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Alleviating Indonesia’s poverty problem

Interview - February 14, 2014
Indonesia’s poverty rate has fallen dramatically in the last decade, from around 18% of the population to 11.4%. However, with around 15 million Indonesian’s continuing to live in extreme poverty, there is still much work to do. In an interview with United World, the Coordinating Minister of People’s Welfare, Dr. H.R. Agung Laksono, talks about the government’s target to lower the rate to 8% and the programs it has put in place to help achieve it.
Over the past 5 years Indonesia has experienced a robust economic growth of roughly 6%. Nevertheless, the government has not been able to reach its goal to reduce poverty to 8% by 2014. Today, 11.4% of Indonesians still live in poverty, with another 40% hovering near it. In your opinion, what is a realistic deadline to reach the 8% target and what are your priorities to achieve this goal?

The government of Indonesia aims to reach the 8% poverty reduction target by the end of my period as Coordinating Minister of People’s Welfare. The population living in extreme poverty was quite high, at around 17.9%. The constant decrease of the poverty indicator, in particular for the last 9 years, has been significant. The indicator began to slow down at the end of 2012. This slowdown occurs in other developing countries as well. The world economic crisis is one of the factors that have caused a decline in the decreasing rate of the absolute poverty indicator.

In Indonesia around 14-16 million people live in extreme poverty, on less than USD 1.25 per day. To help those people who live in absolute poverty, we have a Pilot Household Conditional Cash Transfer Program called PKH (Program Keluarga Harapan). The World Bank has approved this program and if it succeeds, it will reduce the percentage of Indonesians living in extreme poverty by 2%. This is of crucial importance because with less than USD 1.25 per day people cannot save, or afford to go to the doctor, or send their children to school.

The calculation of the percentage of people living in absolute poverty includes disabled people. In general, the people we target are the chronic poor, the ones that have been poor for generations. The government tries to break that link. It is in these cases that the PKH program is really helpful to solve the problem. The government has allocated around IDR 2-3 million per household to help those people and we aim to add more to this fund to reach IDR 3.5 million per household.

Another reason for the slowdown in the decrease of poverty levels is natural disasters. To help the population affected by natural disasters, the government provides cash assistance. We believe the programs are going to be successful if we keep supporting them.

In order to reach our target in the following year, we also have the Social Protection Acceleration and Expansion Program called P4S (Program Perluasan Perlindungan Sosial). It is an expansion of social protection aimed to increase the value of the PKH program, for example, to increase the scholarship for those who come from poor families.

Furthermore, starting from 1st January 2014, we will start the implementation of the new National Healthcare Insurance program (JKN), which will eventually cover 40% of the citizen’s health insurance premiums.

Some of the government’s programs aimed at helping the most disadvantaged Indonesians, such as the Unconditional Cash Transfer (BLSM) and the Rice for The Poor (RASKIN), have caused discontent among the local communities with regards to the process used to identify the most needy people. How can you improve the social targeting and increase the efficiency of the poverty alleviation initiatives?

Social targeting – the process used to identify people most in need of social assistance – is a very complex procedure. Having an accurate data is crucial in order to be able to distribute the assistance to the right people. Therefore, in 2011 the government adopted a unified database. Indonesia’s Central Bureau of Statistics (BPS) updates its database every 3 years and the last update was done in 2011.

Established in 2010 and led by the Vice President, the National Team for Accelerating Poverty Reduction (TNP2K) is in charge of overseeing the implementation of all public poverty reduction programs. We work together with the TNP2K to ensure that the available data is effective in helping us to reach the right targets. The TNP2K identifies households falling into the lowest 40% according to the BPS surveys, which are entered into the database. Each poverty alleviation program can then filter its target population.

In 2005, the government first introduced an unconditional cash transfer, which was then called BLT and is now known as the BLSM. Between 2005-2006 and 2008-2009, 19 million households received cash assistance every three months to ease the shocks from fuel prices increases. In June 2013, the government allocated nearly USD 829 million to the BLSM, distributing USD 13.35 to each of the 15.5 million households twice between June and October.

The Rice for The Poor (RASKIN) is a government program that provides 17.5 million households with 14 kilograms of subsidized rice monthly. Rice typically costs 40 cents per kilo, while the subsidized price is almost half and covers 30-40% of a household’s average total rice consumption.

In 2013, the government allocated over IRP 300 trillion to direct assistance such as BLSM, RASKIN, PKH, Free Health Insurance for The Poor (JAMKESMAS), scholarships, etc. In addition, we put the assistance into electricity subsidies, petrol subsidies, fertilizer subsidies, etc. In total, this accounts for over 10% of the national budget, which is bigger than other countries’ budget for poverty alleviation. It is the reason why we have to be sure that the subsidies go to the most disadvantaged people. The most important issue is to reach the right target.

Indonesia’s 250 million population is spread around the biggest archipelago in the world, which is limiting the capacity of government’s welfare actions. How do you synchronize your policies with regional and local governments in order to address the multidimensional socio-economic challenges in Indonesia?

In order to ensure that our poverty alleviation programs are efficient in reaching the right individuals, the central government also cooperates with local governments. They provide us with additional data, such as variations in people’s welfare level, and they help us identify the individuals that are most in need of assistance. This cooperation is essential to provide us with accurate information on the villagers and verify if they have received the assistance yet.

Based on our Constitution, the central government delegates authority over certain areas to the local governments. One of these areas is the state budget. The central government delegates powers to the local government step by step, the authority is transferred and the central government provides guidance.

Authority over the poverty reduction program has been delegated to the local governments. The local government program strengthens the central government program and fills the gaps that are not covered by central government.

What are the major achievements of the National Program for Community Empowerment (PNPM Mandiri) to date?

The government started PNPM Mandiri in 2007 and it is going to terminate at the end of 2014. It is the largest community-drive development program in the country and it is at the heart of the government effort to reduce poverty in Indonesia. The objective of PNPM Mandiri is to alleviate poverty by having the communities design their own development agenda. Infrastructure development, such as irrigation systems, bridges from one village to another, roads, meeting rooms, etc. have been done in the villages through this program.

After five years of implementation, the program has reached all sub-districts in Indonesia and it became an integral part of thousands of communities. Qualitative impact evaluation shows that PNPM Mandiri programs have enabled members of the community to eat better, to attend school for longer, to find jobs and set up businesses, to receive healthcare, and to participate in community and local political forums.

PNPM is a program initiated by President Yudoyono and it is not in our Constitution. Five years on, PNPM has become an integral part of communities across Indonesia, and these communities are committed to transforming their dreams into reality. People want the next President to continue with this program. It is important to build up on the existing legacy and continue the work that has been started. This request came to me directly from the people when I visited the villages. Both the people and the government will be very pleased if this program continues.

As part of the National Health Insurance Roadmap 2012-2019, in January 2014 the Indonesia will introduce the largest healthcare scheme in the world. It will take five years to roll out completely and by 1st January 2019, all Indonesians should have access to universal healthcare. Could you explain the structure of the new social healthcare system and its advantages?

Based on our Constitutions, we have a 2004 National Social Security System (SJSN), which mandates that Indonesia will to provide the following 5 securities to its citizens: health insurance (which will start from 1st January 2014), as well as work insurance, death benefits, old age benefits and pension funds (which will start from mid 2015).

The Social Security Organizing Body (BPJS) will manage the health insurance and the participants are going to be taken from Askes assets. The remaining four securities will be conducted by BPJS and the core assets will come from Jamsostek.

Indonesia’s social security system is just like any other social security system - there is a premium that needs to be paid. Based on our Constitution, everyone has to participate in the health insurance. In the case of the wealthier population that can afford to pay the premium, they will have to pay it on their own. Meanwhile the soldiers, police, and manufacturing workers will share the premium payment with their employer.

For the civil servants, the premium will be 5% of their monthly salary, out of which the government will pay 3% and the employees 2%. In the case of formal workers in the private sector, the employer should pay 4% and employees 1% of the national health insurance program (JKN) starting from 2015.

For the poor Indonesians, which account for about 40% of the population (or 86.5 million people) the government is going to pay the premium. Every month the government will pay IRP 19,255 (USD 1.57) per person, which will amount to a total budget of around IRP 20 trillion in 2014. Next year it will increase to 100 million people, while 14.5 million are going to be covered by local governments. The program is going to increase gradually, until 40% of the population is covered by the government and the remaining 60% by the employee or shared with the employer.

The premium for informal workers and retirees ranges from IRD 25,500 per month for third-class medical services to IDR 59,500 for first-class medical services, with at least three months payment in advance.

Everything is being done according to our Constitutions. As a wealthy country, we need to have universal healthcare. We have already estimated the necessary budget and it should not be a heavy burden for the state budget. The Indonesian government is considered financially capable to start the social security system, but this does not mean that it can be done easily; there are still some weaknesses that will have to be addressed. We are trying to anticipate possible challenges and citizens’ dissatisfaction. We are in the last stages of preparing the necessary regulations. The National Health Insurance participants have made a roadmap and the process should be completed in 5 years.

With half of the population under the age of 29, education plays a critical role in ensuring a bright future for the nation. In 2013, 20% of the state budget (USD 30.4 billion) has been allocated to improving the quality and access to education, while compulsory education has been extended from 9 to 12 years. Tell us more about the newly implemented Universal Secondary Education?

Today, according to our Constitution, compulsory education is 9 years. The government pays for it and people do not need to spend any money except for shoes or nice bags. In a few regions, as part of their electoral campaigns, some candidates offer to give 12 years of free education if they are elected. But we are worried that it is not a sustainable regional policy.

Starting from 2013, compulsory education has been extended to 12 years or high school. It is not included in the Constitution yet. If it were in the Constitution, the government would have to provide the budget for it from the existing education budget. This budget is expected to improve the participation rates to up to 95%. Besides that, we are adding extra scholarships for poor students, which consist about 25% of the total student’s population from elementary till high school (between 9-15 million students), so that they have no more reasons not to go to school.

In 2013, a new curriculum has been introduced and some argue that English has been cut out…

Actually, at elementary level, English is not a compulsory subject. This does not mean that the government is prohibiting English, in fact the schools may teach English. The media have interpreted this news wrongly by saying that the government has revoked English as a subject. We never revoked it, it simply has never been in the curriculum. If there is an initiative from a province, regency or a school to add English in their curriculum, we respect their decision.

In the new curriculum, we add some nation character building through Boy Scout and Girl Scout activities. These activities can give students a sense of responsibility as citizens from a young age. This way they learn our principles and we can work side by side to try to eradicate radicalism.

Preparing a well-qualified and trained workforce is critical for economic growth. What is your strategy to match the education system with the needs of the labor market?

In addition to public schools, we encourage the growth of vocational schools. There are around 60-70% vocational schools and 30-40% public schools. Vocational schools need to be adapted to a specific area so there is a link between the needs and provision. For example in North Maluku there are more fishery and marine schools; in Bali there is a need for tourism schools, while in North Sumatera they need tourism and agriculture schools. So we try to meet the labor market requirements and adapt the education system accordingly.

Nowadays, many companies ask for vocational school graduates with specific preparation to work in their companies, since these individuals are considered the most qualified and prepared for work. At the same time, it is possible for vocational school graduates to continue their studies in tertiary education.

For Indonesia to be able to maintain its pace of growth, it is essential to develop its manufacturing downstream industries and focus more on research and development. Can you tell us about your efforts in that area?

We are increasing the research budget every year. We plan to divide the Ministry of Education into two ministries: the Education Ministry and the Higher Education and Research Ministry. This is only a plan and no decision has been made yet. Currently, 20% of the state budget is allocated to education and it is increasing every year. The amount is around IDR 2,000 trillion and in 2-3 years is going to be more than that, so we need to use this money efficiently. By using it efficiently, Indonesia will be able to decrease the gap in education compared to other countries in Asia Pacific and the rest of the world.

The Ministry of Research and Technology is committed to finding new ways of capitalizing on research. Research should also be used to exploit and capitalize on Indonesian natural resources such as fishery, energy, etc.

Tourism and creative economies such as fashion, handicraft, music, etc. are significant drivers of economic growth providing numerous job opportunities. What are your priorities when it comes to diversifying Indonesia’s tourism and cultural offer? How is the government planning to meet the target of 20 million tourists by 2020?

Culture and tourism are combined in the same ministry - the Ministry of Tourism and Creative Economics. Culture needs to be promoted together with art performing, film, fashion, etc. In 10 undeveloped areas the government’s focus is to encourage and provide funds for cultural activities.

Building infrastructure is also an important step. Infrastructure does not only include roads, but also hotels, hospitals and security. If the infrastructure is good, we can increase the total number of people that work in the tourism sector, which is now less than 5% of our citizens. To make it happen, we have to make everything comfortable and easy to reach, which requires a lot of work because Indonesia consists of many islands and they need to have their own airports, ports, roads, bridges, etc.

Furthermore, tourism has to be used to increase people’s welfare and decrease poverty. Komodo Island’s tourism has been significant, but only 4% of the income generated contributed to decrease poverty in 2010. This is due to the fact that tourists who came to Indonesia did not spend much. They did not stay in a hotel because there was no hotel. They did not eat Indonesian food because there was no restaurant. If we can provide everything tourists need, each tourist will contribute towards improving the welfare of Indonesians through many sectors.

At the moment the central government gives support to the local government for the purpose of preparing people to work in the tourism sector. The local government provides handicrafts education, culinary education and finance and loan programs to build restaurants, etc. We are now starting to see a direct impact of tourism on people’s welfare.

The U.S. and Indonesia share a long history of bilateral ties. Under the current administration, the relationship between the two countries has grown stronger than ever. What are the main benefits deriving from increased cooperation with the U.S.?

At the moment, bilateral relations between Indonesia and USA are very good. There is a lot of expectation from this newborn relation, especially since Obama used to live in Indonesia. This is an opportunity to boost the relation in sectors like trading, educationand health, which will have a good impact for the people’s welfare in return.

It is important for Indonesia to have a good relation with the USA because it is a very big market, and we have abundant natural resources, which provides great opportunities for business. The relations between the two countries are at a lifetime high and we must both capitalize on it.