by
Jehan Arulpragasam
Senior Economist
World Bank Group
Jakarta, Indonesia, January 20, 2005 Over 110 million Indonesians live on less than US$2 a day – equivalent to the entire populations of Malaysia, Vietnam, and Cambodia combined. Most of South East Asia’s population living under US$2 a day lives in Indonesia. The decision of this Government to integrate its Poverty Reduction Strategy (PRS) into its Medium-Term Development Plan (RPJM) is a major step forward in bringing a poverty focus to all the Government’s work. Now the challenge is to implement this strategy and bring better lives to the poor --- starting by integrating the targets and programs into the annual government work plan, and ministry plans and budgets. It will be important to focus on critical actions in three broad areas: Creating opportunities. Accelerating growth that is pro-poor has been and can continue to be a key pillar to reducing poverty in Indonesia, as stressed by the President. Priority areas to get growth going, particularly in rural areas where the poor live, could include: Launch a large-scale program to invest in rural roads. Evidence from Indonesia’s own experience shows that building rural roads is one of the most effective ways of reducing poverty. Yet almost half of Indonesia’s district roads are in poor or bad condition, and five percent of the population has no access to an all- season road. Rural road investment can be funded through a DAK, and possibly combined with a labour intensive public works programs. Dramatically accelerate land titling. Less than 25 percent of holders of rural land parcels have a formal land certificate. Security in ownership enhances investment on land and agricultural productivity. Access to land title can also expand the access of the poor to credit --- rural recipients of land certificates borrow more, invest more, and earn more from their land-based economic activities. Create sustainable micro-finance institutions to serve the poor. Some fifty percent of households lack effective access to micro credit but the solution is not to provide yet more subsidized credit. Instead, Government can link micro-finance providers with the formal banking sector, and establish a legal framework that will allow micro-finance institutions to expand and outreach to the poor. Making services work. Indonesia will need to make services, such as health and education, more accessible and working better for the poor if it is to reach MDG targets. Some priorities would include: Establish an ‘education for the poor’ grant. Many children from poor households do not complete basic education and drop out before entering secondary school. Government can prevent poor children from dropping out by establishing an ‘education for the poor’ DAK directed to schools that serve poor children and do not meet minimum standards. The grants could be made conditional on agreed upon improvements in standards and caps on school fees. Reduce Indonesia’s shockingly high maternal mortality. Close to 310 women die with every 10,000 live births, the highest maternal mortality rate in Southeast Asia. Government can launch a widespread campaign informing women and their families of the benefits of professionally assisted birth delivery in health centres and provide free delivery to poor women in health centres. Give more money to poor regions. Fiscal inequality among sub-national governments is large. As a result, poorer local governments cannot deliver basic services to their citizens at an acceptable level and quality. More money, if well spent, can help. The formula share of the DAU allocation to regions can be expanded and the weighting of the poverty variable increased. Improving social protection. Many Indonesians are extremely vulnerable to poverty with such a high percentage of people living below US$2 a day. Target social protection programs better. Indonesia spent 74 trillion on social protection in 2004, more than government spending on health and education, but only about 10 percent actually reached the poor. Government has already indicated its intent to reduce subsidies on gasoline, and savings can be reallocated to expand social protection programs and/or DAK to support progressive fulfillment of the basic rights. Government could target remaining social protection programs better using BPS poverty maps. |
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