2007-E-7

Multidimensional Poverty in Indonesia: Trends, Interventionsand Lesson Learned
Sudarno Sumarto and Wenefrida Widyanti**)
The SMERU Research Institute, Indonesia
March 2008

Presented at the 1st International Symposium on “Asian Cooperation,
Integration and Human Resources” for Waseda University Global COE
Program: Global Institute for Asia Regional Institute (GIARI), Tokyo, January
17-18, 2008.

**)

The authors would like to thank Professor Satoshi Amako, the dean of Graduate School of
Asian Pacific Studies, Waseda University, Japan for kindly inviting us to the initiative as
well as participants at the symposium for valuable comments on an earlier draft of thispaper.

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Summary

Despite the Government of Indonesia’s commitment to addresshuman security as stated in its ambitious medium-term development plan and
the Millennium Development Goals, poverty in its multidimensionality remain amajor issue in Indonesia as a significant proportion of the Indonesian
population is still consumption poor. Whilst the number of the poor has been
decreasing consistently since 2002, most of those escaping poverty are stillvulnerable and just a small shock can send them quickly below the poverty
line. Using the PPP $2/day poverty line as a vulnerability measure, the WorldBank (2006) found that 45% of Indonesians remain vulnerable to poverty.
Nonconsumption

poverty

is

even

more

problematicwhich

includesmalnutrition, maternal health, and access to basic services. For example, aquarter of children below the age of five are malnourished, only about 72% ofbirths are accompanied by skilled birth attendants, 45% of poor households
have no access to sanitation, more than half have no access to safe water,
and around 20% of children from these households do not continue to juniorsecondary school.
The current state of Indonesian multidimensional poverty can be traced
back to the time of the economic crisis that struck Indonesia in mid-1997.
Before the onset of the crisis, Indonesia was one of the fastest growing
economies in the world. This rapid growth had generated an unprecedented
reduction in poverty within a remarkably short period of time. In mid-1997,
after nearly a quarter of a century of rapid growth and welfare gains, a-2-

currency crisis struck Indonesia, and by early 1998 the country was sufferingfrom the combined effects of financial, economic, and political crises.
The social impact of the crisis was enormous. The national poverty rate
soared 13 percentage points in the period of 1996–1998, implying that anadditional 22.5 million people were pushed into absolute poverty (BPS 1999)
due to the crisis. More than half of the increase in poverty during the crisis
was due to an increase in chronic poverty. The crisis primarily affected thepoor and vulnerable nonpoor through falling real wages and a large increasein the prices of basic commodities. The economic crisis that threw millions ofIndonesians into poverty had forced the Government of Indonesia to launchsocial safety nets (as social protection programs were largely based on
informal arrangements) to help the poor and newly poor cope with the impactof the economic crisis. The programs covered employment creation,
education, health, food security, and community empowerment.
A decade after the crisis, as the economy slowly recovers and welfare
has stabilized around precrisis levels, the government has redesigned severalof these programs and discontinued others. Throughout this latter postcrisis
period, the government also implemented a range of new social protection
programs to replace highly regressive fuel subsidies. The new programs haveincluded unconditional cash transfers, school operational assistance, andcommunity-driven development programs. These programs are designed topromote movement of poor households out of poverty and to prevent nonpoor
households from falling into poverty. Some progress has been made in
addressing multidimensional poverty in Indonesia but more must still be done,
including a greater focus placed on inclusive economic growth.

-3-This paper first describes the current state of multidimensional poverty
in Indonesia. It then briefly outlines the characteristics of several major
programs designed to address multidimensional poverty, both during and after
the crisis, and describes their implementation problems and likely impacts.
Finally, it details the lessons which can be applied to future targeted social
protection programs to address human security in Indonesia.

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I.

Introduction
Before the onset of the economic crisis in mid-1997, Indonesia was oneof the fastest growing economies in the world. This rapid growth had
generated an unprecedented reduction in poverty within a remarkably shortperiod of time. Based on the official figures, between 1976 and 1996, absolute
poverty fell by around 29 percentage points (BPS 2006), accompanied bysubstantial gains in education and health standards. In the first half of the
1990s GDP grew at an average annual rate of 7%, and the poverty rate had
fallen dramatically from 15.1% in 1990 to 11.3% by 1996.
In mid-1997, after nearly a quarter of a century of rapid growth andwelfare gains, a currency crisis struck Indonesia, and by early 1998 thecountry was suffering from the combined effects of financial, economic, andpolitical crises. Within one year, the value of the rupiah fell by 85%, domestic
prices soared by 78%, nominal food prices increased threefold, and theeconomy contracted by almost 14%. The social impact of the crisis wasenormous. The national poverty rate soared 13 percentage points in the
period of 1996–1998, implying that an additional of 22.5 million people were
pushed into absolute poverty (BPS 1999) due to the crisis.
A decade after the crisis, Indonesia’s economic condition is in muchbetter shape, though in the period of 2005–2006 there was a net increase offour million poor people (or about 1.78 percentage point) within a year,
reaching a total of 39 million and bucking a four-year trend in poverty
reduction. In the last one year, from 2006 to 2007, there was a slight decreaseof poverty rate for about 1.17 percentage point or about 2.13 million people
moved out of poverty. However, the level of the decrease in that period is still-5-lower than the previous increase. In percentage terms, this condition is backto the precrisis level, but in absolute terms, it is still higher than the precrisis
level. Therefore, it can be seen that poverty remains a crucial issue inIndonesia.
Aside from a declining trend of consumption-based poverty indicatedin recent years, there are also improvements indicated in nonconsumption
poverty, such as infant mortality rate, enrollment rate particularly forelementary education, and life expectancy at birth. In many aspects, however,nonconsumption poverty is still more of a serious problem than consumptionbased poverty. Malnutrition rates, for instance, are high and have even risen
in recent years: a quarter of children below the age of five are malnourished inIndonesia. As in the case of malnutrition, the condition of maternal health isworse than comparable countries in the region: based on 2002-2003
Demographics and Health Survey (DHS), Indonesia’s maternal mortality rate
(307 deaths in 100,000 births) is three times that of Vietnam and six times thatof China and Malaysia; only about 72% of births are accompanied by skilled
birth attendants (World Bank 2006).
The various degrees of success in poverty reduction may correlate to
the types of efforts that have been taken place as a response to the negative
impact of the crisis, particularly high poverty and vulnerability. As wasreported by Sumarto et al (2002), starting in 1998, the central government
brought about numerous social programs targeted at the poor, and has set up
a number of new initiatives in the last five years. These programs take up asignificant proportion of the government's budget. Moreover, social protection
is still particularly relevant as the government takes steps to correct-6-inefficiencies prevalent in the economy, mostly in the form of regressive
subsidies and over zealous trade protection regulations. Recognizing this, thegovernment has been increasing its spending on social protection programsand experimenting with new schemes. One of these is the conditional cashtransfer—a novel social protection system— that has seen enormous successin Mexico which then spread rapidly to other Latin American countries.1 The
conditional cash transfer, which is known as Program Keluarga Harapan, isbeing piloted in seven provinces in Indonesia.
These aforementioned attempts are essential, not merely for poverty
reduction purposes, but also to promote human security. It is understood, thathuman security has become an international concern. The emphasis on
human security was taken by the UNDP in the 1994 Human Development
Report with its insuring “freedom from want” and “freedom from fear”
argument for all people in tackling the problem of global insecurity. In thatreport, the definition of human security is expanded to include threats in sevenareas: (i) economic security; (ii) food security; (iii) health security; (iv)environmental security; (v) personal security; (vi) community security; and (vii)
political security. In addition, human security is “people-centered” and focuseson human individuals and their communities worldwide, regardless of gender,
race, religion, ethnicity, citizenship, or other distinguished characteristics.
The grand design of a human security oriented poverty reduction
strategy, therefore, suggests a scheme of social safety net programs such as
an emergency funds and food-for-work program that are adopted whenpeople face risks. Furthermore, such sustainable social protection programs,
1

In Colombia, the poverty rate decreased by 6%. School participation increased by 8% in
Mexico, 13% in Colombia, and 22% in Nicaragua (Alatas 2007).

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particularly for those who are poor and vulnerable, should be taken into
consideration in the poverty reduction strategy.
Given the fact that millions of poor people depend on those programs,
it is imperative that lessons are learned to ensure that subsequent programs
are improved and targeted to the needs of the Indonesian people. On a global
level, the experiences of Indonesia might provide insights for other developing
countries as they implement their own social protection programs.
The second section of this paper provides a description of theevolution of targeted social programs for reducing poverty in Indonesia. It
starts by outlining the characteristics of each program and then discusses theresults of an impact evaluation study conducted by The SMERU ResearchInstitute, the University of Indonesia, and the World Bank. In addition, thissection also provides a description about ongoing and upcoming social
protection programs, as well as enhancement of the previous social protection
programs. This section also includes a review of the impact of the latest
interventions. The final section of this paper lists the lessons learned and how
they might benefit similar programs in the future.
II.

The Current State of Multidimensional Poverty in Indonesia
In the aftermath of the economic crisis in Indonesia, poverty increased

dramatically from 17.47% in 1996 to 23.4% by 1999. However, the poverty
rate then gradually decreased during the period of 1999 to 2005.
Nevertheless, due to the high increase of world fuel prices in 2005, poverty
increased again. In a year, the poverty rate increased by 1.8 percentage point
or about 4.2 million people fell into poverty between 2005 and 2006. After-8-some policy adjustments and macroeconomic stabilization, poverty in 2007
fell slightly and in relative terms, poverty in 2007 was back to the precrisis
level. However, in absolute terms, poverty was still higher than the precrisis
period, due to the relatively high population growth. Indonesia’s consumptionbased poverty figures in the period of 1996 to 2007 are illustrated in Figure 1.

60.00

25.00
23.43

50.00
19.14
47.97

18.41

17.47

18.20
17.42

38.70

15.00

37.90

17.75
16.66

40.00

39.30

38.40

37.30

36.10

34.01

%

16.58

15.97

37.17
35.10

30.00

million

20.00

10.00
20.00

5.00

10.00

0.00

0.00
1996

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

poverty headcount (%)

poor people (million)

Source: BPS 2006

Figure 1. Poverty Head Count and Number of Poor in Indonesia,
1996-2007
Whilst the number of the poor had been decreasing since 2002, mostof those escaping poverty are still vulnerable and just a small shock can send
them quickly below the poverty line. Nonetheless, such interventions to those
who are slightly below poverty line may help them to move out of poverty. Itmeans that vulnerability to poverty in Indonesia remains high. This can beseen by using the PPP $2/day as poverty line for vulnerability measure, theWorld Bank (2006) found that close to 42% of Indonesia’s population who-9-lives between PPP $1 and PPP $2/day remain vulnerable to poverty (Figure2).

Source: World Bank (2006)

Figure 2. Close to 42% of Indonesia’s population lives on between PPP
US$1- and US$2-a-day

The high poverty and vulnerability figures based on consumption are
also

confirmedbythenonconsumption

povertymeasures.

The

nonconsumption indicators indicate that the poor are widely deprived of public
services access, such as health and education. Based on the 2004 National
Socioeconomic Survey (Susenas), Figure 3 shows that many poor
households experience lack of access to public services, such as lack ofaccess to sanitation (44.4%); many rely on traditional assistance when

- 10 -

delivering birth (44.4%), have no access to safe water (57.5%), and do notsend their children to continue schooling at junior secondary level (28.2%).
70.00

60.00

57.45

50.00
44.40

44.36

40.76
40.00
%
28.19

30.00
24.75

24.46

20.00
13.63
10.00

0.00
Households without access to safe
drinking water

Households without access tosanitation
Poor

Households with birth attended by
Households with children
aged 13-15 not enrolled in juniortraditional assistanceshigh school

Nonpoor

Source: Author’s calculation based on Susenas Core 2004 data

Figure 3. Nonconsumption Poverty Indicators, 2004
Furthermore, it is well-known that Indonesia is a highly diverse country.
Thus, the high disparity in poverty is also important to note. As illustrated by
Figure 4, in percentage terms, it can be seen that the Eastern part ofIndonesia is prominently noted for its higher poverty rates than other parts ofthe country. Whilst in absolute terms, the high number of poor people is foundin many provinces in Java Island (Figure 5).

- 11 -

Source: World Bank (2006)

Figure 4. Regional Disparity of Poverty in Indonesia (%), 2004

Source: World Bank (2006)

Figure 5. Regional Disparity of Poverty in Indonesia (Absolute Number),2004- 12 -

In addition, based on the UNDP Human Development Indicator (HDI),2
Indonesia’s HDI value of 0.728 was ranked 107 out of 177 countries in 2005.
This rank is only one level higher than the previous year, where Indonesia
was ranked 108. However, it should be taken into consideration that the index
is not such a comprehensive measure of human development. It does not, forinstance, include important indicators such as income or gender inequality,
and more difficult indicators such as respects for human rights and political
freedom (UNDP 2007/2008).
Inequality is another concern aside from poverty. Figure 6, whichshows inequality in access to services or facilities, confirms the fact illustrated
previously in Figure 3 that people who are less well off have lower access toservices. It can be seen that the percentages of poor people who have accessto piped water as a main source of drinking water and private toilet with septictank facility remain very low.

Source: World Bank (2006)

Figure 6. Inequality in Access to Services Remains High2

The UNDP Human Development Index (HDI) provides a composite measure of three
dimensions of human development: living a long and healthy life (measured by life
expectancy), being educated (measured by adult literacy and enrollment at the primary,secondary, and tertiary levels), and having a decent standard of living (measured bypurchasing power parity income).

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III.

The Evolution of Indonesia’s Targeted Social Programs toAddress Multidimensional Poverty
General improvements in the macroeconomic environment arenecessary to reduce poverty and also vulnerability among the nonpoor;
however, they are not always sufficient. Macroeconomic upturns are, in mostcircumstances, quite insufficient to lift the chronic poor from the depths ofpoverty. In order to reduce the adverse socioeconomic impact of the crisis,
therefore, starting in 1998, the Government of Indonesia (GoI) launched anumber of social safety net (SSN) programs—called Jaring Pengaman Sosial
or JPS—that aimed to prevent the chronic poor from falling more deeply intopoverty and to reduce the exposure of vulnerable households to risk.
The JPS involved four strategies: (i) ensuring the availability ofaffordable food; (ii) improving household purchasing power throughemployment creation; (iii) preserving access to critical social services,
particularly health and education; and (iv) sustaining local economic activity
through regional block grants and the extension of small-scale credits. It was
hoped that the implementation of the JPS programs would prevent or at leastsignificantly reduce the worst effects of the crisis.
Without a clear institutional precedent, policy makers faced thechallenging task of undertaking these social interventions amidst severe
political instability and an increasingly unfriendly fiscal environment. In July
1998, with financial support from international donors that included the WorldBank and the Asian Development Bank, the Indonesian government allocatedRp3.9 trillion directly to JPS programs out of a total development budget of- 14 -

Rp14.2 trillion. 3 The JPS programs covered education, health, community
empowerment and employment creation, in addition to the rice subsidy
program known as Operasi Pasar khusus or OPK. The magnitude of thissocial protection initiative was quite unprecedented in Indonesian history. The
summary of the social protection programs during the crisis period is provided
in Table 1.
Table 1. Descriptions of Social Protection Programs in the Crisis Period
ProgramDescription of Benefits Coverage

Likely impact

OPK (subsidized
rice)

Sales of subsidized
rice

12.8 million KPS& KS I
households

Padat Karya(employment
creation)‘Labor intensive’
programs acrossvariety of government
departments
Scholarships forelementary, lower
secondary, and upper
secondary students.
Block grants toselected schools

12.7 million
person-days

Households which
participated insubsidized rice have 3%
lower probability to bepoor
Increased income forparticipated households
and reduced probability
to be poor
· The scholarships forstudents enable themto stay in schools· The block grants toschools helped themto continue operating

SBG(scholarships
and block grants
to schools)

SSN-BK (healthcards)

PDM-DKE(community
empowerment)

Subsidies for medical
services, operational
support for healthcenters, medicine andimported medical
equipment, familyplanning services,supplemental food,and midwives’services
Block grants forvillages for public
works or revolving
funds for credit

6% of primary,
17% of lower
secondary, 10%of uppersecondaryschool students,
60% of schools
7.4 million KPS
households

Almost allvillages in the
country

SSN-BK program
increased access tohealth services andhousehold consumption
levels, except nutrition

Households which
participated insubsidized credit havehigher probability to bepoor Þ not suitable as acrisis program

Source: SMERU’s various presentation files.
3

The average exchange rate around this time period was approximately Rp10,000 to the US
dollar.

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Drawing lessons from the JPS programs, policy makers andresearchers are attempting to create a more efficient, equitable, and coherent
social protection policy. The aim is not merely to provide risk-coping
mechanisms in response to crises but also to institute sustainable programs
that will enable the children of the poor to move out of poverty permanently.
While the targeting of the JPS programs has been called into question by
numerous researchers, social welfare would not have recovered in such a
relatively short time without these kinds of programs. The JPS programs andits aftermath have since helped to maintain these postcrisis gains despite
periodic bouts of economic fluctuations and, more importantly, have enabled
the central government to make the transition to a more progressive public
spending regime. Today, however, Indonesia’s budgetary allocations to socialand human development priorities as a proportion of Gross Domestic Product(GDP) still remain among the lowest in Southeast Asia, and its policy makers
face a critical trade-off between further assisting the state budget and making
necessary social investments.
During the precrisis high growth period, government-run JPS programs
had been almost nonexistent in Indonesia. The general antipoverty strategy atthat time included (i) general social spending on health, family planning, andeducation; (ii) development programs aimed at increasing productivity among
the poor; and (iii) some small programs for disadvantaged groups, such as thehandicapped and orphans. There were also mandatory social security andhealth insurance schemes for employees in medium and large enterprises,
the public service, and the military. These schemes, however, proved largely
ineffective during the crisis because they excluded most of the population and- 16 -

in particular the poor, as 65% of Indonesian workers can be found in theinformal sector where compulsory social security schemes do not apply.
The Indonesian people were not simply passive victims of the crisis.
They had never relied, to any significant extent, on public safety net programsin the past. Instead, they turned to many of their own private coping measures.
Three main coping strategies were adopted during the crisis: reducing
expenditures, borrowing, and/or attempting to raise incomes. Clothing andrecreation expenditures were cut most frequently followed by transportation,
not to mention reduction in the quality or, in some instances, even the quantityof food. Some households maintained expenditures by borrowing or selling
assets. Meanwhile, households raised incomes by taking additional jobs,
working longer hours, or increasing the number of family members who were
working. In fact, children often augmented family income by engaging in labor
activities in addition to schooling.
Several researchers have found evidence in Indonesia of what is
identified as a moral economy in which the distributional outcomes of
traditional government-run social programs might be achieved through private
giving between families and within communities. The progressiveness ofprivate transfers can be discerned from the fact that nearly 75% ofhouseholds in the poorest quintile received transfers, which is equal to 20% ofhousehold expenditures. Drawing on the hypothesis that changes in
consumption among rural households are largely determined by what
happens to the rest of the village; there is evidence that a partial insurance
effect among Indonesian households took place during the crisis. The
household’s own effects, however, dominated community-level changes in- 17 -

income. Village-level income shocks only partially yield lower household
consumption, which points to the presence of some inter- and/or intrahousehold insurance or redistributive mechanism at work. Undoubtedly, this“moral economy” complemented official JPS programs in limiting the worst
effects of the crisis.
The JPS programs operated in five major sectors: food security,
employment creation, education, health, and community empowerment. Whiledifferent sectoral ministries and agencies designed and implemented each of
the programs, the government also established a team specifically tasked with
monitoring overall implementation. The team was headed by the National
Development Planning Agency (Bappenas) at the central level and by theprovincial and district development planning boards (Bappeda) at the local
level.
In the food security sector, the government initially introduced asubsidized rice program (OPK) in July 1998 to ensure continued accessamong the poor to affordable rice. After a successful pilot program in Jakarta,
the program was expanded to the rest of the country. The OPK program was
the largest and arguably the most critical component of the JPS programs
during the crisis. The initial target population included around 7.4 million
households or roughly 15% of all households in the country. By far the mostimportant commodity for poor households, rice comprises nearly a quarter of
average monthly expenditures in poor households, contributing 34% and 26%
to the official rural and urban poverty lines, respectively. By mid-1999, over
50% of households in all, but the richest quintile, reported receiving OPK rice.

- 18 -

The OPK program shared some similarities with traditional commodity
subsidy programs in other developing countries. As an indirect income
transfer, the program reduced the price of the largest component of most poor
households’ monthly expenditures. The OPK “transfer” constituted 9% to 11%
of total preprogram monthly expenditure of the median participant household.
Econometric evidence suggests that OPK recipients experienced an increasein per capita household consumption that was in the order of 4% higher thannonrecipients at similar welfare levels. Although poor households were
explicitly targeted, the program also had an element of implicit self-selection
by restricting the quality of OPK rice to that of medium quality rather than thehigher quality rice traditionally purchased by wealthier households. Neither the
explicit nor implicit targeting, however, was effective in limiting program
participation to the poor.
In mid-2001, when program planners introduced a set of primarily
cosmetic changes, including the new, somewhat ambitious program, Raskin,an acronym for beras untuk keluarga miskin (“rice for poor families”), 20.2
million households received subsidized rice, nearly double the target
population, and yet only 52.6% of the poor participated. The Raskin program
remained the most extensive JPS program through mid-2005. It had not,however, been effectively linked to the targeting and administrative apparatusof the new JPS framework implemented after the fuel subsidy cut-backs in
2005. To account for mounting criticism and perhaps the de facto
distributional incidence, the official eligibility criteria were expanded to include
both the lowest and the second lowest National Family Planning Board(BKKBN) welfare categories up until 2005.

- 19 -

Since2006,

however,theprogramhastargetedhouseholds

categorized as poor households (RTM) according to the results of PSE-05
data (Enumeration of Household’s Socioeconomic Data 2005) that wascollected by BPS-Statistics Indonesia. As RTM are spread across all
administrative levels of all regions, the Raskin program operates in all regions,
without differentiating between regional poverty conditions. In 2007, Raskin
had targeted the provision of 1.9 tonnes of rice for 15.8 million poor
households with the total cost of Rp6.28 trillion. Each targeted household
should receive 10 kilograms of rice each month for Rp1,000 per kilogram at
the distribution point (Hastuti, forthcoming). In 2008, Raskin is intended tocover around 19.1 million RTM or about 3.3 million higher than the intended
target in 2007. Meanwhile, the unit price of Raskin rice is also increased up to
Rp1,600 per kilogram.
A large component of the JPS was the employment creation program
known as Padat Karya, which was launched in late 1997 and funded primarily
through the state budget to a total of Rp2.1 billion. Although some
employment creation programs were targeted to specific areas, particularly to
hard-hit urban areas during the initial stage of the crisis, there was a notablelack of implementation guidelines. To the extent that there was household
targeting, it was mainly through self-selection as workers chose to work basedon the going wage rates. There was no fixed minimum wage rate, but in someregions the wage rate was actually set higher than the prevailing local wage
rate, thus inducing those already working to switch jobs or to take additional
jobs. Despite weak adherence to set wages below the minimum wage,
households with at least one member participating in the program- 20 -

experienced an increase in per capita consumption approximately 4% higher
than nonparticipant households. The dynamic benefit incidence of the labor
programs fared better than other JPS programs in health and education,
largely due to the self-selection mechanism, which naturally responds towelfare changes more effectively than do administratively assigned benefits.
In this regard, the labor programs may have effectively reached not only thechronic poor but also vulnerable near-poor households facing transitory
shocks.
Fearing deterioration in public and family health as a result of the crisis,
the Indonesian government established JPS programs known as JPS-BK(JPS Bidang Kesehatan, Health Sector JPS) in the health sector. The
programs consisted of a targeted consumer price subsidy, nutritional
supplements, and operational support for public health facilities and village
midwives’ services. The purpose of these programs was to enable publichealth providers to maintain the quality and availability of services and poor
households to afford the higher costs of medical services. Based on BKKBN
criteria, irrespective of health status, eligible poor households received healthcards, which could be used to obtain medical services at public health clinics,
free of charge.
Impact evaluations of the health program produced mixed findings.
First, targeting was progressive as the poorest two quintiles received nearly
60% of the health cards. Roughly 18.5% of the poorest quintile received cards
by comparison with only 3.7% of households in the richest quintile. Despite
the pro-poor distribution of health cards, the actual utilization of the cards foroutpatient care was limited by comparison with the number of cards- 21 -

distributed. The low utilization rates among recipients perhaps stemmed fromthe same constraints that the poor face in noncrisis times, such as the highcost of time and travel to reach health facilities as well as limited access to
information regarding health service quality and availability. The high rate ofunderutilization also reflected the weak linkage between the disbursement ofhealth cards and the allocation of operational grants.
Nevertheless, among the poor, the health card program led toincreased health care utilization and a moderate shift from private to
subsidized public facilities. For the nonpoor, a similar shift in utilization wasobserved. Quasi-experimental evidence suggests that the operational grants
had a relatively stronger impact on overall utilization than did the actual
receipt of health cards. While household recipients of health cards may haveexperienced a 4% increase in consumption relative to similar nonrecipient
households, the poorest nonrecipients were still demand-constrained andhence unable to utilize the expanded health services. In this aggregate sense,nearly all of the JPS programs were plagued by undercoverage due to thecompounding fiscal constraints imposed by the crisis. These constraints
disproportionately hurt poor households as they had to contend not only withleakage but also severe undercoverage in seeking to qualify for participationin JPS programs.
The PDM-DKE program (Program Pemberdayaan Daerah Mengatasi
Dampak Krisis Ekonomi or Regional Empowerment to Overcome the Impactof the Economic Crisis) provided funds to villages across Indonesia. The
program permitted maximum discretion at the local level with regard to theuse of funds. The decisions about who benefited were left entirely in the- 22 -

hands of the lowest level village body, that is, the Village Community
Resilience Institution (Lembaga Ketahanan Masyarakat Desa-LKMD). Since
the official guidelines on targeting were sufficiently general, almost any
decision could have been justified as consistent with the program. Since the
PDM-DKE program had been introduced as a “crisis program”, local officials
often made decisions without adequate time for a proper public information
campaign, training of program administrators, and community consensus
building. In some communities, PDM-DKE appears to have reached the poor
reasonably effectively, while in other locations the local community had neverheard of the program, suggesting poor socialization and/or local capture.
The JPS education program had its origins in government concern thatparents might withdraw their children from school as a way to cope with fallingincomes and rising costs. The government responded to the possibility of alarge increase in attrition rates by establishing an educational funding
program in the 1998–1999 school year. The program included scholarships
for students from poor families and block grants for schools to facilitatecontinued operations. Not unlike the Progresa program in Mexico, the JPS
scholarships provided cash to students from poor households. The
scholarships covered nearly 8% of average monthly per capita expenditureamong recipient households in the poorest quintile. Meanwhile, 60% ofschools in each district were to receive operational grants (DBO), which could
be used to purchase school materials, make physical repairs, and cover otheroperational costs.
Although coverage of the poor was rather limited, the scholarshipprogram generated welfare improvements at both household and aggregate- 23 -

levels. Household recipients of JPS scholarships experienced a substantial
increase in consumption almost 10% higher than similar nonrecipient
households. Despite the severity of the impact that the crisis had on
household welfare, attrition in large-scale was prevented. Although the JPS
scholarships reached only 4.96% of all students in primary, junior, and seniorsecondary schools in the first year, strong econometric evidence suggeststhat the program succeeded in returning enrollment to precrisis levels,
especially for primary school-age children in rural areas. Approximately 13%
of JPS recipients would have dropped out of school if they had not received
the scholarship, yielding an increase in overall enrollment of 0.6%. Unlike the
JPS health programs, though, the demand-side (scholarships) had a larger
impact on enrollment than did the supply-side (DBO operational grants). By
raising the reservation wages of poor students, the JPS program reduced theuse of child labor as a consumption smoothing mechanism in recipient
households.
Meanwhile, the JPS scholarship program was progressively targeted inall years of operation until 2003. Households in the poorest two quintiles
received nearly 65% of the scholarships from 2001 to 2003. Since July 2005,
the JPS scholarship has been enhanced and experienced some changes interms of target and delivery mechanism. The social protection program in
education was then transformed into two forms, school operational assistance(BOS) for elementary and junior secondary schools and special assistance forstudents (BKM)—such as scholarships that were intended for poor students.
Moreover, microsimulations suggest that the poor benefited most from
improved targeting and not simply from program expansion. Nevertheless, the- 24 -

effectiveness of targeting varied widely across districts and particularly acrosseducational levels.
In the years since Soeharto’s fall, successive administrations havestrongly emphasized poverty reduction. While maintaining some of the JPS
programs in the years after the crisis, the various governments also attempted
to restructure the extremely regressive subsidies for certain fuel products(mainly kerosene, automotive diesel fuel, and gasoline, known as BBM or
bahan bakar minyak) and to channel budgetary savings into targeted social
protection and poverty alleviation programs. On several occasions thegovernment, after reducing BBM subsidies, has reallocated a portion of thesavings to social undertakings known in general as the Fuel Subsidy
Reduction Compensation Program (Program Kompensasi Pengurangan
Subsidi Bahan Bakar Minyak or PKPS-BBM).
In 2005, the fuel subsidy scheme was introduced following the
economic crisis and the first massive reduction of the subsidy. Annual
spending on fuel subsidies at that time absorbed nearly 2.9% of GDP (orRp76.5 trillion). In March 2005, the government raised the price of fuelproducts by a weighted average of 29%, and promised to reallocate half of the
expected savings to a compensation fund worth Rp11 trillion, to be directed tohealth, education, and infrastructure programs. Six months later, the same
government further slashed the fuel subsidy, extending the reductions topremium gasoline, automotive diesel, and household kerosene. Consequently,
the GoI then decided to again increase the fuel prices and compensate the- 25 -

fuel price subsidy directly to the poor. The latter increase of fuel prices wasnotably high at around 125% in average.4
The skyrocketing of fuel prices has led to the increase of othercommodities. Such potential shock to the general economy and particularly tohousehold purchasing power was then clear to policymakers. The challenge
for the government was to immediately reallocate resources to social
programs so as to mitigate the impact of the price shocks on welfare.
In general, therefore, Indonesia's social protection programs can bedivided into three large groups. Firstly, during the crisis period, thegovernment instituted several programs under the umbrella of Social Safety
Net (SSN) programs. These ranged from subsidized rice, nutritional
supplements for infants, education scholarships, free health services, andemployment creation schemes, to community empowerment programs.
Sumarto, Suryahadi, and Widyanti (2002) reviewed the targeting accuracy ofthese programs and found an average of 35% leakage (the share of program
benefits that went to nonpoor households) ranging from 70% in the subsidized
rice program to only 5% in the nutritional supplement program.
Secondly, as the SSN programs were nearing completion, thegovernment merged some of the programs into a new Compensation
Program for the Reduction in Fuel Subsidy (PKPS-BBM), which was
implemented between 2001 and 2004. During this period, programs included
education scholarships, subsidized rice, cash transfer, revolving funds, freehealth service, and community-driven development (CDD).

4Percentages of price increase for premium gasoline, automotive diesel, and householdkerosene were 87.5%, 104.8%, and 185.7% respectively.

- 26 -

Finally, in 2005/2006 the government implemented the PKPS-BBM II
program, which contained many components from PKPS-BBM I but with anadditional unconditional cash transfer (UCT) component. Following trends inother developing countries, the UCT aimed to duplicate the success of an
unconditional cash transfer program in Mexico, the Progresa/Oportunidades.5
The next section discusses the characteristics and impact of several
components of the current PKPS-BBM II program.
IV.

Characteristics and Impacts of Targeted Social Programs
Prior to the October fuel subsidy reduction, the government had

allocated Rp5 trillion to education, Rp3 trillion to health, and Rp3 trillion to
infrastructure. Initial estimates placed the expected savings from the Octobersubsidy cut at Rp25 trillion, and the government planned to allocate Rp4.7
trillion to the first of four quarterly tranches for the transfer program. The
following part of this section provides details of recently implemented, ongoing,
and upcoming social protection programs. The details of the targeted social
programs are summarized in Table 2 and Table 3. In addition, some of these
programs are then further explained in the following subsections.

5 See, for example, Gertler, Martinez, and Codina (2006); Skoufias and di Maro (2006); andIFPRI (2000) for evaluations of Progresa.

- 27 -

Table 2. Details of Postcrisis Social Protection Programs
ProgramDescriptionof benefits

Programcoverage

Implementation
problem

Rice for thepoor (Raskin)

Sales ofsubsidized rice

Intended tocover 15,8
millionhouseholds in2007· Socialization to thecommunity is still
weak· The program is not
fully transparent· Varying targeting
accuracy

Schooloperational
assistance(BOS)

Schooloperational
assistance forthe 9-year
primary
education which
is distributed toand managed
by schools

July-Dec 2005:
Rp5.136 trillion
for 39.6 million
students

Unconditional
CashTransfer/UCT(BLT)

Direct cashtransfer(Rp100,000/HH/
months) to poorand near poor
households thatwere given
quarterly forone year(2005/2006)

2005/2006(started in Oct2005): About
19.2 million
households

Kecamatan
Development
Project(KDP)/Urban
Poverty
Program(UPP)

Block grants toeligible
subdistricts,
focus oncommunity
participation
with 2components:
small loans &infrastructure
improvement

KDP 19982008:
30 provinces,
260 districts,
1,983
subdistricts,
34,200 villages
UPP: 6,600
urban wards
and 7.4 million
beneficiaries· Lack of socialization& technical training
particularly for school
administrator· Time lag for the
distribution of fundswith thecommencement of
the academic
year/semester· Program socialization
to the public waslacking or evenabsent in someplaces· Complaint
resolutions were notsufficiently
accommodated in theoriginal program
design· Regional & local
governments are
generally unpreparedto handle a programof this scale and insuch a short
implementation
schedule· Local bureaucracy
bogs down
participation· Elite capture in
deciding on
infrastructure project· Overall lack offinancialtransparency· Insignificant
community
involvement inmaintaining thefinished projects

Likely impact tothepoor/vulnerable
Help with foodexpenses, “taking aload off the minds”
of recipients & theirfamilies, and being
able to limit pricefluctuations for ricein the local markets· Increased theavailability ofbetter equipment
and teachingmaterials· School tuition andother school fees
are reduced oreven free· Help the
beneficiaryhouseholds tocope with negative
shock due toreduction in thefuel subsidy (it canbe seen from theuse of funds, e.g.,rice or other foodpurchased, school
fees payment,
debts payment,
and getting
medical treatment)· More than 50%
cheaper thancontractorexecuted
construction· Increased
participation· Provided accessto poor families

Source: Summarized from various World Bank projects’ documents and SMERU’s presentations.

- 28 -

Table 3. Details of Ongoing and Upcoming Social Protection Programs
ProgramDescription

Objectives

Program Coverage

Conditional CashTransfer (CCT):
Community· Allocated block grant
to communities, who
decide how block
grants can be bestused to reach several
education and healthtargets· Conditionality: financial
incentives to villages
based on performance
evaluation of 12
indicators· Village performance
will be compared withother villages in thesubdistrict at the endof program cycle· Applies the traditional
CCT design withquarterly cashtransfers to individual
poor households
identified throughstatistical means· Households recipients
will receive the cashtransfer through thepost office as long as
they meet therequirements of using
specified health andeducation services· Health facilities &schools will regularly
report nonuse of theirservices· If the HH-CCT
recipient fails tocomply with therequired condition aftera few warnings, thecash transfer will beterminated
The 2007 program still
100% duplicates KDP
and UPP, but there will
be fine-tuning in 2008,
e.g., regarding the
maximum government
contribution to theprojects (currently
pegged at 80%)

· To reduce current
poverty· To reduce maternalmortality· To reduce childmortality· To ensure universal
coverage of basic
education

The pilot project(2007) covered 48
districts/municipalities
in seven provinces(DKI Jakarta, West
Java, East Java, West
Sumatra, North
Sulawesi, Gorontalo,
and East Nusa
Tenggara)

Conditional CashTransfer (CCT):Household (known
as Program Keluarga
Harapan/PKH)

National Community
Empowerment
Program (PNPM)

The pilot (2007)
coveredapproximately
500.000 chronicallypoor households inseven provinces

To speed up efforts toeliminate poverty andcreate job opportunities
through consolidated
community
empowerment
programs, which so far
have been conducted
separately by various
ministries and state
institutions

Targeted to cover all
kecamatan in 2009.
Total budget is
Rp14.3 trillion until
2009.

Source: Summarized from various World Bank projects’ documents and SMERU’s presentations.

- 29 -

a.

Unconditional Cash Transfer (UCT) and Conditional Cash Transfer(CCT)
In October 2005, the Indonesian government launched its mostambitious social protection program to date, which is an unconditional cashtransfer (UCT) program known as Bantuan Langsung Tunai (BLT).6 The BLT
is a direct cash assistance (Rp100,000/household/month) which was
disbursed through post offices quarterly in a one year period.
Ahousehold's

eligibility

wasdetermined

based

on

PSE05

(Enumeration of Household’s Socioeconomic 2005) data collected by BPSStatistics Indonesia by using a district-specific proxy means-testing method
based on 14 indicators of poverty, including, among others, household size,
assets, housing characteristics, level of education level of household head,and household consumption pattern. An eligible household received a UCT
card which they used to withdraw the payments from local post offices on agiven date.
The first tranche was to reach around 15.5 million households orapproximately 62 million people. In later tranches, the government expanded
the number of eligible households to approximately 19.2 million households,
partly in response to the overwhelming number of supplementary eligibility
requests. This enormous number of targets made the UCT program thelargest of its kind in the world. Even so, this program failed to prevent theincrease of poverty. The national poverty rate increased from 15.97% in
February 2005 to 17.75% in March 2006.7

6

The program is sometimes referred to as Program Subsidi Langsung Tunai (SLT or direct
cash subsidy).
7
There is still controversy regarding the real cause of the increase in poverty. Some blame
the fuel price increase, while some pin the increasing price of rice as the cause.

- 30 -

Due to the emergence of social jealousies and popular perceptions ofentitlement to benefits after the fuel subsidy cuts, local governments faced
mounting pressure to spread UCT benefits to more households. Drawing on
continued savings flows from the subsidy reductions, the government wasable to diffuse these social and political pressures directly by expanding thereach of the program. A basic political economy model suggests that thepostcrisis Indonesian approach of gradual subsidy reductions coupled withcompensation programs reduced the likelihood of the policy reversals thattook place in several countries of the Middle East and North Africa, where
governments attempted drastic subsidy cuts in one go.
By most accounts, the UCT program prevented the sudden increase inpoverty that many had predicted in the period leading up to October 2005.
Nearly 27.1% of Indonesian households received UCT funds in late 2005, andthe program was relatively well targeted to the poor. Targeting was more propoor, however, in urban areas where 28.2% of program benefits reached thepoorest decile compared to only 17.5% in rural areas. This differential reflects
the relative ease of targeting in urban areas where the distinction between
poor and nonpoor is more striking than in rural areas, where the majority ofpoor Indonesians reside. The program reached 55.6% of households in thepoorest decile and 39.4% in the second poorest decile.
The government has subsequently justified the targeting outcomes on
the grounds that the program aimed to reach not only poor households but
also those vulnerable to poverty. Between February 2005 and March 2006,
that is, the period during which the BBM subsidy was cut on two occasions,
56.5% of initially poor households remained poor, 19.4% moved to near-poor,- 31 -

17.7% to near-nonpoor, and 6.5 escaped poverty altogether, moving to
nonpoor. Meanwhile, only 6% of nonpoor households in February 2005
became poor or near-poor a year later. The UCT funds constituted asignificant proportion of monthly expenditures for the poorest households
covering 24% of average monthly household expenditures in rural areas and
17% in urban areas among households in the poorest decile. Furthermore,survey evidence suggests that for certain households, the funds were
sufficient to cover not only consumption goods but also some health andeducation expenditures.
The UCT program addressed three fundamental concerns: (i) to ensurethat poor households do not fall deeper into poverty as a result of income andpurchasing power shocks; (ii) to protect near- and nonpoor households fromslipping into poverty; and (iii) to promote welfare improvements among poor
households, pushing them to higher expenditure gradients. Today, thechallenge is to integrate an incentive structure into the transfer program inorder to generate and maintain the human capital investments vital forsustained growth and poverty reduction. Careful restructuring of existingtargeting and transfer arrangements will be required to secure the potential
gains of a more equitable and efficient cash transfer program.
SMERU conducted two impact evaluations of the UCT. The first was a
rapid appraisal undertaken in Jakarta several days after the first payment
period (Hastuti et al 2006a), and the second was conducted in December
2005 in five districts across the country (Hastuti et al 2006b). SMERU’s
evaluation finds that targeting at the subdistrict level was quite accurate while
the most significant mistargeting took place at the household level. The main

- 32 -

causes of mistargeting were local capture by relatively well-off households
connected to local officials and weak proxy indicators in the household survey.
This was the first time that proxy means tests were used to target poor
households in a national Social Safety Net—SSN (JPS) program. Although
the 14-variable proxy used by official enumerators moved beyond thelimitations of previous BKKBN targeting criteria, they ultimately failed tocapturesufficientvariation

betweenpoor

andnonpoor households,

particularly in areas where there was a concentration of households aroundthe poverty line.
Whilst these evaluations found that UCT was helpful in assisting thepoor to mitigate the impact of reduced fuel subsidies, the program sufferedproblems both in its design and implementation. In terms of design, the main
weaknesses revolved around a weak socialization campaign; the lack of clear
role for local governments in the program; problematic targeting methodology;
and the lack of any transparent complaints mechanism. In terms of
implementation, there was evidence that the household census enumerators
only visited households that had been identified as poor by local authorities.
This has caused the program to suffer both leakage and undercoverage, as
shown in an example in Table 4 which describes such a simple benefit
incidence analysis.

- 33 -

Table 4. UCT Recipients in Kedondong Village, Demak, 2005
UCT Beneficiary by Quintile
Quintile

Percent

N

Distribution of UCT(Percent)

Q1
Q2
Q3
Q4
Q5

74.5
45.0
28.3
21.3
7.6

205
125
78
59
21

42.0
25.6
16.0
12.1
4.3

Total

35.3

488

100.0

Village population: 1,383 households
Quintile size: 275-278 households
Source: Hastuti et al (2005b)

Table 4 shows the distribution of UCT in Kedondong village, where
SMERU collected data on the welfare rank of each household using
Community-Based Monitoring System (CBMS). Treating those in the first andsecond quintiles as poor households, the table shows that only 60% (375household out of 550 in the first two quintiles) of the poor in the village
received the transfer, indicating undercoverage, while 33% (last column ofTable 4 of the benefit was leaked to nonpoor households. During
implementation, meanwhile, there was some evidence that local authorities
required recipients to give them a proportion of the transfer.
In 2007, the UCT program has been replaced with a conditional cashtransfer (CCT). There are two types of the CCT delivery mechanisms, one is
distributed through the community and the other is directly transferred tobeneficiary households through the post office. The community CCT isintended to improve the infrastructure, particularly for those which are needed
to support the service delivery of health and education, while the household
CCT, which is better known as Program Keluarga Harapan—PKH, is intended
to ensure that poor beneficiary households have access to basic health and- 34 -

education services, particularly for mothers and children. Currently, the CCT
is being piloted in seven provinces in Indonesia, namely DKI Jakarta, West
Java, East Java, West Sumatra, North Sulawesi, Gorontalo, and East Nusa
Tenggara. At pilot stage, the PKH covered around 500,000 chronically poor
households.
The PKH provides direct cash assistance to poor families whencertain conditions are fulfilled, e.g., children are enrolled in and attend school,
infants are weighted and vaccinated, and expecting mothers get appropriate
prenatal care. However, the success of this program is such a challenge. Thisrequires the guarantee of good coordination between ministries andassociated institutions, as well as between central and regional governments.
Monitoring is another key of success for this program implementation. In Latin
American countries, the CCT program is sometimes directly supervised by the
President’s office to ensure the strong political support. Furthermore, advance
preparations of required facilities and infrastructure need to be made (Alatas,2007).
b.

School Operational Assistance (BOS)
School Operational Assistance (or Program Bantuan Operasional

Sekolah—BOS) is a program for primary and junior high school levels and isintended to reduce the burden on the community, especially the poor, of thecosts of education after the BBM (fuel) price rose. Different from the previous
PKPS-BBM that had been provided in the form of scholarships for students
from poor family background, known as Bantuan Khusus Murid—BKM orSpecial Assistance for Students program, BOS was provided for schools. In
the BKM program, the number of poor students who received BKM was- 35 -

determined by the central government based on the poverty index. In the
2004-2005 academic year, BKM was provided to approximately 20% ofprimary school students and 24% of junior high school students, with ascholarship value of Rp60,000 per semester per primary school student and
Rp120,000 per semester per junior high student. Each school received aparticular quota and undertook the selection of students who were eligible
recipients; and the BKM funds were then disbursed directly to the selectedstudent via an appointed post office.
The BOS program adopted a different approach than the BKM
program in the sense that the funds were not provided directly to the poor
students but were granted for and managed by schools. BOS funds wereallocated on the basis of the number of students, with an amount of
Rp235,000 per student per annum at the primary school (SD) level and
Rp324,500 per student per annum at the junior high school (SMP) level. The
APBN allocation to BOS funds for the period of July–December 2005 was
Rp5.136 trillion, or an approximate eightfold increase over the BKM budget for
primary and junior high schools in the period of January–June 2005 (Suharyo
et al 2006).
The main objective of BOS is to enable schools to abolish tuition fees.
Between July and December 2005, 40 million students were not required to
pay tuition. In addition to making schooling more affordable, BOS also aims toensure that schools have the sufficient resources to retain top teachers,
provide sufficient educational materials, and ensure that students do not leaveschool before graduating from junior secondary level.

- 36 -

SMERU was commissioned by Bappenas to evaluate BOS. The study
evaluated three aspects of BOS: its impact on schools, on students in general,and on poor students. In terms of its impact on schools, BOS did allow
teachers to improve the quality of their teaching by providing better equipment
and teaching materials. Also, funds were used to supplement teacher’s
income and pay for extracurricular activities. The impact on students,
meanwhile, was clear, such as reduced or free tuition, cheaper textbooks, andreduction in other fees related to extracurricular activities provided by theschool. Finally, SMERU found that while only a small proportion of schools
actually give special treatment to poor students; it has nevertheless increased
the motivation of the poor students to continue schooling.
However, there is still some room for improvement. Firstly, there islittle evidence that BOS has reduced school attrition rates, especially at thejunior secondary level. Secondly, school teachers who are also schooltreasurers now spend more time administering BOS, rather than teaching.
This is also often the case for school principals. In addition, there has been
manipulation of funds and reduced community participation in the day-to-day
operations of schools (Suharyo et al 2006).
c.

Community-Driven Development: KDP-UPP and PNPM
The central government has been driving two large community-driven

development (CDD) projects: the Kecamatan Development Program/KDP(Program Pengembangan Kecamatan—PPK) and the Urban Poverty
Project/UPP (Program Pemberantasan Kemiskinan Perkotaan—P2KP). The
two programs have a similar basic design, both giving block grants to eacharea. They differ in so far as that KDP is implemented in rural subdistricts,- 37 -

while UPP is implemented in urban areas. KDP began in 1998, a year earlier
than UPP, and its coverage has gone from 2,000 villages during the initial
implementation to currently 34,000 villages. KDP is one of the world's largest
CDD programs in the world, with a budget of $760 million. Both KDP and UPP
have two main components: small rotating credit and an infrastructure
improvement fund. For both programs, the focus is on community participation,
which ranges from town hall meetings to decide which infrastructure projects
should be undertaken to actually working together in carrying out the physicalwork.
The University of Indonesia (2002) conducted an evaluation of KDP
and found several problems. 8 Firstly, local bureaucracy often dominates
community meetings and impedes real community involvement. This leads tosignificant local capture in deciding the infrastructure projects and, after the
project is completed, an unwillingness of the community to maintain the
project. Secondly, the study found that poor families have less access to therotating credit. Thirdly, those receiving credit are not given technicalassistance to ensure that the funds are used effectively. Finally, there is often
a lack of financial transparency from those in charge of the block grant.
In contrast to the largely negative tone of the University of Indonesia
report on KDP, World Bank (2004) claims that UPP helps to increase
democracy at the local level, increases participation, and provides access tocredits to poor families.9 Overall, Bappenas found both KDP and UPP to bemuch more cost effective from a budgetary point of view in terms of

8

See World Bank (2006b).

9

See University of Indonesia (2002).

- 38 -

constructing and managing infrastructures (Bappenas 2005). It found that
KDP was 55% cheaper than contractor-executed construction for similar
infrastructure projects, while UPP was 66% cheaper.
In 2007, the GoI launched a National Community Empowerment
Program (Program National Pemberdayaan Masyarakat––PNPM), a scaling
up of KDP and UPP, which mainly consists of infrastructure projects. The
PNPM is developed following the success of Community-Driven Development(CDD) programs, such as KDP and UPP. Besides producing a high economic
internal rate of return—between 38.6% and 67.6%—these programs also
managed to reduce development costs as has been mentioned. This program
focuses on communities’ priorities and needs in order to create a higher
sense of ownership.
There are three principles that need to be carefully adhered to in theimplementation of PNPM: (i) the community is the actor not the object of thedevelopment project (in every process, from planning, implementation,
maintenance, and monitoring); (ii) transparency of fund allocation andextensive information dissemination; and (iii) funds are directly channeled tocommunities in order to reduce the probability of leakages (Alatas, 2007).
PNPM is intended to cover all subdistricts (kecamatan) in 2009 andwill be evaluated annually. In addition, PNPM is also targeted to create 5
million jobs in 50,000 villages. Meanwhile, the total budget of PNPM until
2009 is around Rp14.3 trillion in 2007. The program still fully duplicates KDP
and UPP, but there will be fine-tuning in 2008. Due to the presence of PNPM,
KDP will continue to 2009, while UPP will continue until 2015.
V.

Lesson Learned and Concluding Remarks- 39 -

The JPS programs prevented the monetary crisis of 1997–1998 fromcreating the losses in welfare that would have been expected in a situation of
rapid decline in purchasing power and widespread unemployment. With avery limited initial institutional foundation for formal social protection programs,
the government utilized existing village-level institutions including BKKBN
cadres,healthgovernment

centreofficials

administrators,

schooltoeducation,

implement

committees,
health,

and

local

community

empowerment, and rice subsidy programs. Participation in all of the JPS
programs, except for the small nutrition component of the health programs
and subsidized credit programs, helped to increase household consumption.
The OPK was particularly effective in ensuring staple food intake among poor
households. Despite considerable undercoverage, the JPS scholarship andblock grant program helped to sustain enrollment at precrisis levels and may
have even reduced the time allocated to employment by children of schoolage.
A major feature of the initial JPS programs was the heterogeneity oftargeting performance across programs and regions. The major factors
contributing to variation in program outcomes include differences in (i)program design; (ii) the scale of budget allocations across regions; and (iii)
local institutional capacity. In the early stages of the OPK, more than half of allpoor households in Indonesia reported receiving the benefits of this program,
while more than a third of nonpoor households also reported receiving
benefits.
When targeting mechanisms are being designed, it should be kept inmind that the vulnerable and the chronic poor may respond differently to- 40 -

different types of welfare-enhancing interventions. The actual sources ofvulnerability ultimately matter most when designing effective interventions. On
one hand, vulnerability due to low mean consumption prospects, which tends
to predominate in rural areas, might best be addressed through cash transfer
programs. On the other hand, vulnerability due to consumption fluctuations,which is a relatively more common finding among the urban population, might
best be addressed through interventions aimed at consumption smoothing.
In the final analysis, improvements in targeting will require not only finer
methodological innovations but also strong political will and public institutional
support.
The PKPS-BBM programs were built on the lessons of previous
programs. Given the large and flexible budget funded primarily by flows ofsavings due to BBM subsidy reductions, the PKPS-BBM programs achieved a
degree of national coverage that was not possible for the JPS programs. This
achievement established credibility among stakeholders at all levels ofgovernment. In terms of management and implementation, program outcomes
depend on whether: the distribution of funds is timely, the program is wellcoordinated horizontally and vertically, and the program is sufficiently andproperly socialized.
The most valuable lessons from Indonesia’s JPS programs include
the following: First, informal coping mechanisms complement formal social
interventions but are independently insufficient to mitigate the worst effects ofa major shock or crisis. Thus, real spending on formal JPS programs mustrise unambiguously during periods of crisis or induced shocks. Second, longterm poverty alleviation and development strategies are not suitable as JPS- 41 -

programs during a crisis. Even programs such as a CCT might not be
sufficient to act as a safety net to prevent poor and near-poor households
from falling more deeply into poverty. The institutional structure developed
through a CCT program, however, would support rapid appraisals and social
interventions during crises. In particular, microcredit programs are not suitableas social protection programs. Not only are new microenterprises unlikely tobe successful during a crisis, but also the hurried expansion of credit canundermine the slow, patient, and painstaking groundwork that successful
microcredit programs require. Third, there is evidence that the current
targeting system has a weak methodology, which is often the case with topdown programs like UCT, rather than programs that involve the community in
one way or another, as CDD do. Therefore, it may be worth exploring ways toincrease community participation rather than having a top-down targetingsystem. Fourth, the second lesson is in terms of coordination, both between
central and local governments and between line ministries in the central
government. The rules and regulations of a program must be well-designed
and the duties of each ministry should be made explicit to avoid confusion.
Fifth, given that Indonesia now adheres to a decentralized government
system, the central government should refrain from implementing large-scale
programs like the UCT, but rather play a more supporting role and let the local
governments decide the best programs for their residents.
In conclusion, it is important to note that significant progress has been
made on poverty reduction in Indonesia since the 1998 crisis. The
government is increasingly willing to make program improvements based on
rigorous and independent impact evaluation studies, more budget is allocated- 42 -

for poverty reduction programs, and poverty reduction strategy papers are
now “produced” by involving civil society. However, the state of poverty inIndonesia is still far from being resolved, as widespread vulnerability topoverty remains and there is uneven progress towards several Millennium
Development Goals, particularly in maternal health. Poverty remains a crucial
issue in Indonesia and our efforts must improve both in quality and quantity, toensure that Indonesians are free from chronic poverty. Among others, poverty
reduction programs should be more focused on human development andcapacity building and provide greater multiplier effects in the future. In a
broader concept, efforts to reduce poverty should be inline with the concern ofpromoting human security that has been placed as international concern.

- 43 -

List of References
Alatas, Vivi (2007) ‘Community Driven Development and Conditional CashTransfer: A Ray of Hope for the Poor?,’ Tempo Magazine, No.
26/VII/Feb 27 - March 05, 2007
Bappenas (2005) ‘Findings of Post-Construction Economic Impact Analysis’,Power point presentation, Bappenas, Jakarta
BPS (Badan Pusat Statistik) (2006) Statistik Indonesia 2005/2006 [Statistical
Yearbook of Indonesia 2005/2006]. Jakarta: BPS-Statistics Indonesia
BPS (Badan Pusat Statistik) (1999) Statistik Indonesia 1998 [Statistical
Yearbook of Indonesia 1998]. Jakarta: BPS-Statistics Indonesia
Gertler, Paul, Sebastian Martinez, and Marta Rubio-Codina (2006) Investing
Cash Transfers to Raise Long-Term Living Standards. World Bank
Policy Research Working Paper 3994. Washington DC: World BankIFPRI (2000) Is PROGRESA Working? Summary of the Results of an
Evaluation by IFPRI. Washington DC: International Food Policy
Research InstituteSkoufias, Emmanuel and Vincenzo di Maro (2006) Conditional Cash Transfer,
Adult Work Incentives, and Poverty. World Bank Policy ResearchWorking Paper 3973. Washington DC: World Bank
Hastuti, Syaikhu Usman, Bambang Sulaksono, Sri Budiyati, Wenefrida Dwi
Widyanti, Rizki Fillaili, Daniel Suryadarma, Meuthia Rosfadhila,Hariyanti Sadaly, and Sufiet Erlita(2006a) ‘Kajian Cepat
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GIARI Working Paper Vol. 2007-E-7,
Feb. 29, 2008
Published by Waseda University Global COE Program
Global Institute for Asian Regional Integration (GIARI),
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