated Non-cash Transfer Of Social Assistance

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.

15THANK YOU8 March 2018