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World Bank and Poverty in Indonesia


Targeting Poor and Vulnerable Households in Indonesia. Download
Protecting Poor and Vulnerable Households in Indonesia. Download
Social assistance program and public expenditure review papers. Download
Ensuring social assistance reaches those most in need.

Poor families in Indonesia could be better supported if social assistance programs are improved and cover more risks faced by the poor.
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Indonesia has made progress in reducing poverty but many people remain poor and vulnerable. Sustained economic growth has helped more Indonesians escape poverty by creating more jobs and increasing public expenditures for health, education and infrastructure. Since the 2004 national elections, the poverty headcount has fallen from 16.7 percent to 14.15 percent (2009). Despite these gains, 32.5 million Indonesians currently live below the poverty line and approximately half of all households remain clustered around the national poverty line (IDR 200,262/month). The gap between the poor and non-poor is also widening. The Gini Coefficient, a measure of consumption inequality, has increased from 31.7 in 1999 to approximately 35 in 2009. Regional disparities also persist; eastern Indonesia lags behind other parts of the country, notably Java. Furthermore,17.35 per cent of rural people are poor, compared to 10.7 percent of urban people, or looked at another way, 70% of the poor live in rural areas.

National community grant programs have reduced poverty by allowing the poor to help themselves. The government scaled-up the National Community Empowerment Program (PNPM-Mandiri) between 2007 and 2009 to provide block grants to rural and urban sub-districts (kecamatan) that support community-level development projects. The approach successfully leverages local knowledge to identify obstacles to development while building capacity for coordinated action. Recent impact evaluations show that PNPM has increased consumption in poor households and has helped move them out of poverty. It has also generated employment and helped to fill the infrastructure gap. The government has recently scaled up PNPM-Mandiri to provide national coverage. This has successfully accelerated the pace of poverty reduction and is especially effective in remote, rural areas that need labor-intensive and productive infrastructure, such as roads that connect villagers to markets and services. Looking forward, better targeting poor areas, as well as poor households within less poor areas, as well as in urban areas, will deepen the impact of this program.

Safety nets have been also introduced, but what is needed is a broad-based system that can be quickly deployed to protect families from shocks. The impact on households of unexpected events such as a sudden health crisis, natural disasters or the global financial downturn, and expected shocks resulting from policy reforms can undermine Indonesia’s progress in reducing poverty. The experience of the now closed Padat Karya, a short-term workfare program launched in response to the 1997 financial crisis, provides lessons on how to better protect the poor with more effective targeting and coherent structure. The subsequent BLT was more successfully targeted and designed and was thus more effective in buffering households during the fuel subsidy reduction. In the absence of a coordinated safety net or formal risk-pooling mechanisms, vulnerable households largely rely on informal, inter-household savings to protect themselves.

The Government of Indonesia (GoI) introduced a second generation of social assistance programs following the partial removal of regressive fuel subsidies in 2005. A portion of the savings from the fuel subsidy cuts were reallocated to four programs: operational aid to schools (Bantuan Operasional Sekolah, BOS), health insurance for the poor (Asuransi Kesehatan Miskin, Askeskin), village infrastructure (Infrastruktur Pedesaan, IP) and rice for the poor (Beras Miskin, Raskin). Later, the government also introduced a temporary unconditional cash transfer (Bantuan Langsung Tunai, BLT) to help poor and near-poor households cope with the inflationary shock caused by the fuel subsidy removal.

These programs are the basis of an emerging, permanent social safety net, providing income support for poor and near-poor households. Askeskin, re-named Jamkesmas (Jaminan Kesehatan Masyarakat), now covers around 76 million beneficiaries, making it the largest social assistance program in Indonesia. Raskin continues to distribute rice to millions of families across the country. BLT was temporarily re-launched in 2008-09 to mitigate the inflationary impact caused by an additional fuel price adjustment in mid‑2008. These programs joined the array of small social welfare programs already implemented by the Department of Social Affairs (DepSos), targeting especially vulnerable groups such as orphans or the disabled.

More recently, the government has begun introducing and re-defining social assistance programs to break the generational transmission of poverty. In 2007 the GoI piloted a conditional cash transfer program (Program Keluarga Harapan, PKH) executed by Depsos. PKH assistance is transferred only when families obtain preventive basic health and nutrition services, and send their children to school. The program has to date reached around 700,000 poor households and is preparing for further expansion. The government is also reconsidering how an existing scholarship program for students from poor households can be better targeted to help them escape from poverty.

These programs provide support for both poor and near-poor families – up to half of all households – that are highly vulnerable to shocks. These near-poor households are highly vulnerable to macroeconomic or financial shocks, health shocks, natural disasters, or localized shocks to production (such as bad harvests) which have the potential to push them under the poverty line.

As more Indonesians escape poverty, a new generation of social insurance programs is needed. The building blocks of a social insurance system are already in place, including Askes, a health insurance program, and the Jamsostek pension program for formal sector workers. The Social Security (SJSN) Law (No. 40/2004) outlines national aspirations to provide universal coverage, and a roadmap is currently being developed to build a coherent and feasible national system, as well as assess program efficiency and effectiveness, the level of benefits provided, the scope of coverage, and its affordability and fiscal sustainability. Without adequate preparation, Indonesia may find itself in the same position as other middle-income countries that offer generous social insurance benefits but are now struggling with large contingent liabilities.

Indonesia needs to generate more good jobs to fully share the benefits of sustained economic growth with workers. Labor is one of the few assets of the poor. If provided with a good job, they have a chance to earn their way out of poverty. Significant jobless growth from 1999 until 2003 contributed to the current situation where the majority of the Indonesia’s working population of 104.5 million people is concentrated in the agricultural and informal sectors. Despite sustained economic growth, the rate of poverty reduction is slower than hoped, partly because there are not enough opportunities for poor workers to move into better jobs in the formal and non-agricultural sectors. Economic shocks can also dampen the pace of job creation and, if serious enough, can threaten to push Indonesia back into jobless growth.

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Key Issues for poverty reduction:

  • Improve existing national poverty reduction policies and programs through improved research and analytical capacities and products to inform policy debate and implementation at central and local level.

  • Develop an emergency safety net to mitigate the impact of shocks: Develop mechanisms to monitor shocks and trigger the deployment of emergency safety nets; Create a complementary set of emergency safety net programs to deliver timely assistance to those most affected by shocks.

  • Create an integrated framework of social assistance programs to break inter-generational poverty: Develop a framework for an integrated social assistance program that is strategically managed by a single central institution; Further integrate the programs by developing a unified database of poor and near-poor households; Sharpen the skills and improve the performance of agencies responsible for delivering social assistance programs.

  • Improve the targeting of programs so that assistance gets to those who need it most.

  • Stimulate job creation to provide more opportunities for workers to earn their way out of poverty. Reform labor regulations that make it easier for employers to hire more workers while, at the same time, ensuring adequate protection for employees. Provide training facilities for vulnerable workers to improve their skills sets to equip them for better jobs.

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The Poverty Group's ongoing targeting work includes a number of major projects. A pilot program was conducted in 2008 in conjunction with the Central Bureau of Statistics (BPS) to examine the effectiveness of various Proxy-Means Testing (PMT) and community-based approaches to targeting poor and in-need households. A follow-up pilot examining PMT-community hybrids is being examined, along with a pilot study of self-targeting methods. Drawing variously on the pilot work, international experience and new analyses, a major study of targeting in Indonesia is underway, which will review the accuracy of a full set of methods, map them to different targeting needs, assess capacity, fiscal, institutional and political barriers to implementation, and evaluate the effectiveness of current socialization and the public and political buy-in of the targeting of major social assistance programs. In addition it will develop recommended strategies towards the establishment of a unified national targeting system. Finally, a series of targeting tools are planned for use at central and local government level to assist in the implementation of particular targeting approaches and an analysis of their effectiveness.

Crisis Monitoring and Analysis
The Poverty Group, with financial support from the Australian Government's Overseas Aid Program (AusAID), is assisting the National Development Planning Agency (Bappenas) in establishing a Crisis Monitoring and Response (CMR) System to better understand how the current Global Financial Crisis (GFC) is being transmitted to Indonesia, which coping mechanisms households are adopting, and what the socio-economic outcomes are. The CMR will use both new and existing data to provide timely data across a range of household and macroeconomic indicators, to help the Government of Indonesia select and direct their policy responses. An important component of the CMR is a new three round quarterly household survey which will include important indicators not generally monitored in Indonesia, conducted nationwide and at the district level. In addition, the Poverty Team will conduct a more in-depth analysis of the impacts of the GFC as more detailed data become available in early 2010, focusing on the impacts on poverty, labour and migration. It is hoped that the current work on the GFC can contribute to a potential regular vulnerability and shock monitoring and response system for Indonesia.

Social Protection.
Poverty Team’s Social Protection group is currently working on a major review of expenditure, efficiency, and adequacy in the social assistance sector in Indonesia. Several independent program-level studies feed into this larger project. The most important of these are performance reviews and impact analysis of the Government of Indonesia’s (GoI) Jamkesmas (non-contributory health insurance for the poor), PKH (conditional cash transfer), and BLT (unconditional emergency cash assistance) programs. The impact analyses will take advantage of Indonesia’s data-rich environment to summarize the effects of participation in these programs on health care and education service utilization (for Jamkesmas and PKH), consumption, expenditure, and poverty status (for BLT and PKH), and consumption profiles (BLT). Performance reviews take advantage of Indonesian data as well, but in addition commission qualitative and quantitative analyses to understand where and when programs are being delivered effectively or if implementation issues are hindering program effectiveness. Other programs reviewed for performance and included in the larger social assistance sector review are a scholarships for the poor initiative, Raskin (subsidized rice), and a few small programs targeting specific vulnerable groups like orphans, the elderly poor, and the disabled. This schedule of projects will provide the GoI with an analytical base to pursue improvements in program delivery and sector-wide reform in social assistance.

This review of programs and the larger exercise examining GoI coverage and adequacy at the sector level are being undertaken with several World Bank, government, university, and think-tank partners. The Bank’s Public Finance and Regional Development team (PFRD) are taking the lead on sector-wide expenditure review while Bank Human Development teams are contributing pieces of performance analysis of Jamkesmas and scholarships. Within GoI, major contributing partners are the Development Planning Agency (Bappenas) and the Ministry of Social Affairs (DepSos) who are offering oversight and analytical guidance through steering committees and staff time and partners for collaboration and interaction on the analytical work itself. Local universities and think tanks (including the University of Indonesia, SMERU, MediaTrac and others) will be responsible for substantial inputs into all program performance reviews.

Statistical Capacity Building.
The Poverty Team is engaged in various technical assistance programs and preparation of a major institutional reform project with BPS (Badan Pusat Statistik) Statistics Indonesia. The objective of the support is to improve the quality of BPS products and services, and increase accessibility to quality data.

  • Statistical Capacity Building-Change and Reform for the Development of Statistics (STATCAP–CERDAS) program supports the implementation of the 2010-2014 BPS Strategic Plan for Change and Reform to support institutional reform initiatives aimed at long-term sustainability of capacity building efforts. The program is designed to improve quality of priority BPS data collections, user engagement and quality assurance mechanisms. Major investments will also be made in development and management of Information and Communication Technology, and Human Resources, to ensure sustainability of statistical quality improvement efforts. BPS is currently in the preparation, design and scoping phase of this project.
  • Trust Fund for Statistical Capacity Building (TFSCB) project provides an assessment of data flow between regions and the center, with a particular emphasis on sectoral data from local governments. Decentralization and regional autonomy since 2000 has created breaks in vertical reporting lines in the government, while demand for disaggregated regional data has increased significantly. The project aims to improve the availability of sub-national data through the BPS Region-in-Figures (Daerah Dalam Angka) publications.
  • Technical assistance to BPS to produce more reliable, timely and relevant poverty-related data. The Poverty Team provides support for improving statistical methodology and analysis, as well as improving major surveys, such as the National Social Economic Survey (Susenas) and the National Labor Force Survey (Sakernas). These include improvements in survey methodology and management, and data processing and management systems.


Fighting poverty by helping Indonesia translate growth into jobs.
The World Bank's Poverty Team provides analysis of the labor market in Indonesia in order to support reforms and programs that will give the poor a better chance to find good jobs. Current debates concerning labor market policies and programs are not often based on empirical evidence. To support a productive dialogue between the government, workers and employers, the Poverty Team is preparing a comprehensive report on the labor market in Indonesia. The Indonesia Jobs Report, based on the latest empirical data, covers four broad areas:

  • Examining labor market trends. Looking at the evolution of the Indonesian labor market helps to better understand today’s labor situation. Over the last two decades, Indonesia experienced major economic shocks and adjustments, underwent a radical political transformation, and revamped its national labor policies. The country entered a period of 'jobless growth' during 1999-2003, where economic growth was not accompanied by expanding job opportunities. The analysis in the report attempts to uncover the causes of jobless growth and explores how the majority of workers resort to seeking jobs in the informal sector.
  • Assessing labor policies and institutions. The Manpower Law (No. 13/2003) contributed to improvements in the creation of ‘better’ jobs by establishing a system to moderate minimum wages that, between 1999 and 2003, were rising rapidly. At the same time, however, the law significantly tightened hiring and firing regulations by restricting the use of temporary contracts and increasing severance rates. Since then, redundancy costs in Indonesia have continued to be the highest in the region. This has sparked an on-going controversy around the extent to which these regulations deter employers from hiring staff, and whether rigidity in the labor market is slowing the pace of job creation in the formal and non-agricultural sectors. The report looks at the effects of minimum wages on employment trends, and how hiring and firing regulations influence job creation trends and employee protection.
  • Equipping workers with skills. With increasing public investments over the past three decades, Indonesia’s workforce is more educated than ever before. Indonesia, however, continues to lag behind our regional neighbors. Much work remains to be done in continuing to improve the education levels of the overall workforce. The Ministry of National Education has been trying to improve work skills by promoting vocational secondary education so that 70 percent of all students are enrolled in vocational education by 2015. Research by the World Bank demonstrates, however, that while vocational senior secondary education is more expensive it does not provide clear advantages for graduates in the workforce. Poor and vulnerable workers have less access to the formal education system. The Jobs Report looks at how non-formal training can help vulnerable workers to succeed better in the labor market.
  • Protecting vulnerable workers from employment and wage shocks. During economic downturns, workers at risk of losing their jobs have few safety nets to fall back on. Although Indonesia has weathered the recent global economic downturn, many questions have been raised about the preparedness of the government to protect laid off workers who depend on stable income to support their families. The Jobs Report considers how policies and programs, such as public works, can be used as effective safety nets to maintain the income of workers during hard times.

The full report will be available early 2010, and will form the basis for on-going policy dialogue that supports job creation for all.

Strengthening Capacity for Poverty Monitoring and Analysis.

  • Capacity Building for Poverty Research and Analysis
    The objective of this new program is to develop and disseminate simple, user-friendly tools and training materials that can be used to strengthen the national capacity to monitor poverty dynamics, analyze poverty issues, and assess the poverty impact of policies and programs. The key activities include:
    • Conduct a needs assessment of potential users of analytical tools and training materials including: central government agencies, universities, think tanks, and local governments.
    • Localise and disseminate existing analytical tools such as ADePT to monitor changes in poverty, labor market, and social protection trends.
    • Prepare a toolkit with a simple, user-friendly manual with guidelines on how to use and apply the analytical tools. Translate core poverty manuals into Indonesian.
    • Pilot the use of the toolkit with selected government units and/or partner universities and provide training in the use and application of the tools.
    • Develop and pilot a series of poverty analysis training courses tailored to meet the needs of different target groups: 1) policy makers and 2) technical data analysts at central level, 3) planners in local government. These courses will be delivered at the basic, intermediate and advanced levels over the course of the project.
    • Train a core group of analysts at the technical and policy levels (in both government as well as universities) who can assist in disseminating the appropriate skills at the local level.
    • Provide support to partners to engage in alternative learning and information exchange opportunities such as on-line e-learning courses in Poverty Analysis, Indonesia Seminar Series, etc.

The first phase will focus on assessing needs, and developing and testing the analytical tools and training materials. Activities will continue in subsequent phases to build capacity (by providing a training-of-trainers) of key focal point institutions that can provide ‘wholesale’ dissemination of the analytical tools, training and follow up support services to local institutions and governments in the use and application of the toolkits. A broader dissemination strategy to local governments and local research, academic institutions and think tanks will be considered in following phases once the toolkits and training modules have been developed and tested. Phase 2 will also include developing a toolkit for modeling and forecasting social protection, as well as forecasting labour and poverty.

Activities will target three main user groups: central agencies, including Bappenas; local governments and universities that are partnering with Bappenas. Specific target user groups will be identified through the needs assessment activity. Dissemination and piloting of the toolkits will take place with groups where demand has been confirmed.

The World Bank Poverty Team is collaborating closely with other Development Partners in to coordinate efforts in capacity building, including for example AusAid who have recently launched their long term Knowledge Sector Support Program.

  • ADePT Indonesia
    The ADePT software, recently developed by Development Economics (DEC), is designed to simplify and speed-up the production of a standard set of tables and graphs with basic poverty and inequality statistics so users can free up resources for other activities, including drawing policy implications from the empirical evidence. It also helps to minimize human errors, and to introduce new techniques and methods of applied economic analysis to a wide audience of practitioners. ADePT can be used as a tool for monitoring trends, sensitivity analysis, and data checking. Indonesia is the first country to localize the ADePT software, by translating the interface, ouput tables, training videos and user manuals, as well as providing additional tables specific to the Indonesian policy context, and adding a Kabupaten filter which would facilitate the production of local level poverty assessments. There are a number of different ADePT modules available, as follows:
    • ADePT Poverty accepts both individual and household-level data and generates about 30 tables and 7 graphs on poverty, inequality, decompositions of poverty changes, poverty profiles by socio-demographic categories, consumption regressions, poverty simulations and sensitivity analysis.
    • ADePT Labor processes individual level data and generates about 30 tables on employment status, earnings, working hours, inequality, as well as poverty and child labor.
    • ADePT Social Protection examines how equitable, effective and efficient the programs are by looking at how the beneficiaries and/or benefits of social protection programs are distributed across quintiles, deciles or other population groups.

These 3 localized ADePT modules will be launched and disseminated through training courses in March 2010. ADePT modules for Education, Health, Gender, Targeting, and Poverty Lines are in the pipeline and will also be localized.

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