Economic Inequality in Indonesia, Trends, Causes, and Policy Response: Comments on Satishs Paper

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Economic Inequality in Indonesia, Trends, Causes,
and Policy Response Comments on Satishs Paper

• Prasetijono Widjojo MJ
• National Development Planning Agency
• Sri Lanka, 5-7 December, 2008

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The Puzzle

• How to explain that in economies where relative
  constancy in income distribution has accompanied
  significant GDP growth, structural shifts in the
  composition of output, rapid migration from rural
  to urban areas, where the economy has enjoyed
  early capital account mobilisation and a
  relatively small state?
• How much confidence can be placed on the results
  of consumer household surveys in the context of
  such a rapid historical transformation?
• How do we read movements in the Gini, such as
  they are, in times of economic boom and in the
  midst of economic crises?

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Comments on Satishs Paper

• Congratulate to Satish for such an excellent
  analysis of the economic inequality in Indonesia.
  I think it is successfully identified in the
  paper problems related to the income inequality
  in Indonesia such as
• The reliability of the data on income
  distribution (data gap)
• Consistency between logic of development and the
  data
• The need to explain the correlation between
  income inequality and changes in political
  system, how constancy of income inequality occur
  as the economy experiencing shocks (booming,
  crises, disasters, etc.)

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Further comments

• Further study is needed to understand better the
  impact of policies taken by the government on
  income distribution. It is also important to
  further elaborate the dominant indicators (income
  vs non-income) in determining the patterns/trends
  of inequality in Indonesia.
• Another question is whether understanding income
  inequality is a real urgent, while we are
  currently facing the high rate of poverty and
  open unemployment which soon will be even worse
  as the economy being hit by the global economic
  crisis. In this particular situation what we need
  to do as government, given the existing data or
  policy information is to response correctly and
  timely to the global economic crisis to keep the
  economic activities moving/growing and and thus
  generating income and creating employment.

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Coping The Inequality Through Community
Empowerment

• The community empowerment programs seem to be an
  appropriate instrument to address the inequality
  and poverty problems
• Basic principles transparency, governance,
  democratic, participatory approach
• Direct transfer in the form of community grant is
  targeted to community groups with an open menu
• Shifting from project approach to program
  approach
• Consistent with the spirit of building social
  capital, capacity of the poor communities and
  institutions, as well as cultural capital, in
  addition to building the economic capital.

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Poverty Trend in Indonesia 1976-2008
It takes 12 years to get back to the same poverty
level before the 1997 financial crisis
1976
1978
1980
1981
1984
1987
1990
1993
1996
1998
1999
2000
2001
2002
2003
2005
2004
2006
2007
2008
Number of Poor
Number of Poor
of Poor
of Poor
Notes Methodology improvement in 1996 due to the
increasing of commodities interregion
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Inequality of Income Distribution in Indonesia
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Inequal distribution of poor across regions
21 poor lives in Sumatera
21.9 poor are spreaded in the rest of the country
57.1 poor lives in Java-Bali
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The Incidence of Poor in Urban and Rural Areas
Urban
Rural
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Framework of Government Annual Plan
Labor-related Programs
Employment Creation

• Fiscal-Monetary
• Policies
• Infrastructure
• Acceleration
• Package
• Investment
• Climate Package
• Energy policy
• SMEs Package
• Etc.

Economic Growth and Stability
Peoples Welfare
Poverty Reduction

• PNPM
• Small-scale
• infrastructure
• Economic productivity
• Environment
• improvement
• Human resources
• improvement

Price Stabilization (rice, education, health,
basic infrastructure)
Basic Needs Improvement Programs
Social Protection System
Harmonization Community Empowerment Programs

• CCT
• other social programs

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Poverty Reduction Through Community Empowerment

• RESPONSIVE GOVERNMENT/EMPOWERED COMMUNITIES
• Strengthening bottom-up planning and budgeting
• Improving local government representation and
  responsiveness (sub-districts, village heads,
  village legislative bodies, etc)
• Improving social service delivery to the poor.
• Pro-poor planning and budgeting

• MARKET LINKAGES
• Microfinance
• Smallholder development
• Information technology
• Renewable energy
• Non-bank (micro-credit institutions)

• SOCIAL PROTECTION
• Womens participation
• Justice for the Poor
• Helping Marginal Groups
• Budget transparency
• Community trust funds
• Sustainability

Block Grants Transfer to the Poor Communities
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3 CLUSTERS OF THE POVERTY REDUCTION PROGRAMS
POVERTY REDUCTION PROGRAMS
Cluster 2 Community Empowerment Programs
Cluster 3 SMEs Programs
Cluster 1 Program on Social Welfare and Social
Security
S E L F R E L I A N C E
Target very poor, poor and near poor HH
Target Poor Communities
Target SMEs
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1. The PNPM

• A national program to reduce poverty through
  community empowerment with the objective of
  increasing community capacity self-help group
  to achieve better standard of living welfare.

2. Why is PNPM?
Harmonize empowerment activities implemented by
various ministries to reduce inefficiency
overlapped activities, mechanisms, and
communitys institutions. Better targeting the
poor at sub districts and villages.
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PNPM Components

• a. Community Empowerment
• Facilitator provision to increase community
  awareness and capacity to form a self-help group
  advisory body at the village.
• Output formation of self-help group and
  elected advisory body.
• b. Community grant
• Provide community grant to the formed self-help
  group, to finance identified activities, selected
  in the advisory bodys forum.
• The grant is an open menu for a) basic
  infrastructure (rural road irrigations,
  school/health post renovations, etc) b) economic
  activities, etc.
• c. Local government and stakeholder capacity
  building
• A set of activities for strengthening local
  government stakeholder capacity to create a
  positive, conducive, synergetic environment for
  the community, in particular for the poor.
• d. Program Management MIS, Monitoring
  Evaluation, operational supports

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How does the empowerment process work?
4. Social Mapping
5. Community Organizing
3. Poverty Reflections
6. Planning
7. Implementation
2. Community Meetings
8. Beneficiaries

• Socialisation
• in the communities

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Thank youPrasetijono Widjojo MJemail
addressprasetijo_at_bappenas.go.id