Photo by President Office

JAKARTA (TheInsiderStories) – Indonesia’s poor population, defined as those with consumption levels below 1.5 times the poverty line–Rp374,478 (US$27.74) expenditure per month–has slightly narrowed, to 10.6 per cent in March 2017, from 11.25 per cent in March 2014.

The poverty headcount also fell from 28.28 million people to 27.8 million people over the same period. These developments indicate a continued decline in the pace of poverty reduction, which averaged 1.1 percentage points annually in the last decade. The remaining poor are further below the poverty line, requiring higher consumption growth to maintain the rate of poverty reduction.

Meanwhile, inequality, as measured by the Gini coefficient for consumption, continued to decline. The Gini coefficient for March 2017 was 0.393, falling by 21 points from 0.414 in March 2014.

During his first year in office, President Joko Widodo set an ambitious target to reduce poverty level to below 10 per cent by the end of 2019, his term office. Thus, the government launch conditional cash transfer scheme under the Ministry of Social Affairs, that currently assists more than 6 million families.

Under the program, the government will scale up its coverage, from 3.5 million families in 2015 to 10 million, or 15 per cent of the population, by the end of 2019. The Government already allocated multiyear state budget funds amounting to $5.5 billion, to assist the program over the period.

In addition, the government has issued other cash transfer programs, including the Program Indonesia Pintar (PIP) that has enrolled more than 8 million poverty-stricken students or school-aged children, and the Healthy Indonesia Program that has enrolled more than 92 million for promulgation of ideal nutrition.

Over time, the Human Development Index rose to 70.19 from 68.9. While maternal mortality cases dropped from 4,999 to 1,712, and under-five mortality decreased from 33,278 to 10,294, during the three years since Widodo assumed his office.

Last but not least, the ‘prosperous rice’s program voucher pilot project. Starting in early 2017, the experiment will support more than 1.43 million households and involve some 14,000 merchants in 44 cities. Each target household will receive a voucher worth Rp110,000 per month.

To execute the business model, the government is collaborating with Bank Indonesia, four state-owned lenders known as HIMBARA and the e-warung agent, initiated by the Ministry of Social Affairs.

While initial plans included the use of vouchers restricted to rice and eggs (Government of Indonesia 2017), at the time of finalizing this chapter, government included rice and sugar as well. The e-voucher system will be expanded gradually to other cities and districts throughout 2017–19 and be scaled up nationally by 2019.

Better Targeted

While the budget itself has not become an issue for the safety net program any longer (case study: World Bank gave $200 million financing to support Government’s PKH programs last May), an allocation target match is becoming a larger issue.

During the previous rice’s program in 2012-14, not all of the available Rastra rice was purchased by households, and it is estimated that Rastra lost 38.7 and 48.2 per cent of the total rice allocation, respectively.

Against this backdrop, government decided to embark on a large-scale pilot of e-vouchers, as an alternative to the current in-kind provision of prosperous rice. The voucher program is nothing new, as there are already similarities with the Supplemental Nutrition Assistance Program, for example.

Prosperous rice in Indonesia now has been develop as a voucher gesture, as in the U.S and Mexico, more advanced compared to other countries’ similar programs: Sri Lanka, India, Egypt and Saudi Arabia still disburse cash or even food subsidies.

The prosperous rice program cost more than $15 billion or 43 per cent of total safety net budget, covering 24 per cent population or 60 billion. This reflects food and voucher programs provide an important lifeline for the poor and vulnerable, with 1.5 billion people covered globally including Egypt, India, Indonesia, Mexico, Sri Lanka, and the United States.

The Government even plans to extend the voucher program to other social safety nets, including education, health as well as agricultural subsidies. With a more advanced voucher system, the government expects it will become better-targeted.

“Policies to reduce poverty will need to consider the implications of an increasingly urban profile of poverty in Indonesia. Though poverty has fallen, a large per centage of the population remains just above the poverty line. This vulnerable population is at risk of falling back into poverty with the smallest shock,” Khofifah Indar Parawangsa, Minister of Social Affairs, warned recently.

The poverty line actually decreased over time, which indicates a low rate of inflation for the basket of goods consumed by the poor. However, this lower rate of poverty basket inflation has not been enough to accelerate poverty reduction.

Rural poverty, at 14.1 per cent, remains higher than urban poverty (7.8 per cent). However, over the past year, the poverty rate in rural areas fell more than twice as fast as the decline in urban poverty. The rural poverty headcount dropped by 570,000 people, while the urban poverty headcount increased by 330,000 people.

Increasing urbanization may be a reason: as indicated by the growing urban population and the shrinking rural population, more people (including the poor) are moving to urban areas. Some of these population shifts, however, may be caused by districts splitting and/or being reclassified as urban. Going forward, government should take this phenomena as a consideration in setting policy.

Writing by Yosi Winosa, Email: