Protecting present and future generations from poverty

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