 Making the New Indonesia Work for the Poor   Full Report (12MB)
 Executive Summary Bahasa (1MB) | english (1MB)  All files in pdf format  Key findings Almost half of all Indonesians are poor or vulnerable to poverty. With almost 42 percent of households clustered between the US$2- and US$1-a-day poverty lines, far too many Indonesians remain highly vulnerable to poverty. Several non-income dimensions of poverty remain problematic. Better outcomes in health and education can only be achieved through significant improvements in service quality and increased access of the poor to basic services. Regional disparities remain wide and enduring. Given Indonesia’s vast geography, some regions are not only lagging behind but the gap between lagging regions and others is not closing.
How to make growth work for the poor? Revitalize agriculture and increase agricultural productivity. With almost two-thirds of the poor still working in agriculture, boosting agricultural capability remains essential for broad-based poverty reduction. Together with an array of policies to boost agricultural productivity by the government, efforts to speed up land-titling will help in this regard. Launch a rural roads program. Access to roads is shown to be a key correlate of poverty. But the condition of district roads in rapidly deteriorating as less money is allocated to maintenance. Remove the ban on rice imports. Imposing a tariff is a more effective way of stabilizing prices for the poor and protecting farmers. This is a concrete way for the government to reduce poverty. Extend the financial reach of financial services to the poor and boost access to commercial credit for micro and small businesses. Surveys suggest that the potential exists to almost double microfinance lending if ways can be found to address the constraints faced by households and small firms that currently wish to borrow but do not do so.
How to make services work for the poor? Clarify functional responsibilities for the provision of services. A lack of clarity of responsibilities is paralyzing accountability in service delivery. Clear responsibilities are needed in order to define the roles of central, provisional and district governments, as well as service providers and local communities. This will require improving the decentralization architecture to aid coordination between local and central governments. Improve civil service staffing and management in social sectors. A new regulatory framework and incentive structure for organizational and personnel management is needed. These require a less rigid employment regime and removing the system of structural and functional positions, together with the rigid ranking of posts. Provide stronger incentives for service providers. The provision of clear, predictable rewards and sanctions is necessary to provide a framework that will systematically promote good behavior and outcomes by service providers. To achieve this, the use of service agreements between service providers and local governments should be promoted to increase the authority of service providers over operational aspects of delivery and also providing benchmarks for monitoring. Giving communities are larger say in the way services are delivered. Communities are often more efficient at building and maintaining local infrastructure and should assume a larger role in ensuring the poor have access to basic services.
How to make expenditures work for the poor? Scale up Indonesia’s successful community-driven development (CDD) programs. While mitigating the vulnerability of the poor, a national CDD program will also address regional disparities in incomes through employment creation, as well as helping to connect the poor to growth through the development of rural infrastructure. Pilot demand-side programs that improve service quality and encourage behavioral change. Conditional cash transfer (CCT) programs will allow for income support to poor households while also encouraging household behavioral change. Placing targeted spending in the hands of the poor will encourage them to demand the services they require to meet program conditions and also motivate service providers. Make both the DAU (General Allocation Fund) and the DAK (Special Allocation Fund) more pro-poor. Currently, there is no correlation between DAU transfers and poverty rates. It is important that the DAU formula be refined to increase the poverty variable already contained in it. Meanwhile, the DAK should be increased and also used to leverage local government resources by revising the matching-funding requirement, as well as improved through the introduction of performance-oriented incentives.
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