How the Holes in Indonesia’s Safety Nets Hamper Poverty Reduction

How the Holes in Indonesia’s Safety Nets Hamper Poverty Reduction

By IRIN News on 4:24 pm November 8, 2013.

Indonesia’s economy grew by roughly 6 percent in 2013, but its poverty reduction has nearly stalled with almost half the population living in poverty — and experts struggling to identify and serve the neediest among them. “It’s true that [social] targeting is not easy and it’s complicated,” Nina Sardjunani, the Indonesian government’s deputy development planning minister, told IRIN.The decrease in the official poverty rate from 2011-2012 (half a percentage point) was the smallest since 2003, according to the World Bank as cited by Australian National University.

Social targeting — the process used to identify people most in need of social assistance — in Indonesia has improved in recent years, say analysts.

But with some 11.4 percent of the population living in poverty (and another 40 percent hovering near it), the cyclical nature of poverty, time lags between identifying the poor and getting them assistance, and different ways of implementing national welfare programs at the community level, have all made it difficult to keep Indonesian families from falling into poverty, despite the government’s goal to cut poverty to 8 percent of the nearly 247 million population by 2014.

With some 3 percent (nearly eight million people) still to go and only two months until 2014, it is imperative not only to expand poverty-alleviation initiatives, but also ensure their efficiency, say experts.

With fuel prices that have risen three times in the past decade and ongoing increases in rice prices (in a heavily rice-dependent country), the government has responded with several social safety nets this past decade.

Safety nets

The government first introduced the Bantuan Langsung Tunai (BLT), an unconditional cash transfer now known as the Bantuan Langsung Semetara Masyarakat (BLSM), to 19 million households every three months from 2005-2006, and from 2008- 2009, to smooth over fuel price shocks.

In June 2013 the government allocated nearly US$829 million to the BLSM, distributing $13.35 to each of 15.5 million households twice between June and October.

The National Team for Accelerating Poverty Reduction (TNP2K), established by the government in 2010, oversees implementation of all public poverty reduction programs.

The excluded fight back

A number of these initiatives, particularly cash transfers, have instigated protests throughout the past decade, while failing to lift significant numbers of households out of poverty, causing analysts to question the anti-poverty schemes’ scope and efficacy.

Eligibility lists for unconditional cash transfers previously known as BLT were largely decided by sub-village heads; national program staff then reviewed the lists.

“If a poor household was not nominated, they were not assessed, and many of them missed out on the program,” reported the World Bank in 2012.

Until recently families had no official recourse to challenge BLT classification, resorting instead to protest.

There were protests in 56 percent of communities where BLT was implemented between 2005 and 2008 linked to perceptions of favoritism.

In a West Papuan community, villagers jailed a village chief and his treasurer in 2005; in Central Java in the same year, the community verbally insulted a village leader responsible for eligibility until he offered to resign, according to the 2012 study co-commissioned by TNP2K.

To maintain social peace, “local leaders often redistributed in order to decrease social jealousy,” said Anna Winoto, the social policy specialist for the UN Children’s Fund (Unicef) in Indonesia.

Another program that put a strain on community relations that has “abated but not disappeared” according to a 2012 World Bank report is Raskin, which provides 17.5 million households with 14kg of subsidized rice monthly.

Rice typically costs 40 US cents per kilogram; the subsidized price is almost half, and covers 30-40 percent of a household’s average total rice consumption, according to the Asian Development Bank.

Village officials manage the subsidy, and often redistribute rice to the whole village to share equally. As a result, an estimated 71 percent of the lowest three socioeconomic groups — the targeted beneficiaries — receive subsidized rice, but it may be less than what is intended for them, says the World Bank.

However, in a report released one year after Raskin’s implementation, the Organisation for Economic Co-operation and Development noted the “flexibility in local level implementation may have even improved targeting with pressure for fairer distribution at the local level and allowing newly poor families to access the subsidized rice”.

Efforts to improve

The country’s current social targeting methodology, introduced in 2011, is a database of households’ socioeconomic indicators (excluding income due to lack of data) gathered every three years by the Central Bureau of Statistics.

“Before the government adopted a unified database in 2011, each program had [its] own list and target of people. It was all very confusing because of leakage [when resources intended for the poor flow to affluent groups] and overlap,” said Winoto from UNICEF.

TNP2K identifies households falling into the lowest 40 percent according to BPS surveys, which are entered into the database. Each national poverty alleviation program can then filter its target population. (PKH targets the poorest 10 percent, BSM the poorest 25 percent with school-age children, and Raskin the poorest 25 percent, with or without children.)

In addition, the government introduced Kartu Perlingdungan Sosial (KPS) social security cards in June 2013 for the country’s poorest 25 percent that were eligible for Raskin, BLSM, and BSM; without these cards, families will not be considered for enrollment.

Families that think they were unfairly excluded in the past from any social assistance program can now apply to their village head to be re-assessed. Card holders can also file complaints on a newly-established government website for citizen reporting which includes reporting applications for smartphones for download.

“Coverage has improved. However, we have to recognize a few challenges,” said Winoto from UNICEF, who explained that household data is only collected by the Central Bureau for Statistics every three years, and the rapid rate at which people can fall into poverty means “a lot of people are still being missed in safety net scheme[s].”

Involving the community is “key” to finding residents who may qualify for social assistance, but are falling through safety nets, said Winoto.

Community participation in data gathering has expanded in recent years after local government officials in Polewali Mandar community in West Sulawesi Province first piloted efforts in 2004.

Village chiefs there recruited data collectors from the community to identify households with children who had dropped out of school and were eligible for cash aid. Since then, more than 3,000 children have been identified and returned to school with social assistance to support them, according to local media.

In 2010 the same concept was tested in East Nusa Tenggara Province in 132 villages.

Methodology – but also money

Analysts say it is no surprise that a country with such a large population (fourth largest in the world) that was classified a low-income country only a decade ago would still struggle with poverty — and by extension — targeting assistance.

However, the World Bank has noted that the challenge of helping Indonesia’s poorest is not only an issue of targeting, but also of inadequate resources invested in social assistance.

“While targeting is not perfect in Indonesia, most of the poor will be receiving at least one of these [social assistance] programs… [but] there is a question as to whether they receive enough assistance for their needs,” said an economist with the World Bank in Jakarta, Matthew Wai-Poi.

Indonesia invests 0.5 percent of its annual $878.2 billion GDP in social assistance, as compared to a 2.6 percent regional average for Southeast Asia.

“We are yet to have established [sufficient] social safety nets,” said Arianto Patunru, a local economics researcher for the University of Indonesia and Australian National University.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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