DEVELOPMENT FOR THE PEOPLE: Equity and Poverty

Lecturer : Prof. Dr. Ginandjar Kartasasmita jgkar@cbn.net.id, www.ginandjar.comAssistant : Dr. Dadang Solihin, SE, MA Professor dadangsol@yahoo.com

CONTENTS INTRODUCTION What is Poverty? Evolving Strategy for Poverty Reduction The UN Millennium Development Goals Poverty Definitions And Measures POVERTY IN INDONESIA Poor Village Development Program THE CRISIS MAJOR POST‐CRISIS POVERTY REDUCTION PROGRAMSGRIPS_2012 www.ginandjar.com 2

CONTENTS EQUITY: A Continuous Challenge The Ever Present Problem of Inequality Regional Disparity Attempts at Equitable Development Persistent Disparity Amidst Economic Growth Unemployment Human Development Index THE ROLE OF PUBLIC ADMINISTRATION IN POVERTY REDUCTION AND EQUITABLE DEVELOPMENT LESSONS TO BE LEARNED On Poverty On Equitable DevelopmentGRIPS_2012 www.ginandjar.com 3

1998 CRISIS 4

WHAT IS POVERTY? POVERTY IS PRONOUNCED DEPRIVATION IN WELL‐BEING. TO BE POOR IS TO BE HUNGRY, TO LACK SHELTER AND CLOTHING, TO BE SICK AND NOT CARED FOR, TO BE ILLITERATE AND NOT SCHOOLED.  BUT FOR POOR PEOPLE, LIVING IN POVERTY IS MORE THAN THIS. POOR PEOPLE ARE PARTICULARLY VULNERABLE TO ADVERSE EVENTS OUTSIDE THEIR CONTROL.  THEY ARE OFTEN TREATED BADLY BY THE INSTITUTIONS OF STATE AND SOCIETY AND EXCLUDED FROM VOICE AND POWER IN THOSE INSTITUTIONS.GRIPS_2012 www.ginandjar.com 5

 THE PRESENT VIEW OF POVERTY IS ENCOMPASSING NOT ONLY MATERIAL DEPRIVATION (MEASURED BY AN APPROPRIATE CONCEPT OF INCOME OR CONSUMPTION) BUT ALSO LOW ACHIEVEMENTS IN EDUCATION AND HEALTH.  LOW LEVELS OF EDUCATION AND HEALTH ARE OF CONCERN IN THEIR OWN RIGHT, BUT THEY MERIT SPECIAL ATTENTION WHEN THEY ACCOMPANY MATERIAL DEPRIVATION.  THE NOTION OF POVERTY INCLUDES VULNERABILITY AND EXPOSURE TO RISK—AND VOICELESSNESS AND POWERLESSNESS.GRIPS_2012 www.ginandjar.com 6

 ANOTHER IMPORTANT REASON FOR CONSIDERING A BROADER RANGE OF DIMENSIONS—AND HENCE A BROADER RANGE OF POLICIES—IS THAT THE DIFFERENT ASPECTS OF POVERTY INTERACT AND REINFORCE ONE ANOTHER IN IMPORTANT WAYS.  THIS MEANS THAT POLICIES DO MORE THAN SIMPLY ADD UP. IMPROVING HEALTH OUTCOMES NOT ONLY IMPROVES WELL‐BEING BUT ALSO INCREASES INCOME‐ EARNING POTENTIAL.GRIPS_2012 www.ginandjar.com 7

 INCREASING EDUCATION NOT ONLY IMPROVES WELL‐ BEING—IT ALSO LEADS TO BETTER HEALTH OUTCOMES AND TO HIGHER INCOMES. PROVIDING PROTECTION FOR POOR PEOPLE (REDUCING VULNERABILITY IN DEALING WITH RISK) NOT ONLY MAKES THEM FEEL LESS VULNERABLE—IT ALSO ALLOWS THEM TO TAKE ADVANTAGE OF HIGHER‐RISK, HIGHER‐RETURN OPPORTUNITIES. INCREASING POOR PEOPLE’S VOICE AND PARTICIPATION NOT ONLY ADDRESSES THEIR SENSE OF EXCLUSION—IT ALSO LEADS TO BETTER TARGETING OF HEALTH AND EDUCATION SERVICES TO THEIR NEEDS.GRIPS_2012 www.ginandjar.com 8

EVOLVING STRATEGY FOR POVERTY REDUCTION THE APPROACH TO REDUCING POVERTY HAS EVOLVED OVER THE PAST 50 YEARS IN RESPONSE TO DEEPENING UNDERSTANDING OF THE COMPLEXITY OF DEVELOPMENT.  IN THE 1950S AND 1960S MANY VIEWED LARGE INVESTMENTS IN PHYSICAL CAPITAL AND INFRASTRUCTURE AS THE PRIMARY MEANS OF DEVELOPMENT. HENCE THE TRICKLING DOWN EFFECT IDEA. IN THE 1970S AWARENESS GREW THAT PHYSICAL CAPITAL WAS NOT ENOUGH, AND THAT AT LEAST AS IMPORTANT WERE HEALTH AND EDUCATION. GRIPS_2012 www.ginandjar.com 9

 THE 1980S SAW ANOTHER SHIFT OF EMPHASIS FOLLOWING THE DEBT CRISIS AND GLOBAL RECESSION AND THE CONTRASTING EXPERIENCES OF EAST ASIA AND LATIN AMERICA, SOUTH ASIA, AND SUB‐SAHARAN AFRICA.  IN THE 1990S GOVERNANCE AND INSTITUTIONS MOVED TOWARD CENTER STAGE—AS DID ISSUES OF VULNERABILITY AT THE LOCAL AND NATIONAL LEVELS. THE 20TH CENTURY SAW GREAT PROGRESS IN REDUCING POVERTY AND IMPROVING WELL‐BEING.GRIPS_2012 www.ginandjar.com 10

 IN THE LAST FOUR DECADES OF THE LAST CENTURY LIFE EXPECTANCY IN THE DEVELOPING WORLD IN‐CREASED 20 YEARS ON AVERAGE, THE INFANT MORTALITY RATE FELL MORE THAN HALF, AND FERTILITY RATES DECLINED BY ALMOST HALF IN THE PAST TWO DECADES NET PRIMARY SCHOOL ENROLLMENT IN DEVELOPING COUNTRIES INCREASED BY 13 PERCENT.GRIPS_2012 www.ginandjar.com 11

 HOWEVER THESE BROAD TRENDS CONCEAL EXTRAORDINARY DIVERSITY IN EXPERIENCE IN DIFFERENT PARTS OF THE WORLD‐AND LARGE VARIATIONS AMONG REGIONS, WITH SOME SEEING ADVANCES, AND OTHERS SETBACKS, IN CRUCIAL NON INCOME MEASURES OF POVERTY.  WIDENING GLOBAL DISPARITIES HAVE INCREASED THE SENSE OF DEPRIVATION AND INJUSTICE FOR MANY. AND SOCIAL MOBILITY AND EQUAL OPPORTUNITY REMAIN ALIEN CONCEPTS FOR FAR TOO MANY PEOPLEGRIPS_2012 www.ginandjar.com 12

THE UN MILLENNIUM DEVELOPMENT GOALSMDGs: NEW INTERNATIONAL DEVELOPMENT IDEOLOGY “WE WILL SPARE NO EFFORTS TO FREE OUR FELLOW MEN, WOMAN AND CHILDREN FROM THE OBJECT AND DEHUMANIZING CONDITIONS OF EXTREME POVERTY, TO WHICH MORE THAN A BILLION OF THEM ARE CURRENTLY SUBJECTED. WE ARE COMMITTED TO MAKING THE RIGHT TO DEVELOPMENT A REALITY FOR EVERYONE AND TO FREEING THE ENTIRE HUMAN RACE FROM WANT.” (MILLENIUM DECLARATION, 2000) GRIPS_2012 www.ginandjar.com 13

 THE MILLENNIUM DEVELOPMENT GOALS (MDG) WERE DERIVED FROM THE UNITED NATIONS MILLENNIUM DECLARATION, ADOPTED BY 189 NATIONS IN 2000. MOST OF THE GOALS AND TARGETS WERE SET TO BE ACHIEVED BY THE YEAR 2015 ON THE BASIS OF THE GLOBAL SITUATION DURING THE 1990s.GRIPS_2012 www.ginandjar.com 14

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POVERTY DEFINITIONS AND MEASURESPoverty headcount index (Po): This is the share of the population whose consumption is below the poverty line. The headcount index, sometimes referred to as the ‘poverty incidence’, is the most popular poverty measure. However, this measure fails to differentiate between sub-groups of the poor and does not indicate the extent of poverty. It remains unchanged even if a poor person becomes poorer or better off, provided that they remain below the poverty line. Therefore, in order to develop a comprehensive understanding of poverty, it is important to complement the headcount index with the other two poverty measures of Foster, Green and Thorbecke (FGT).Poverty gap index (P1): The mean aggregate consumption shortfall relative to the poverty line across the whole population, with a zero value assigned to those above the poverty line. The poverty gap can provide an indication of how many resources would be needed to alleviate poverty through cash transfers perfectly targeted to the poor. This index better describes the depth of the poverty but does not indicate the severity of poverty. However, it does not change if a transfer is made from a poor person to someone who is even poorer.GRIPS_2012 www.ginandjar.com 16

Poverty severity index (P2): This measure gives more weight to the very poor by taking the square of the distance from poverty line. It is calculated by squaring the relative shortfall of per capita consumption to the poverty line and then averaging across population while assigning zero values to those above the poverty line. When a transfer is made from a poor person to someone who is poorer, this registers a decrease in aggregate poverty.US$1 and US$2 PPP per day poverty measures: To compare poverty across countries, the World Bank uses estimates of consumption converted into US dollars using purchasing power parity (PPP) rates rather than exchange rates. The PPP exchange rate shows the numbers of units of a country’s currency needed to buy in that country the same amount of goods and services that US$1 would buy in the US. These exchange rates are computed based on prices and quantities for each country collected in benchmark surveys, which are usually undertaken every five years. Chen and Ravallion (2001) present an update on world poverty using a US$1-a-day poverty line. According to their calculations, in 1993 the US$1-a-day PPP poverty line was equivalent to Rp 20,811-a-month (US$2). The PPP poverty lines are adjusted over time by relative rates of inflation, using consumer price index (CPI) data. So in 2006, the US$1 PPP poverty line is equivalent to Rp 97,218 per person per month while the US$2 PPP poverty line is equivalent to Rp 194,439 per person per month.GRIPS_2012 www.ginandjar.com 17

1998 CRISIS 18

 DURING THE PREVIOUS THREE DECADES, THE INCIDENCE OF POVERTY IN INDONESIA HAD DECLINED SIGNIFICANTLY AS RESULT OF A RAPID ECONOMIC GROWTH COUPLED WITH INVESTMENT IN SOCIAL INFRASTRUCTURE SUCH AS HEALTH AND EDUCATION, PROMOTION OF AGRICULTURAL DEVELOPMENT, AND RURAL INFRASTRUCTURES. IN 1970S, SPECIAL MEASURES TO TARGETING TO THE ECONOMIC POOR WERE DIFFICULT DUE TO THE VERY HIGH PROPORTION OF PEOPLE LIVING BELOW THE POVERTY LINE.  IN THE ABSENCE OF GOVERNMENT INITIATED SOCIAL PROTECTION, THE POOR LEAN MOSTLY ON TRADITIONAL RISK POOLING MECHANISM.GRIPS_2012 www.ginandjar.com 19

 IN THE YEARS PRIOR TO 1997/98 ASIAN CRISIS, INDONESIA HAD ADOPTED A LONG‐TERM POVERTY ALLEVIATION STRATEGY VIA MASSIVE INVESTMENT IN PUBLIC EDUCATION AND HEALTH, AGRICULTURE AND PUBLIC INFRASTRUCTURE.  AMONG OTHERS, THIS APPROACH HAS CONTRIBUTED TO THE IMPROVEMENT OF HUMAN CAPITAL ACCUMULATION, CREATION OF NEWLY EDUCATED MIDDLE‐CLASS AND OPENING ISOLATED AREAS TO WIDER ECONOMIC OPPORTUNITIES. GRIPS_2012 www.ginandjar.com 20

 GOVERNMENT PROGRAM SUCH RICE SELF‐SUFFICIENCY AND FAMILY PLANNING HAD TREMENDOUS EFFECT OF POVERTY REDUCTION. WITH THE CONSTRUCTION OF IRRIGATION, INLAND ROADS, ELECTRICITY THAT HAD COVERED AROUND 70 TO 80% OF THE POPULATION, AND NATION WIDE SCHOOLS AND HEALTH SERVICES, THE RURAL AS WELL THE URBAN AREAS WERE BOTH AFFECTED BY ECONOMIC DEVELOPMENT. THE HIGH ECONOMIC GROWTH WAS ACCOMPANIED BY IMPROVEMENTS IN VARIOUS SOCIAL INDICATORS. GRIPS_2012 www.ginandjar.com 21

 DURING THE PERIOD, LIFE EXPECTANCY INCREASED, INFANT MORTALITY RATES FELL, AND SCHOOL ENROLLMENT RATES ROSE.  IN ADDITION, THE PROVISION OF BASIC INFRASTRUCTURE – WATER SUPPLIES, ROADS, ELECTRICITY, SCHOOLS, AND HEALTH FACILITIES ‐ ALSO ROSE SUBSTANTIALLY.GRIPS_2012 www.ginandjar.com 22

 HOWEVER ALTHOUGH ALL STRATA OF INDONESIA’S SOCIETY ENJOYED THE BENEFIT OF DEVELOPMENT, THOSE AT THE TOP DISPROPORTIONABLY ENJOYED THE MOST, THEREBY WIDENING THE SOCIAL AND ECONOMIC GAP BETWEEN THE RICH AND THE POOR. BY 1990’S AT THE HEIGHT OF INDONESIA’S ECONOMIC RISE—BEING ONE OF THE ASIAN ECONOMIC TIGERS— THERE WAS A GROWING CONCERNED AMONG DEVELOPMENT PLANNERS THAT A MORE TARGETED AND SPECIAL POLICIES SHOULD BE ADOPTED TO ACCELERATE POVERTY ERADICATION.GRIPS_2012 www.ginandjar.com 23

 IT SHOULD BE NOTED THAT DURING THE PRE‐CRISIS HIGH GROWTH PERIOD, THE GOVERNMENT OF INDONESIA (GOI) UNDER SUHARTO HAD ACTUALLY CARRIED ON A NUMBER OF POVERTY REDUCTION PROGRAMS.  IN THE EARLY NEW ORDER ERA FOR EXAMPLE, SEVERAL DEPARTMENTS INCLUDING THE DEPARTMENT OF HOME AFFAIRS RUN AN EXPERIMENTAL SAVINGS AND LOANS PROJECTS; THE DEPARTMENT OF SOCIAL AFFAIRS CONDUCTED PROJECTS FOCUSED ON INCREASING THE WELFARE OF THE POOR AND NEEDY; AND THE DEPARTMENT OF AGRICULTURE MANAGED PROGRAMS AIMING TO INCREASE THE INCOME LEVEL OF SMALL FARMERS (LEITH ET.AL, 2003). GRIPS_2012 www.ginandjar.com 24

 BESIDES THERE WERE ALSO A MULTITUDE OF PRESIDENTIAL INSTRUCTIONS (INPRES) ALLOCATING FUNDS FOR EDUCATION, HEALTH, AND BLOCK GRANTS TO THE PROVINCES AND DISTRICS. THEY ALL CONTRIBUTED TO THE FAST DROP IN POVERTY ALL OVER THE COUNTRY.GRIPS_2012 www.ginandjar.com 25

 PRIOR TO THE 1997/1998 CRISIS, THE GOVERNMENT TOOK IMPORTANT STEPS ON WHAT LATER WAS THE INSPIRATION OF POST‐CRISIS POVERTY REDUCTION PROGRAM.  THE POVERTY REDUCTION INITIATIVES IN THE LATE NEW ORDER ERA INCLUDES: I. PRESIDENTIAL INSTRUCTION ON DISADVANTAGED VILLAGES (IDT); II. DISADVANTAGED VILLAGE INFRASTRUCTURE DEVELOPMENT PROGRAM (P3DT); III. URBAN POVERTY REDUCTION PROGRAMME (P2KP); IV. MICRO CREDIT (TAKESRA/KUKESRA); V. SMALL FARMERS/FISHERMAN INCOME EXPANSION PROJECT (P4K); AND VI. SUB‐DISTRICT DEVELOPMENT PROGRAM (PPK/KDP). (LEITH ET.AL, 2003) GRIPS_2012 www.ginandjar.com 26

 DESPITE THE FACT THAT POVERTY ALLEVIATION IN INDONESIA ACHIEVED A GREAT SUCCESS IN THE PERIOD OF 1970S UNTIL MID 1990S, THE TERM POVERTY HAD NOT PLACED IN THE TOP PRIORITY OF THE COUNTRYS DEVELOPMENT AGENDA UNTIL THE EARLY 1990S.  THERE WAS NO SPECIFIC CHAPTER ON POVERTY ALLEVIATION IN THE FIRST FIVE OF FIVE YEARS DEVELOPMENT PLAN (REPELITA), THE NATIONAL MEDIUM‐ TERM DEVELOPMENT PLAN IN THE NEW ORDER ERA.  THE DEVELOPMENT IDEOLOGY AT THAT TIME FOLLOWING THE ADVICE OF EXPERTS FROM THE WORLD BANK AN WESTERN COUNTRIES WERE GROWTH DRIVEN DEVELOPMENT COUNTING ON THE TRICKLE DOWN BENEFIT OF GROWTH TO THE POOR POPULATION.GRIPS_2012 www.ginandjar.com 28

 THE SIXTH REPELITA 1994/1995 ‐ 1998/1999 WAS THE FIRST DOCUMENT THAT MENTIONED POVERTY ALLEVIATION AND EQUITY OF DEVELOPMENT. THESE TWO ISSUES WERE ALSO INTEGRATED IN OTHER CHAPTERS OF THE PLAN.  A NEW APPROACH ON POVERTY ERADICATION WAS LAUNCHED IN 1993, UNDER THE SIXTH FIVE YEARS DEVELOPMENT PLAN (REPELITA VI).  THE IDT (INPRES DESA TERTINGGAL, OR PROGRAM FOR ASSISTANCE TO BACKWARD VILLAGES). EVEN THEN THE USA OF THE WORD “POOR” WAS STILL AVOIDED.GRIPS_2012 www.ginandjar.com 29

 IDT HAD THREE GOALS: 1) TO GALVANIZE A NATIONAL MOVEMENT FOR POVERTY ERADICATION AND ENSURE THAT IT BECOMES A MASS (PEOPLE’S) MOVEMENT; 2) TO ACCELERATE REDUCTION IN INEQUALITIES OF INCOME AND WEALTH; AND 3) TO DEVELOP THE PEOPLE’S ECONOMY.  THE BASIC IDEA WAS EMPOWERING PEOPLE TO MAKE THEM CAPABLE TO LIFT THEMSELVES OUT OF POVERTY.GRIPS_2012 www.ginandjar.com 30

 POOR GROUPS ARE IDENTIFIED ACCORDING TO CATEGORIES REFLECTIVE OF LOCAL VILLAGE STANDARDS. EACH VILLAGES WAS PROVIDED FUNDS RP.20 MILLION PER VILLAGE (ABOUT US$10.000). IT WAS A GRANT, BUT WAS EXPECTED TO REVOLVE AMONG THE LOCAL COMMUNITY AS A SEED. THE USES OF THE FUNDS WERE ENTIRELY AT DISCRETION OF THE COMMUNITY THEMSELVES. IN ONE VILLAGE THERE COULD BE MORE THAN ONE GROUP.GRIPS_2012 www.ginandjar.com 31

 WOMEN’S PARTICIPATION WAS SIGNIFICANT AND IN MANY PLACES POKMAS MEMBERS WERE PREDOMINANTLY OR ALL WOMEN. MOST OF THEM DREW ON IDT FUNDS FOR INCOME‐GENERATING ACTIVITIES SUCH AS SMALL TRADING ACTIVITIES, ANIMAL HUSBANDRY SUCH AS RAISING GOATS, CHICKENS AND DUCKS, FISH FARMS, HOME INDUSTRIES, OR IN ONE CASE OPERATING A NEWLY PURCHASED FISHING BOAT WITH THEIR HUSBAND.GRIPS_2012 www.ginandjar.com 32

 BY 1996, THE PROGRAM HAD COVERED 28,000 OF THE LEAST‐DEVELOPED VILLAGES, OR 43 PERCENT OF ALL VILLAGES IN THE COUNTRY. BENEFICIARIES WERE 136,000 SELF‐HELP GROUPS (KELOMPOK MASYARAKAT OR POKMAS), COMPRISING OF 3.4 MILLION POOR HOUSEHOLDS. SUPPORTING THE IDT, IN 1996 A RURAL INFRASTRUCTURE PROGRAM WAS LAUCHED.GRIPS_2012 www.ginandjar.com 33

 OTHER PROGRAMS RELATED TO POVERTY REDUCTION HAD ALSO BEEN UNDERTAKEN, FOCUSING ON VULNERABLE GROUPS: THE POOREST, ISOLATED INDIGENOUS COMMUNITIES, THE DISABLED, ELDERLY, DESTITUTE CHILDREN, POOR WOMEN, AND SLUM DWELLERS. STILL OTHERS INVOLVE SUPPLEMENTARY FEEDING FOR ELEMENTARY SCHOOL CHILDREN AND INCOME GENERATING PROGRAMS.  THE RESULT WAS AN ACCELERATED REDUCTION IN POVERTY BETWEEN 1993‐1996.GRIPS_2012 www.ginandjar.com 34

PRE‐CRISIS POVERTY INCIDENCE AND NUMBER OF POOR Percent 50,0% Millions 60 54,2 45,0% 47,2 50 40,0% 40,1% 42,3 40,6 35,0% 40 33,3% 35 30,0% 28,6% 30 25,0% 26,9% 27,2 30 25,9 20,0% 22,5 21,6% 20 15,0% 17,4% 15,1% 13,7% 10,0% 11,3% 10 5,0% 0,0% 0Source: BAPPENAS, 1999 1976 1978 1980 1981 1984 1987 1990 1993 1996 GRIPS_2012 www.ginandjar.com 35

 NOTE: THE POVERTY LINES EQUAL TO 2100 CALORIE PER CAPITA PER DAY FOR THE FOOD COMPONENT (52 COMMODITIES) PLUS BASIC NON FOOD CONSUMPTION I.E. HOUSING, APPAREL, HEALTH, EDUCATION, UTILITIES AND TRANSPORTATION (47‐51 COMMODITIES).  THE AVERAGE COMPOSITION IS 74% FOR FOOD CONSUMPTION AND 26% FOR NON‐FOOD CONSUMPTION;  IN URBAN AREA 70% VS. 30% AND IN RURAL AREA 80% VS. 20%. GRIPS_2012 www.ginandjar.com 36

1998 CRISIS 37

 IN JULY 1997 INDONESIA WAS STRUCK BY A CURRENCY CRISIS, WHICH BY THE FIRST HALF OF 1998 HAD ALREADY DEVELOPED INTO A FULL BLOWN ECONOMIC AND POLITICAL CRISIS, EXACERBATED BY A NATURAL DISASTER (EL NINO DROUGHT). GRIPS_2012 www.ginandjar.com 38

 DURING THIS CRISIS PERIOD, THE INDONESIAN PEOPLE SAW:  THE FALL OF THE VALUE OF RUPIAH TO AS LOW AS 15 PERCENT OF ITS PRE‐CRISIS VALUE IN LESS THAN ONE YEAR,  ECONOMIC CONTRACTION BY AN UNPRECEDENTED MAGNITUDE OF 13.7 PERCENT IN 1998,  SKYROCKETING DOMESTIC PRICES (THE GENERAL INFLATION RATE WAS 78 PERCENT IN 1998) AND PARTICULARLY THOSE OF FOOD (INFLATION RATE OF FOOD WAS 118 PERCENT IN 1998),  MASS RIOTING IN THE CAPITAL JAKARTA AND A FEW OTHER CITIES,  CULMINATING IN THE FALL OF THE NEW ORDER GOVERNMENT ‐ WHICH HAD BEEN IN POWER SINCE MID 1960S TO MAY 1998. GRIPS_2012 www.ginandjar.com 39

 THE SOCIAL IMPACT OF THE CRISIS, IN PARTICULAR ON POVERTY, WAS SUBSTANTIAL.  DURING THE PERIOD, THE NUMBER OF URBAN POOR DOUBLED, WHILE THE RURAL POOR INCREASED BY 75 PERCENT.  A STUDY (BY SURYAHADI, SUMARTO, AND PRITCHETT, 2003) WHICH TRACKS DOWN POVERTY RATE OVER THE COURSE OF THE CRISIS SHOWS THAT THE POVERTY RATE INCREASED BY 164 PERCENT FROM THE ONSET OF THE CRISIS IN MID 1997 TO THE PEAK OF THE CRISIS AROUND THE END OF 1998. GRIPS_2012 www.ginandjar.com 40

 TO REDUCE THE ADVERSE SOCIAL IMPACT OF THE CRISIS, IN 1998 THE GOVERNMENT INTRODUCED A SOCIAL SAFETY NET (JARING PENGAMAN SOSIAL OR JPS) PROGRAM AIMING TO PREVENT THE POOR FROM FALLING MORE DEEPLY INTO POVERTY AND REDUCING THE EXPOSURE OF VULNERABLE HOUSEHOLDS TO RISK. GRIPS_2012 www.ginandjar.com 41

 THE SOCIAL SAFETY NET (SSN) INVOLVED FOUR STRATEGIES: I. ENSURING THE AVAILABILITY OF AFFORDABLE FOOD, II. IMPROVING HOUSEHOLD PURCHASING POWER THROUGH EMPLOYMENT CREATION, III. PRESERVING ACCESS TO CRITICAL SOCIAL SERVICES, PARTICULARLY HEALTH AND EDUCATION, INCLUDING SUPPLEMENTARY FOOD PROGRAM FOR SCHOOL CHILDREN AND LACTATING WOMAN IN POOR VILLAGES, AND IV. SUSTAINING LOCAL ECONOMIC ACTIVITY THROUGH REGIONAL BLOCK GRANTS AND THE EXTENSION OF SMALL‐SCALE CREDITS. THE IMPLEMENTATION OF THE SSN PROGRAMS HAD SIGNIFICANTLY REDUCED THE WORST EFFECTS OF THE CRISIS (SUMARTO, SURYAHADI, AND WIDYANTI, 2002). GRIPS_2012 www.ginandjar.com 42

 TO PROTECT FOOD SECURITY, EDUCATION, HEALTH AND EMPLOYMENT OF THE POOR HOUSEHOLDS IN THE POOR AREAS, IN JULY 1998, THE GOVERNMENT OF INDONESIA INITIATED THE FIRST NATION WIDE SOCIAL PROTECTION SCHEME ON HEALTH AND EDUCATIONAL, IN ADDITION TO SUBSIDIZED RICE AND CASH‐ FOR‐WORK PROGRAM FOR POOR HOUSEHOLDS AND AREAS (SPARROW, 2006, 2007; WORLD BANK, 2006).  WITH SOME MODIFICATIONS, MANY OF THESE INITIATED SOCIAL SAFETY NETS ARE STILL PRACTICED – SEVERAL OF WHICH ARE DISCUSSED IN THE CONTEXT OF THE POVERTY ALLEVIATION STRATEGY IN THE POST‐CRISIS INDONESIA. GRIPS_2012 www.ginandjar.com 43

FOOD SECURITY THE 1997/98 CRISIS WAS SIGNIFIED BY SKYROCKETING PRICE OF RICE, THE STAPLE FOOD FOR MOST INDONESIANS.  AMONG OTHERS DUE TO CROP FAILURE CAUSED BY SEVERE DRAUGHT (EL NIÑO) THE POOR, WHOSE RICE CONSUMPTION MADE UP TO A QUARTER OF TOTAL EXPENDITURES, WERE THE MOST NEGATIVELY AFFECTED.  THE DROP IN RICE CONSUMPTION WAS ACCOMPANIED BY AMONG OTHERS DIMINISHING HEALTH STATUS OF UNDER FIVE‐YEAR CHILDREN (WORLD BANK, 2006), INDICATING BAD COPING STRATEGY. GRIPS_2012 www.ginandjar.com 44

 DURING THE CRISIS, PER‐CAPITA LEVELS OF HOUSEHOLD EXPENDITURE, DECLINED SUBSTANTIALLY AND POVERTY RATES HAVE RISEN BY AT LEAST 25 PERCENT.  IT APPEARED THAT TO SMOOTH CONSUMPTION, HOUSEHOLDS REDUCED THEIR INVESTMENT IN CHILDREN EDUCATION AND PUSH EARLY ENTRANCE TO LABOR MARKET. GRIPS_2012 www.ginandjar.com 45

 IN MITIGATING THE HYPERINFLATION, HOUSEHOLDS TRIED TO MAINTAIN THEIR PHYSICAL AMOUNT OF STAPLE FOOD CONSUMPTION BY INCREASING THE VALUE AND PROPORTION OF THEIR FOOD CONSUMPTION AT THE COST OF HEALTH AND EDUCATIONAL EXPENDITURES, HAMPERING THE SUSTAINABILITY OF LONG‐TERM POVERTY ALLEVIATION STRATEGY THROUGH HUMAN CAPITAL ACCUMULATION.  THIS IS TRUE ESPECIALLY AMONG THE POOREST HOUSEHOLDS (FRANKENBERG, THOMAS, AND BEEGLE,1999). GRIPS_2012 www.ginandjar.com 46

 THE MOST IMPORTANT BASIC COMMODITY WAS RICE. A PROGRAM WAS INITIATED IN JULY 1998 TO PROVIDE 10 KG OF RICE AT ABOUT ONE‐HALF OF THE MARKET PRICE TO LOW‐INCOME FAMILIES FIRST IN THE JAKARTA AREA AND IN SEPTEMBER EXTENDED TO COVER 7½ MILLION VERY POOR FAMILIES THROUGHOUT THE COUNTRY.  IN DECEMBER THE MONTHLY ALLOCATIONS UNDER THE SCHEME WAS INCREASED FROM 10 KILOGRAMS TO 20 KILOGRAMS PER FAMILY COVERING 17 MILLION POOR FAMILIES GRIPS_2012 www.ginandjar.com 47

IMPROVING PURCHASING POWER TO IMPROVE PURCHASING POWER IN RURAL AND URBAN AREAS, THE GOVERNMENT HAD SET UP PUBLIC WORKS PROJECTS THROUGHOUT THE COUNTRY TO BOOST INCOMES OF THE POOR FOR THE UNEMPLOYED AND THE UNDEREMPLOYED.  TO SUPPLEMENT THESE EFFORTS, CASH‐FOR‐WORK PROGRAMS ARE BEING IMPLEMENTED IN DROUGHT‐STRICKEN AREAS OF THE COUNTRY.GRIPS_2012 www.ginandjar.com 48

SOCIAL SERVICES PRESERVING ACCESS TO CRITICAL SOCIAL SERVICES FOR THE POOR CONSTITUTED AN IMPORTANT ASPECT OF THE SOCIAL SAFETY NET. IN WHAT WAS CONSIDERED BY THE WORLD BANK AS THE MOST SUCCESSFUL INTERVENTION, AMONG THE SOCIAL SAFETY NETS HAD BEEN THE SCHOLARSHIP AND GRANT PROGRAM DESIGNED TO MAINTAIN ENROLMENTS AND QUALITY OF SCHOOLING AT PRE‐CRISIS LEVEL AND THE INTENSIFIED HEALTH CARE SERVICES.GRIPS_2012 www.ginandjar.com 49

EDUCATION AMONG THE IMMEDIATE IMPACT OF THE ASIAN CRISIS WAS AN INCREASE IN DROP OUT RATES ESPECIALLY AMONG THE SCHOOL AGED GIRLS FROM POOR RURAL AREA, POTENTIALLY TRANSMITTING POVERTY TO NEXT GENERATION.  IN 1998, THE FIRST PRO‐POOR TARGETED SSN ON EDUCATIONAL WAS INTRODUCED TOGETHER WITH THE SSNON HEALTH.  THE SSN COMPOSED OF TWO PARTS: SCHOLARSHIP AND SCHOOL SUBSIDY PROGRAM.  BY FEBRUARY 1999, 5 PERCENT OF CHILDREN AGES 10 TO 18 (APPROXIMATELY 2.1 MILLION CHILDREN) HAD RECEIVED A SCHOLARSHIP (SPARROW, 2006). GRIPS_2012 www.ginandjar.com 50

 FROM 1999‐2002 DATA, SPARROW FOUND THAT PARTICIPATION IN THE SCHOLARSHIPS INCREASED THE PROBABLY OF ATTENDING SCHOOL IN THE PREVIOUS WEEK FOR 1.5 PERCENTAGE POINTS HIGHER THAN THE NON‐ PARTICIPANTS.  AT THE SAME TIME, THE SCHOLARSHIPS REDUCED THE INCIDENCE OF CHILD TO WORK FROM 14.0% TO 10.2%. THE EFFECT ON LABOR WAS HIGHER FOR STUDENTS FROM POOR HOUSEHOLDS IN RURAL AREAS, AND FOR THE BOYS.  THE CASH TRANSFER THROUGH THE SCHOLARSHIPS HAD HELPED THE POOR HOUSEHOLDS, TO CERTAIN EXTENT, TO PROTECT THEIR CHILDREN ENROLMENT IN ELEMENTARY AND JUNIOR HIGH SCHOOL AND AT THE SAME TIME PREVENT PREMATURE ENTRANCE TO LABOR MARKET. GRIPS_2012 www.ginandjar.com 51

 THE PROGRAM EXTENDED TO THE POOREST 6 PERCENT OF STUDENTS ENROLLED IN PRIMARY SCHOOLS, 17 PERCENT IN JUNIOR SECONDARY AND 10 PERCENT IN SENIOR SECONDARY SCHOOLS.  IT ALSO PROVIDED GRANTS TO THE 60 PERCENT OF THE POOREST IN EACH CATEGORY (SEE WORLD BANK, 1999).  THE PROGRAM HAD REACHED 4 MILLION STUDENTS. GRIPS_2012 www.ginandjar.com 52

HEALTH IN HEALTH SERVICES, THE PRIORITY WAS GIVEN TO THE POOR TO HAVE ACCESS TO BASIC HEALTH SERVICES AND ESSENTIAL MEDICINES, AND PREVENTED MALNUTRITION AND MICRONUTRIENT DEFICIENCIES.  THE GOVERNMENT MADE AVAILABLE SUPPLEMENTARY FOOD FOR YOUNG CHILDREN THROUGH THE SCHOOL SYSTEM AND PREGNANT AND LACTATING WOMEN IN POOR VILLAGES. THIS PROGRAM HAD REACHED 8.1 MILLION PUPILS IN 52.5 THOUSAND SCHOOLS NATIONWIDE. GRIPS_2012 www.ginandjar.com 53

 AMONG THE FIRST SOCIAL HEALTH PROGRAM TARGETED TO POOR HOUSEHOLDS WAS STARTED IN 1994 WITH THE PROGRAM HEALTH CARD (KARTU SEHAT) AND FULLY NSTITUTIONALIZED IN 1998 THROUGH HEALTH SOCIAL SAFETY NET (JARING PENGAMAN SOSIAL JPS ‐ KESEHATAN).  IT WAS FUNDED BY ASIAN DEVELOPMENT BANK AND RUN FROM 1998 TO 2001.  THE SSN WAS LATER REPLACED BY A FUEL PRICE COMPENSATION SCHEME WHICH USED THE SSN PROGRAM MANAGEMENT (PKPS‐BBM 2001‐2005). GRIPS_2012 www.ginandjar.com 54

 IN SSN SCHEME, ELIGIBLE HOUSEHOLD CAN APPLY FOR A HEALTH CARD (KARTU SEHAT) WHICH CAN BE USED TO WAIVE MEDICAL EXPENSES FOR OUTPATIENT AND INPATIENT CARE AT SUB‐DISTRICT HEALTH CENTERS AND THIRD CLASS PUBLIC HOSPITAL WARDS.  BY FEBRUARY 1999, 11 PERCENT OF INDONESIANS OR APPROXIMATELY 22 MILLION PEOPLE LIVED IN A HOUSEHOLD WITH A HEALTH CARD. GRIPS_2012 www.ginandjar.com 55

MAJOR POST‐CRISIS POVERTY REDUCTION PROGRAMS SINCE THE ASIAN ECONOMIC CRISIS IN 1997‐98, EFFORTS ON PROTECTING THE POOR THROUGH TARGETED SOCIAL SAFETY NET ON HEALTH, EDUCATION AND RICE CONSUMPTION AS WELL AS THE NEWLY INTRODUCED COMMUNITY EMPOWERMENT PROGRAMS AND MICRO‐ENTERPRISE EMPOWERMENT PROGRAMS HAVE SIGNIFIED INDONESIAS DEVELOPMENT POLICY AGENDA. GRIPS_2012 www.ginandjar.com 56

 FROM 1998 TO 2010, THE GOVERNMENT HAS SHIFTED ITS DEVELOPMENT AGENDA, NOT ONLY RELYING HEAVILY ON ECONOMIC GROWTH BUT ALSO CREATING POVERTY REDUCTION EFFORTS TO ENSURE THE ACHIEVEMENT OF DEVELOPMENT GOALS.  SSN, THAT WAS COMMENCED AS AN EFFORT TO MITIGATE THE IMPACT OF FINANCIAL CRISIS THAT SEVERELY HIT THE POOR A DECADE AGO, HAS NOW EVOLVED INTO WIDER POVERTY REDUCTION EFFORTS. TODAY, POVERTY REDUCTION HAS BECOME ONE SPECIFIC OBJECTIVE THAT IS FORMALLY STATED IN THE NATIONAL DEVELOPMENT PLANNING DOCUMENTS.GRIPS_2012 www.ginandjar.com 57

 IN POST‐CRISIS ERA, WHAT WAS STARTED AS A RESPONSE TO THE ASIAN ECONOMIC CRISIS THAT SWEPT THE COUNTRY A DECADE AGO, A SET OF SOCIAL SAFETY NET (JARING PENGAMAN SOSIAL, JPS) PROGRAMS HAVE NOW BECOME INSTITUTIONALIZED IN THE POVERTY REDUCTION PROGRAMS IN INDONESIA.  FROM THE ONSET OF THE CRISIS, THE GOVERNMENT EMPLOYED A SOCIAL PROTECTION SYSTEM THAT WAS A MIXTURE OF UNIVERSAL SUBSIDIES AND TARGETED SAFETY NET PROGRAMS.  THE AIM OF THIS INITIATIVE IS TO PREVENT THE CHRONIC POOR FROM FALLING MORE DEEPLY INTO POVERTY AND REDUCING THE EXPOSURE OF VULNERABLE HOUSEHOLDS TO RISKS. GRIPS_2012 www.ginandjar.com 58

 IN THE FOLLOWING YEARS, SUCCESSIVE ADMINISTRATIONS HAS TAKEN A POLITICALLY DIFFICULT BUT ECONOMICALLY RATIONAL AND PRO‐ POOR STEP IN ALLOCATING RESOURCES MORE EFFECTIVELY IN SECTORS THAT MATTER TO THE SOCIAL WELFARE. GRIPS_2012 www.ginandjar.com 59

 THE LATEST DEVELOPMENT, ON FEBRUARY 2010 THE GOVERNMENT ISSUED THE PERPRES NO. 15/2010AB OUT POVERTY REDUCTION ACCELERATION. BASED ON THIS PERPRES, THE POVERTY REDUCTION BODY CHANGE ITS NAME BECOMES THE NATIONAL TEAM FOR POVERTY REDUCTION ACCELERATION (TNP2K). TNP2K HAS THREE MAIN TASKS, I.E. FORMULATE THE POVERTY REDUCTION POLICY AND PROGRAM, MAKE THE POVERTY REDUCTION ACTIVITIES MORE SYNERGIC BETWEEN MINISTRIES AND INSTITUTIONS, AND PERFORM THE MONITORING AND EVALUATION FUNCTION. THIS NEW REGULATION ALSO HIGHLIGHTS A CHANGE IN ORGANIZATION AS THE VICE PRESIDENT WAS DESIGNATED TO LEAD THIS TEAM.GRIPS_2012 www.ginandjar.com 60

NATIONAL TEAM FOR POVERTY REDUCTION ACCELERATIONThe Organization Chart based on Perpres No. 15/2010GRIPS_2012 www.ginandjar.com 61

DEVELOPMENT STRATEGY (Four‐Track Strategy)• Pro‐Growth: Strategy to increase and accelerate economic growth through promoting investment, exports, and businesses including the improvement of investment climate.• Pro‐Job: Strategy to create employment opportunities including the establishment of a flexible labor market and creation of conducive industrial relations.• Pro‐Poor: Strategy to reduce poverty and to revitalize agriculture sector, forestry, maritime, rural economy. In the medium and long‐term period the poverty alleviation strategy is also aimed at increasing the participation (including the capacity and quality of the people at community level) to local development and providing access for the poor to basic services including education, health, sanitation/clean water, as well as rural infrastructure.• Pro‐Environment: Strategy to protect and maintain the environment through sustainable development. Resources are optimally used while preserving the environment to meet present human needs and generations to come.GRIPS_2012 www.ginandjar.com 62

SOCIAL PROTECTION IN INDONESIA Social Welfare Development (Indicators) Improvement on Social Welfare • Growth: 6,3‐6,8% • Inflation: 4‐6% • Open Unemply : 5‐6% (2014) • Poverty Rate: 8‐10% (2014) Pro Poor Pro Job • Social development • Decent work • Cluster 1,2, dan 3 • Social Security Programs (Social • Labor Competency Assistance Programs) Pro Growth • Migrant Workers • Social Protection • Macro strategy • Sector strategy • Micro strategy (SME) GRIPS_2012 www.ginandjar.com 63

DEVELOPMENT STRATEGY ON SOCIAL WELFARE• Fiscal and Moneter Policy Job • Accelerate Opportunity infrastructure Creation development (PRO‐JOB)• Improvement of Investment climate• Policy on Energy Growth & Social Welfare sector Economics • Policy on small and stabilization Improvement medium enterprises (PRO‐POOR (GROWTH with• Policy on Industrial GROWTH) EQUITY) sector• Policy on Trade Poverty • Price stabilization basic needs Reduction• National Social (PRO‐POOR) Security System Family Based Small and Medium Community Social Enterprises Empowerment Assistance Empowerment Programs Programs Programs Conditional Cash Transfer (Program Keluarga Harapan/PKH), PNPM Mandiri Credits for the poor, Access to Subsidized Rice for Poor Families (RASKIN), Scholarship for Core and productive Resources, Training student from poor family, Health assistance Support 64

POVERTY ALLEVIATION STRATEGY Quality growth (pro‐poor and pro‐job), Inflation control, Price stabilization for basic needs, Subsidy policy, Social Availability of Health assistance services, Education, Clean Empowerment of poor water, Legal protection, community, Improvement and other types of of community infrastructure participation Improvement in Purchasing Power Productivity/ Improvement in Capacity Access to Basic Reduction in the Improvement Services Number of Poor and Poverty Rate Market information availability, Access to Family Planning productive resources programs (capital, credit), Improvement in Empowerment of micro Population Control Access to Market & small scale enterprisesGRIPS_2012 www.ginandjar.com 65

FOUR CLUSTERS PRO‐PEOPLE PROGRAM MACRO‐ECONOMIC POLICY 1ST CLUSTER 2nd CLUSTER 3rd CLUSTER NEAR POOR 1. RICE SUBSIDY, 1. Block grants for • Improved Welfare 1. Micro credits 2. CASH 6,408 sub‐districts • Expansion and provision (< Rp 5 TRANSFERS, (rural, urban, dis‐ million) through POOR 3. HEALTH advantaged regions, banks, Increasing INSURANCE, regional & village 4. SCHOLARSHIPS infrastructures) 2. Other types of Employment 2. PNPM Mandiri financial assistance Opportunities VERY POOR NEAR 4th CLUSTER POOR 1. VERY CHEAP HOUSE PROGRAM 2. CHEAP PUBLIC TRANSPORT VEHICLE PROGRAM Poverty 3. CLEAN WATER PROGRAM FOR PEOPLE Reduction POOR *) 4. CHEAP & SAVE ELECTRICITY PROGRAM 5. Fishermens Life Improvement Program*) 6. Urban Poor Community Life Improvement Program*) VERY POOR *)*) Fishermens Life Improvement Program and Urban Poor Community Life Improvement Program are targeted for 60% poorest GRIPS_2012 www.ginandjar.com 66

Clusters of Poverty Alleviation Programs 3rd CLUSTER [Assist to have fish‐rod & boat] 2nd CLUSTER [Facilitate with fish rod] Micro‐ & Small‐scale Enterprise 1ST CLUSTER Empowerment [Provide fish] Community Empowerment Programs Micro credits provision (< Rp Assistance & 5 million) through banks, & Social Protection Programs Block grants for 6,408 sub‐ other types of financial Target: 17.5 mil. poor HH: districts (rural, urban, dis‐ assistance advantaged regions, regional & rice subsidy, cash transfers, village infrastructures) PNPM health insurance, & Mandiri scholarships Target: SMEs Target: poor communities of subdistricts Target: the poorest, poor & 4th Cluster near poor Households 6 Pro‐Poor Programs and 3 additional programs GRIPS_2012 www.ginandjar.com 67

SOCIAL PROTECTION AND ASSISTANCE PROGRAMS (CLUSTER I)  GOVERNMENT SOCIAL ASSISTANCE IN PROTECTING RICE CONSUMPTION, EDUCATION AND HEALTH OF POOR HOUSEHOLDS.  THERE ARE FIVE PROGRAMS I.E. RASKIN SUBSIDIZED RICE, SOCIAL HEALTH INSURANCE (JAMKESMAS), POOR STUDENT SCHOLARSHIP (BKM/BSM) , SCHOOL OPERATIONAL SUPPORT FUND (BOS), CONDITIONAL CASH TRANSFER FOR HOUSEHOLDS (PKH). GRIPS_2012 www.ginandjar.com 68

 IN ADDITION TO THESE FIVE PROGRAMS, THE PNPM GENERASI CONDITIONAL CASH TRANSFER FOR COMMUNITY IS INCLUDED SINCE, ALTHOUGH IT IS CATEGORIZED AS PART OF CLUSTER 2 ON COMMUNITY EMPOWERMENT, IN PRACTICE IT PROVIDED DIRECT PROVISION OF TRANSPORT INCENTIVES, BOOKS, UMBRELLAS, AND SHOES FOR POOR STUDENTS AS WELL AS TRANSPORT INCENTIVES FOR PREGNANT‐MOTHER TO VISIT THE MIDWIVES AT POSYANDU (FEBRIANY, TOYAMAH AND SODO, 2010). GRIPS_2012 www.ginandjar.com 69

CURRENT GOVERNMENT SCHEME ON PROTECTING RICE CONSUMPTION, EDUCATION, AND HEALTH OF POOR HOUSEHOLDS GRIPS_2012 www.ginandjar.com 70

COMMUNITY EMPOWERMENT (CLUSTER 2)  THE GOVERNMENT DECIDES TO INTEGRATE EMPOWERMENT PROGRAMS SCATTERED IN DIFFERENT MINISTRIES AND INSTITUTIONS UNDER THE UMBRELLA OF THE PROGRAM NASIONAL PEMBERDAYAAN MASRYARAKAT (PNPM) , A NATIONAL PROGRAM FOR COMMUNITY EMPOWERMENT (NPCE) IN POOR DISTRICTS AND SUB‐ DISTRICTS. GRIPS_2012 www.ginandjar.com 71

 PREVIOUSLY THE IMPLEMENTATION OF SUCH PROGRAMS HAD RESULTED IN INEFFICIENCY AND INEFFECTIVENESS, THERE IS AN OVERLAPPING PROGRAMS IN VARIOUS SECTOR IN DIFFERENT REGIONS AS WELL AS EXCLUDED PROGRAMS IN OTHER SECTORS AND OTHER REGIONS.  IN 2006 A NEW POLICY WAS LAUNCHED TO ACCELERATE THE POVERTY ALLEVIATION EFFORTS AND TO EXTEND EMPLOYMENT OPPORTUNITIES FOR THE POOR BY CONSOLIDATING VARIOUS EMPOWERMENT PROGRAMS UNDER THE PNPM (NPCE). GRIPS_2012 www.ginandjar.com 72

 AS MENTIONED, THE COMMUNITY EMPOWERMENT PROGRAM IS NOT A NEW APPROACH IN THE DEVELOPMENT APPROACH IN INDONESIA. THERE WERE INPRES DESA TERTINGGAL (IDT) AND VILLAGE INFRASTRUCTURES PROGRAM (P3DT) BEFORE CRISIS.  AFTER THE CRISIS, THIS KIND OF EMPOWERMENT PROGRAM HAS EXTENDED INTO VARIOUS PROGRAMS, SUCH AS EMPOWERMENT OF THE REGIONS TO OVERCOME THE IMPACT OF THE ECONOMIC CRISIS (PDM‐DKE), KECAMATAN DEVELOPMENT PROGRAM (PPK), URBAN POVERTY PROGRAM (P2KP), FARMER AND FISHERS INCREASING INCOME PROJECT (P4K), AND ECONOMIC EMPOWERMENT FOR COASTAL COMMUNITY (PEMP). GRIPS_2012 www.ginandjar.com 73

 THE PNPM ITSELF ADOPTS THE SCHEME AND MECHANISM OF THE PPK. THE PPK ACTUALLY IS INITIATED BEFORE THE CRISIS AS A REVISION FROM IDT AND P3DT. THE FIRST PHASE OF PPK (PPK I) STARTED IN FINANCIAL YEAR 1998/1999 UNTIL 2002, PPK II HAD BEEN IMPLEMENTED IN THE PERIOD 2003‐2006, WHILE PPK III HAD BEEN EMPLOYED IN 2006‐2007.GRIPS_2012 www.ginandjar.com 74

 COMMUNITY EMPOWERMENT AIMS AT CREATING AND ENHANCING COMMUNITY CAPACITY TO EFFECTIVELY OVERCOME VARIOUS DEVELOPMENT PROBLEMS FACED BY THE COMMUNITIES.GRIPS_2012 www.ginandjar.com 75

COMMUNITY EMPOWERMENT A BASE FOR NATION BUILDING Building community capacity as social capital Providing economic capital Enhancing social through community block entrepreneurship at community grants level through facilitators/ community leadersGRIPS_2012 www.ginandjar.com 76

POVERTY REDUCTION THROUGH COMMUNITY EMPOWERMENT RESPONSIVE GOVERNMENT/EMPOWERED COMMUNITIES  Strengthening bottom‐up planning and budgeting;  Improving local government representation and responsiveness;  Improving social service delivery to the poor;  Pro‐poor planning and budgeting Market linkages Social Protection  Non-bank and  Women’s participation microfinance  Justice for the poor  SADI (smallholder dvpt)  Helping marginal groups  Information technology  Budget transparency  Renewable energy BLOCK GRANT  Community trust funds TRANSFER TO  Sustainability THE POORGRIPS_2012 www.ginandjar.com 77

MAIN ACTIVITIES TRAIN THE COMMUNITIES IN IDENTIFICATION, ANALYSIS AND DECISION MAKING PROCESS TO TACKLE THEIR POVERTY PROBLEMS CREATE/EXPAND SMALL SCALE INFRASTRUCTURES AND COMMUNITY ECONOMIC PRODUCTIVITIES. INCREASE COMMUNITY CAPABILITY AND SELF‐HELP TO ACHIEVE BETTER STANDARD OF LIVINGGRIPS_2012 www.ginandjar.com 78

EMPOWERMENT PROCESSGRIPS_2012 www.ginandjar.com 79

WHY NPCE?  THERE HAVE BEEN DIFFERENT KINDS OF POVERTY ERADICATION ACTIVITIES WITHIN MINISTRIES/INSTITUTIONS CREATING INEFFICIENCY AND OVERLAPPING ACTIVITIES, MECHANISMS, COMMUNITYS INSTITUTIONS NEED HARMONIZATION.  IMPERFECT MARKET, ESPECIALLY IN MEETING PEOPLE’S NEEDS IN REMOTE AND ISOLATED AREAS.  DIFFICULTIES TO REACH THE POOR.GRIPS_2012 www.ginandjar.com 80

HOW IT WORKS? PNCE‐SECTORAL PROGRAMS • CONSIST OF SECTORAL EMPOWERMENT PROGRAMS • COMPONENTS: • SECTORAL BLOCK GRANTS (RURAL ROADS, IRRIGATION, ETC) • EXTENSION SERVICES PNCE‐CORE PROGRAMS (IN 2008) • CONSIST OF: • KDP: RURAL‐BASED COMMUNITY EMPOWERMENT • UPP: URBAN‐BASED COMMUNITY EMPOWERMENT • RISE: FAST‐GROWTH AREAS COMMUNITY EMPOWERMENT • COMPONENTS: • COMMUNITY BLOCK GRANTS • FACILITATION, TECHNICAL ASSISTANCE, TRAINING, LOCAL GOVERNMENT CAPACITYGRIPS_2012 www.ginandjar.com 81

PREVIOUS CONDITION PROGRAM PROGRAM PROGRAM PROGRAM PROGRAM PROGRAM OVERNUMBER IN MANAGEMENT MANAGEMENT MEDIATORS STRUCTURE STRUCTURE FIELD COORDINATION ? MISDELIVERED PROGRAM ??FIELD COORDINATION OVERLAPPING WITH OTHER ?? PROGRAMS ?? ?? IGNORED GRIPS_2012 www.ginandjar.com 82

UNDER NPCE Program Program Program Program Program The aid is directly delivered to the hand of community so that they could receive bigger and integrated aid All empowering supports rest under and managed by “participative community body” which is formed by public itself, in each village All programs run similar norms/criter ia, standard, process, procedure and Community through guidance empowering groups conduct Data collection and targeting NPCE, supported by Sectoral on the poor accurately Empowering Packages (BLM, facilitator, training etc)GRIPS_2012 www.ginandjar.com 83

MICRO‐ENTERPRISE EMPOWERMENT (CLUSTER 3)  THIS CLUSTER IS INTENDED TO EMPOWER THE POOR AND NEAR POOR WHO HAS AN OCCUPATION OR BUSINESS TO FULFILL THEIR BASIC NEEDS BUT THEY STILL NEED TO IMPROVE THE WELLBEING.  ALBEIT THE ROLE OF MICRO‐ENTERPRISE IN ERADICATING POVERTY HAS BEEN WIDELY KNOWN SINCE FEW DECADES AGO, THE CRISIS 1997/1998 SHOWED HOW SIGNIFICANT THE EXISTENCE OF MICRO‐ENTERPRISE HELPS THE POOR TO GET SURVIVED AND RECOVERED FROM THE CRISIS.  IT IS ALSO BEEN KNOWN THAT MOST POOR WORK IN INFORMAL SECTOR CONSISTS OF SMALL SCALE AND MICRO‐ ENTERPRISE THAT PRODUCING OR DISTRIBUTING GOODS AND SERVICES. GRIPS_2012 www.ginandjar.com 84

 THESE ENTERPRISES ARE GENERALLY INDEPENDENT, LARGELY FAMILY OWNED, EMPLOY LOW LEVELS OF SKILLS AND TECHNOLOGY, AND ARE HIGHLY LABOR INTENSIVE. INDEED, MICRO‐ENTERPRISES PROVIDE INCOME AND EMPLOYMENT FOR SIGNIFICANT PROPORTIONS OF WORKERS IN RURAL AND URBAN AREAS (HARVIE, 2003).  FOR INDONESIA, MICRO‐ENTERPRISES NOW HAS REACHED 43 MILLION UNITS AND SHARED MORE THAN 50% OF NATIONAL GDP.  THE DATA ALSO SHOWS THAT ONE UNIT MICRO‐ENTERPRISE CAN ABSORB ON AVERAGE 1‐5 WORKERS (TKPK, 2009). GRIPS_2012 www.ginandjar.com 85

 HARVIE (2003) ALSO POINTS OUT THAT MICRO‐ENTERPRISE DEVELOPMENT‐COMPLEMENTED WITH PROPER MICRO‐FINANCE SUPPORT‐CAN PLAY PART IN THE ACHIEVEMENT OF MAIN SOCIAL AND ECONOMIC DEVELOPMENT OBJECTIVES, NAMELY POVERTY REDUCTION, WOMEN EMPOWERMENT, EMPLOYMENT CREATION, AND PRIVATE SECTOR ENTERPRISE DEVELOPMENT.  THOUGH THESE FOUR OBJECTIVES CANNOT BE FULLY SEPARATED, WE WILL FOCUS ON THE ROLE OF MICRO‐ENTERPRISE EMPOWERMENT TO REACH THE OBJECTIVES ON POVERTY ALLEVIATION. GRIPS_2012 www.ginandjar.com 86

 THE PROGRAM OBJECTIVE IS TO INCREASE ACCESS OF THE POOR TO A CHEAP CAPITAL. FURTHERMORE, THE SNPK HAS ALSO ELABORATED THE RELATIONSHIP BETWEEN MICRO‐ENTERPRISES, MICRO FINANCE, AND MICRO CREDIT IN THE AGENDA OF POVERTY ALLEVIATION.  THIS PROGRAM IS A CONTINUATION AND INTEGRATION OF VARIOUS MICRO‐CREDIT PROGRAMS INITIATED BY PREVIOUS GOVERNMENT.GRIPS_2012 www.ginandjar.com 87

MICRO CREDIT (KUR) SCHEME CLUSTER 3 Source: TKPK, 2009GRIPS_2012 www.ginandjar.com 88

 THE GOVERNMENT PROVIDES A SUBSIDIZED GUARANTEE SCHEME AT AMOUNT 70% IN WHICH THE GOVERNMENT PAYS THE PREMIUM.  THE TARGET OF THIS MICROCREDIT PROGRAM IS THE MICRO‐ENTERPRISES AND COOPERATIVES WHICH HAVE FEASIBLE BUSINESS BUT ARE NOT BANKABLE BECAUSE OF LACK OF COLLATERAL.  MOREOVER, THIS MICROCREDIT ALSO PROVIDES ACCESS TO COMMUNITY GROUPS WHICH HAVE BEEN EMPOWERED IN THE PREVIOUS PROGRAM. GRIPS_2012 www.ginandjar.com 89

TARGET AND REALIZATION 2007‐ DECEMBER 2011 29.003 26.474(Rp Billion) 22.236 24.404 20.459 20.000 20.000 18.000 17.229 17.467 18.300 16.000 14.578 16.600 14.000 15.000 12.000 11.475 11.216 13.300 10.000 8.771 11.600 10.000 8.000 6.469 8.300 6.000 4.733 3.828 6.600 4.000 1.856 5.000 2.000 982 3.400 0 1.600 2007 2008 2009 2010 Jan-11 Feb-11 Mar-11 Apr-11 Mei-11 Jun-11 Jul-11 Agust-11 Sep-11 Okt-11 Nop-11 Des-11 Realisasi Realized Target Source: Office of the Economic Coordinating Minister GRIPS_2012 www.ginandjar.com 90

SOCIAL PROTECTION COVERAGE Social Security Social Assistance Q5 •Pension. Cluster 3 Q4 • Credit •Old Age Security. Facility to SMEs •Health. Cluster 2 • Skill training for Q3 Indonesia’s •Work Injury. Cluster 1 National migrant Program on Worker • Scholarship. Community • Other Q2 •Death. • Subsidized Rice. Empowerment • CCT.* Schemes • Social Health Assistance (PNPM) • UCT (if needed) • Disabled. • Neglected Children. Q1 • Neglected Seniors.* * Pilot for the poorest householdsGRIPS_2012 www.ginandjar.com 91

Clusters of Poverty Alleviation Programs Fourth Cluster The fourth cluster is planned to start in 2012 (complement to the three clusters) 4th CLUSTER Access for the poor to buy very low price ‘basic needs’ ‐ subsidized by government ‐ EXAMPLES: • Housing • Clean water services • Electricity • Vehicle for public transportation Three Clusters Poverty Alleviation and Social Welfare ImprovementGRIPS_2012 www.ginandjar.com 92

GOALS: ALIGNMENT OF KEY GOVERNMENT PRIORITIES WITH MDGs INDICATORS/TARGET (%) 2002 2009 MDGs 2015 ACTUAL TARGETS TARGETS Poverty Population below US$ 1 a day 7.2 10.3 Poverty head‐count ratio 18.2 8.2 7.5 Health Under 5 mortality rate (per 1,000 live births) 60 26 33 Maternal mortality ratio (per 100,000 live births) 307 226 105 Education Net enrollment rate in primary education 92.7 99.6 100 Gross and net enrollment rate at junior level 79.7 98 ‐ Literacy rate of 15‐24 y.o 98.7 100 Water & Sanitation % of population that has access to improved water 78 80 Rural Development Agricultural sector growth 35GRIPS_2012 www.ginandjar.com 94

POVERTYGRIPS_2012 www.ginandjar.com 95

POOR ↔ NON POOR MOVEMENT POVERTY STATUS UNIT POVERTY STATUS 2009 POOR NON‐POORPOOR % 45.6 54.4NON‐POOR % 7.6 92.4 POVERTY STATUS UNIT POVERTY STATUS 2010 POOR NON‐POORPOOR % 46.4 53.6NON‐POOR % 7.3 92.7GRIPS_2012 www.ginandjar.com 96

IMPORTANT NOTE: NON‐INCOME POVERTY IS A MORE SERIOUS PROBLEM THAN INCOME POVERTY. WHEN ONE ACKNOWLEDGES ALL DIMENSIONS OF HUMAN WELL‐BEING—ADEQUATE CONSUMPTION, REDUCED VULNERABILITY, EDUCATION, HEALTH AND ACCESS TO BASIC INFRASTRUCTURE—THEN ALMOST HALF OF ALL INDONESIANS WOULD BE CONSIDERED TO HAVE EXPERIENCED AT LEAST ONE TYPE OF POVERTY. GRIPS_2012 www.ginandjar.com 97

POVERTY INCIDENCES USING DIFFERENT MEASUREMENT (%)GRIPS_2012 www.ginandjar.com 99

GRIPS_2012 www.ginandjar.com 100

1998 CRISIS 101

THE EVER PRESENT PROBLEM OF INEQUALITY  WHILE, AS MENTIONED ABOVE INDONESIA’S DEVELOPMENT HAD A WIDESPREAD EFFECT ON THE POPULATION IN GENERAL AS INDICATED BY DECLINING POVERTY INCIDENCES AND VARIOUS SOCIAL INDICATORS, THERE WAS GROWING AWARENESS OF THE WIDENING GAP BETWEEN INCOME GROUPS, BETWEEN REGIONS, AND BETWEEN ETHNICS. GRIPS_2012 www.ginandjar.com 102

 AT THE HEIGHT OF THE PRAISE FOR THE NEW ORDER ACHIEVEMENT, MANY INDONESIAN SCHOLARS AND CRITICS NOTED THE LACK OF DISTRIBUTIVE JUSTICE AS ONE OF THE MAJOR CRITICISM OF THE NEW ORDER. THEY ARGUED THAT THE INDONESIAN ECONOMIC SUCCESS HAD BENEFITED THE URBAN AND INDUSTRIAL SECTOR WHILE (RELATIVELY) MARGINALIZING THE RURAL AND TRADITIONAL SECTORS. GRIPS_2012 www.ginandjar.com 103

 DESPITE THE LIBERALIZATION MEASURES UNDERTAKEN IN RESPONSE TO THE WAVE OF GLOBALIZATION IN THE MID‐ 1980S, CONTROL OF THE ECONOMY CONTINUED TO BE DIRECT, THROUGH MONOPOLIES IN KEY INDUSTRIES (ENERGY, PAPER, STEEL, COMMODITIES, TRANSPORT AND COMMUNICATIONS), OR THROUGH THE CREDIT‐ ALLOCATION POWERS OF FINANCIAL AGENCIES THAT WERE CONTROLLED BY OR PREJUDICED IN FAVOR OF PRIVILEGED AND POLITICALLY CONNECTED BUSINESS GROUPS. GRIPS_2012 www.ginandjar.com 104

 PRIVATIZATION IN THE 1980s OFTEN MEANT THE TRANSFER OF INDUSTRIES FROM DIRECT STATE MONOPOLY TO HANDS THAT WERE ONLY NOMINALLY PRIVATE BUT REALLY HIGHLY DIVERSIFIED CONGLOMERATES WHO ENJOYED PROTECTION FROM OPEN COMPETITION AND GUARANTEED ACCESS TO STATE FUNDS AND FACILITIES.GRIPS_2012 www.ginandjar.com 105

 AT THE HEIGHT OF THE PRAISE FOR THE NEW ORDER ACHIEVEMENT, A SCHOLAR (PABOTINGGI) NOTED THE LACK OF DISTRIBUTIVE JUSTICE AS ONE OF THE MAJOR CRITICISM OF THE NEW ORDER. HE ARGUED THAT THE INDONESIAN ECONOMIC SUCCESS HAD BENEFITED THE URBAN AND INDUSTRIAL SECTOR WHILE (RELATIVELY) MARGINALIZING THE RURAL AND TRADITIONAL SECTORS. GRIPS_2012 www.ginandjar.com 106

 HE ALSO BELIEVED THAT THE STATE OF THE INDONESIAN ECONOMY WAS FAR FROM BRIGHT. RAMPANT MONOPOLY, OLIGOPOLY, AND NEPOTISM INCREASED INEFFICIENCY AND HOBBLE THE ECONOMY. IN PARTICULAR, REPRESENTING MANY VIEWS AMONG OBSERVERS OF INDONESIAN AFFAIRS, HE SAW PROBLEM IN THE DICHOTOMY BETWEEN THE INDIGENOUS AND NON‐INDIGENOUS ECONOMIC PLAYERS.GRIPS_2012 www.ginandjar.com 107

 POLARIZATION OF THE INCOME DISTRIBUTION OCCURRED IN INDONESIA AS THE ECONOMY GREW AND THAT THIS CONTRIBUTED TO THE PERSISTENT FEELING IN INDONESIA THAT THE MANY ECONOMIC REFORMS LED NOT TO AN IMPROVEMENT IN GENERAL WELFARE, BUT ONLY AN IMPROVEMENT IN THE WELFARE OF THE RICH.GRIPS_2012 www.ginandjar.com 108

 ANOTHER ARGUMENT RAISED AGAINST THE APPARENT SUCCESS OF INDONESIA’S DEVELOPMENT STRATEGY TURNS THE SPOTLIGHT ON THE ISSUE OF INCOME DISTRIBUTION. SOME CRITICS OF THE ECONOMIC REFORMS ARGUED THAT INCOME DISTRIBUTION WORSENED THROUGHOUT THE PERIOD OF RAPID GROWTH. THERE IS IN FACT SOME EVIDENCE FOR THIS.GRIPS_2012 www.ginandjar.com 109

 THE GINI COEFFICIENT, CALCULATED FROM EXPENDITURE DATA, SHOW THAT INCOME DISTRIBUTION IMPROVED WITH THE GINI‐COEFFICIENT FALLING FROM 0.35 IN 1970 TO 0.32 IN 1990.  BUT THEREAFTER THE DATA SUGGEST SOME WORSENING IN THE DISTRIBUTION WITH THE GINI COEFFICIENT RISING TO 0.34 IN 1993 AND TO 0.36 IN 1996, A RISE THAT OCCURRED IN BOTH RURAL AND URBAN AREAS ALTHOUGH THE INCREASE IN THE RURAL GINI‐COEFFICIENT WAS SMALL.GRIPS_2012 www.ginandjar.com 110

 HOWEVER, INDONESIA’S INCOME DISTRIBUTION COMPARES FAVORABLY TO THAT FOUND IN NEIGHBORING COUNTRIES.  OVER THE PERIOD 1993‐98, THE GINI INDEX WAS 36.5 FOR INDONESIA, 41.3 FOR THAILAND, 46.2 FOR THE PHILIPPINES AND 48.5 FOR MALAYSIA (WORLD BANK. WORLD DEVELOPMENT INDICATORS 2000).GRIPS_2012 www.ginandjar.com 111

REGIONAL DISPARITY CENTRALIZED POWER AND UNEVEN DISTRIBUTION OF WEALTH CREATED DISSATISFACTION AMONG PEOPLE IN THE OUTLYING REGIONS. WITH ECONOMIC GROWTH AND INDUSTRIALIZATION, JAVA AND SOME PROVINCES PROGRESSED FASTER THAN THE REST OF THE REGIONS, ESPECIALLY THE EASTERN PART THE COUNTRY. GRIPS_2012 www.ginandjar.com 112

 THESE PROVINCES, RICH IN NATURAL RESOURCES, WERE RESENTFUL OF THE RETURNS THAT THEY RECEIVED FROM THEIR REGIONS’ CONTRIBUTION TO THE NATIONAL ECONOMY. THE WIDENING DISPARITY BETWEEN REGIONS WAS ANOTHER SOURCE OF CRITICISM AGAINST THE NEW ORDER.  TO A SIGNIFICANT EXTENT THIS PROBLEM STILL PERSISTS TODAY, AND IS ONE FACTOR DRIVING THE SOVEREIGNTY CONFLICTS IN ACEH AND PAPUA.GRIPS_2012 www.ginandjar.com 113

ATTEMPTS AT EQUITABLE DEVELOPMENT DURING THE NEW ORDER PERIOD VARIOUS MEASURES WERE UNDERTAKEN TO ADDRESS THE IMBALANCES. THROUGH VARIOUS SCHEMES: GRANTS, MICRO CREDIT IS, SUBSIDIES, USING VARIOUS MECHANISMS THROUGH THE BANKING SECTOR AND THROUGH FISCAL POLICIES, THERE WERE ATTEMPTS TO RIGHT THE BALANCE. THE PRESIDENTIAL INSTRUCTION (INPRES) MECHANISM WAS AMONG THE MOST EFFECTIVE MECHANISM PROVIDING GRANTS TO THE REGIONS AS WELL AS TO SECTORS SUCH EDUCATION AND HEALTH AND TARGETED TO THE POOR SUCH AS IDT. GRIPS_2012 www.ginandjar.com 114

 THOSE MEASURES WERE EFFECTIVE IN REDUCING POVERTY BUT NOT SUFFICIENT IN OVERCOMING THE IMBALANCES. IN THE 1980’S THROUGH THE PROMOTION OF DOMESTIC PRODUCTS CAMPAIGN, THE GOVERNMENT LAUNCHED AFFIRMATIVE ACTION TO PROMOTE AND PROTECT LOCAL PRODUCTS. IN PARTICULAR COMING FROM SMALL AND MEDIUM INDUSTRIES (PRESIDENTIAL DECREE 10/1980).GRIPS_2012 www.ginandjar.com 115

 THE PROGRAM WAS EXPANDED TO GIVE ASSISTANCE TO THE INDIGENOUS (PRIBUMI) BUSINESSMEN. THE RESULT WAS VISIBLE, NOW MANY OF THOSE INDIGENOUS BUSINESSMEN PROMOTED AT THAT TIME HAD RISEN TO BECOME BIG BUSINESSMEN AND EVEN CONGLOMERATES. IN THE 1990’S THE INPRESES WERE ENLARGED BOTH IN COVERAGE AND AMOUNT TO ASSIST THE REGIONS WITH MORE GRANTS. BUT ALL THOSE EFFORTS WERE NOT SUFFICIENT TO ARREST THE WIDENING GAP BETWEEN THE RICH AND THE POOR, BOTH INCOME GROUPS AS WELL AS REGIONS.GRIPS_2012 www.ginandjar.com 116

 FOR THE COMMON PEOPLE, PEOPLE WHO ONLY HAVE MEAGER INCOMES, PEOPLE IN THE RURAL AREAS AND IN THE OUTER REGIONS ESPECIALLY IN THE EASTERN PART OF INDONESIA, THERE IS THE PREVAILING SENSE OF INJUSTICE. ONE OF THE CRITICISMS DIRECTED AT THE GOVERNMENT IS THE WAY POVERTY IS MEASURED. INDONESIAS POVERTY LINE CORRESPONDS TO PURCHASING POWER PARITY (PPP) US$ 1.25, WHILE THE WORLD BANK USES PPP US$ 2 AS THE PROPERTY THRESHOLD. GRIPS_2012 www.ginandjar.com 118

 IF ONE APPLIES THE WORLD BANK STANDARDS TO INDONESIA’S STATISTICS (US$2 PPP), THEN PEOPLE LIVING UNDER POVERTY LINE WILL BE 23.78%. IT CORRESPONDS TO 51 MILLION PEOPLE IN 1993 PPP US$. IF ONE APPLIES 2005 PPP US$, IT WILL BE 49.91% OR 120 MILLION IN 2011.  IN ITS 2006 REPORT, THE WORLD BANK UNDERLINES THAT THE NUMBER OF PEOPLE LIVING BELOW US$2‐A‐DAY IN INDONESIA COMES CLOSE TO EQUALING ALL THOSE LIVING ON OR BELOW US$2‐A‐DAY IN ALL THE REST OF EAST ASIA OUTSIDE CHINA. GRIPS_2012 www.ginandjar.com 119

 IF PEOPLE LIVING ABOVE INDONESIAS POVERTY LINE BUT BELLOW INTERNATIONAL (WORLD BANK) POVERTY LINE IS CATEGORIZED TO BE NEAR POOR, THEN THERE ARE 11.42% OR 27.3 MILLION NEAR‐POOR.  THE DIFFERENCE BETWEEN THE POOR AND NEAR‐POOR IS ACTUALLY ONLY IN STATISTICS. IN REAL LIFE THERE IS LITTLE THAT DISTINGUISHES THE POOR AND THE NEAR‐POOR, SUGGESTING THAT POVERTY REDUCTION STRATEGIES SHOULD FOCUS ON EMPOWERING AND IMPROVING THE WELFARE OF AT LEAST A QUARTER OF THE POPULATION (STILL USING THE 1993 PPP US$ INSTEAD OF 2005).GRIPS_2012 www.ginandjar.com 120

 DISPARITY IS A REAL PROBLEM.  FIRST BETWEEN RURAL AND URBAN AREA. 15.72% OF RURAL POPULATION ARE POOR COMPARED TO 9.23% IN THE URBAN AREA. MOST OF THE POOR PEOPLE IN THE RURAL AREAS WORK IN AGRICULTURE. AND MANY WORK ON SMALL PLOTS OF LAND OR AS LABOR FARMERS.  REGIONALLY, THE HIGHEST POVERTY INCIDENCES ARE FOUND IN EASTERN PART OF INDONESIA, NOTABLY PAPUA’S 32%, WEST PAPUA’S 31.9%, MALUKU’S 23%, EAST NUSATENGGARA’S 21.2%, AND WEST NUSATENGGARA’S 19.7%. ACEH, A RICH PROVINCE BUT RAVAGED BY YEARS OF HOSTILITY, WAS SIXTH AT 19.6%. GRIPS_2012 www.ginandjar.com 121

 INDONESIA IS LOSING ITS INVESTMENT [DURING THE NEW ORDER] ON IRRIGATION BECAUSE IRRIGATED LAND HAS TURNED INTO CONCRETE OR ASPHALT. AND AS A RESULT, WE ARE NOW AGAIN BECOMING THE BIGGEST RICE IMPORTER AS WE WERE, BEFORE WE ATTAINED RICE SELF‐SUFFICIENCY BACK IN THE1980’S.  THE MEAGER LAND AVAILABLE FOR THE FARMERS TO TOIL IS SHRINKING. AS IT IS NOW 17.17% OF FARMER HOUSEHOLDS OWN LESS THAN 0.10 HA WHILE 39.24% OWN BETWEEN 0.10 TO 0.50 HA. THIS SITUATION CONTRIBUTES TO THE ABJECT POVERTY OF FARMING FAMILIES. AGRARIAN REFORM IS A MUST, AND URGENTLY NEEDED TO GET TO THE CORE OF RURAL POVERTY.GRIPS_2012 www.ginandjar.com 122

 WITH ALL THOSE PROGRAMS INDONESIAS BUDGETARY ALLOCATIONS TO SOCIAL AND HUMAN DEVELOPMENT PRIORITIES AS A PROPORTION OF GROSS DOMESTIC PRODUCT (GDP) STILL REMAIN AMONG THE LOWEST IN SOUTHEAST ASIA.  OBVIOUSLY THE POLICY MAKERS FACE A CRITICAL TRADE‐OFF BETWEEN BALANCING THE STATE BUDGET AND MAKING NECESSARY SOCIAL INVESTMENTS (SUMARTO, SURYAHADI, AND BAZZI, 2008).  THERE IS INSUFFICIENT MEASURES TO CLOSE THE GAP BETWEEN RICH AND POOR.GRIPS_2012 www.ginandjar.com 123

 THE SITUATION IS ILLUSTRATED BY A REPUTABLE BUSINESS MAGAZINE, FORBES ASIA. IN ITS DECEMBER 2011 ISSUE, THE MAGAZINE PUBLISHED 40 WEALTHIEST PEOPLE IN INDONESIA.  THE MINIMUM WEALTH TO GAIN ENTRY, MEANING THE “POOREST” AMONG THE RICH, IS $630 MILLION.  TOGETHER THEIR WEALTH IS $85 BILLION, AN INCREASE OF 18% FROM LAST YEAR, COMPARE TO INDONESIA’S GDP GROWTH WHICH WAS “ONLY” 6.5%. AND $85 BILLION IS EQUAL TO 10% OF INDONESIA’S GDP.GRIPS_2012 www.ginandjar.com 124

 THOSE ARE THE VERY FEW PEOPLE THAT GET THEIR RICHES FROM INDONESIA’S LAND, MINERALS, TREES AND PLANTATIONS, WATER, AND PEOPLE’S SAVINGS. IN THE MEANTIME, INDONESIA HAS 57.2 MILLION POOR AND NEAR‐POOR PEOPLE, AND TWICE THAT NUMBER IF ONE APPLIES 2005 US$ PPP. MILLIONS OF PEOPLE NEED TO HAVE SUBSIDY EVEN FOR THE VERY BASIC NECESSITIES OF LIFE.GRIPS_2012 www.ginandjar.com 125

 IN STATISTICAL TERM, THE DISPARITY SHOWN BY THE Q5/Q1 RATIO (THE HIGHEST/LOWEST QUINTILE RATIO) WHICH ACCORDING TO OUR STATISTICAL BUREAU [BPS] IN 2010 WAS 6.28, WHILE IN 2006 IT WAS 4.81 INDICATING THAT THE GAP IS WIDENING IN THE LAST FIVE YEARS. GRIPS_2012 www.ginandjar.com 126

AVERAGE EXPENDITURES BY DECIL Growing disparity: lower growth in lower income groupGRIPS_2012 www.ginandjar.com 127

RISING GINI RATIOGRIPS_2012 www.ginandjar.com 128

UNEMPLOYMENT AND POVERTY SOURCE: BPSGRIPS_2012 www.ginandjar.com 130

EMPLOYMENT 1988‐2011 7,24% 7,82% 6,50% 7,0 6,06% 6,10% 7% 5,78% 4,92% 5,50% 6.46% 4,78% 6,50% 4,70% 3,64% 4,0 4,30% 4% 1,0 0,79% 1%Million 1988 1989 1990 1991 1992 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ‐2,0 ‐2% ‐5,0 ‐5% ‐8,0 ‐8% Changes in labor force Changes in employment ‐11,0 Economic growth ‐11% ‐13,13% ‐14,0 ‐14%  BETWEEN 2002‐2005, NEW ENTRANTS TO THE LABOUR FORCE WAS LARGER THAN EMPLOYMENT OPPORTUNITY.  2006‐2010: EMPLOYMENT OPPORTUNITY WAS LARGER THAN NEW ENTRANTS TO THE LABOUR FORCE, REDUCING UNEMPLOYMENT.  IN 2011 THERE WAS AN INCREASE IN LABOUR FORCE OF 800 THOUSANDS, WHILE EMPLOYMENT OPPORTUNITY ROSE BY1.46 MILLION. GRIPS_2012 www.ginandjar.com 131

RISE IN FORMAL EMPLOYMENT 80,00 80% 69,27% 70,00 66,93% 70% 62,17% 2010‐2011, THERE WAS AN 60,00 60% INCREASED IN FORMAL MILIION OF WORKERS 50,00 50% Jumlah pekerja EMPLOYMENT BY 5.71 Persentase 37,83% PERCENTAGE MILLION, RISING FROM 40,00 33,07% 40% 30,73% 33.07% TO 37.83% 30,00 30% THE NUMBER OF INFORMAL 20,00 20% WORKER DECLINED BY 4.24 10,00 10% MILLION, OR FROM 66.93% 0,00 0% TO 62.17%. 2005 2010 2011 Formal (dalam juta) FORMAL (MILLION) Informal (dalam juta) INFORMAL (MILLION) % Formal % Informal GRIPS_2012 www.ginandjar.com 132

OPEN UNEMPLOYMENT AND UNDER‐EMPLOYMENT (2005 ‐ 2010) 2005 2010OPEN EMPLOYMENT (NOT WORKING) 11,9 MILLION (11,2%) 8,3 MILLION (7.1%)UNDER‐EMPLOYMENT (WORKING LESS THAN 35 HOURS/WEEK) 28,9 MILLION (30,8%) 33,3 MILLION (30.7%) OPEN UNEMPLOYMENT AND UNDER 2001 ‐ 2010 UNDER‐EMPLOYMENT (MILLION) 11,9 33,3 33,5 12 OPEN EMPLOYMENT (MILLION) 10,9 32,2 31,6 11 10,3 9,9 10,0 31,1 30,9 30,4 10 9,4 9,1 9,0 29,6 28,9 29,2 28,9 29,1 9 8,3 8,0 28,3 27,7 27,9 8 27 7 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 UNDER‐EMPLOYMENT OPEN EMPLOYMENTGRIPS_2012 www.ginandjar.com 133

UNEMPLOYMENT BY AGE 3.500.000 AGE 15‐24 % 3.000.000 YEARS 2007 (Ø) 35 2.500.000 2008 (Ø) 29 31% 2009 (Ø) 28 2.000.000 29%UNEMPLOYED 2010 (Ø) 29 15 ‐ 19 1.500.000 20 ‐ 24 Ø = AVERAGE FEBRUARY 25 ‐ 29 AND AUGUST 1.000.000 30 ‐ 34 35 ‐ 39 40 ‐ 44 500.000 45 ‐ 49 50 ‐ 54 55 + ‐ 2007 2008 2009 2010 2011 *) 134 GRIPS_2012 www.ginandjar.com 134

IMBALANCE ECONOMIC AND EMPLOYMENT STRUCTURE ECONOMIC STRUCTURE EMPLOYMENT STRUCTURE 2010 February 2011 Services (10,19%) Agriculture (15,34%) Social Services (15,30%) Finance (7,21%) Finance (1,85%) Agriculture (38,17%)Transportation (6,50%) Mining (11,15%) Transportation (5,02%) Trading (13,72%) Trading (20,88%) Mining (1,22%) Manufacturing (24,82%) Construction (5,02%) Construction(10,29%) Manufacturing (12,31%) Electricity, gas, water (0,23%) Electricity(0,78%) Unemployed 7% Others Manufacturing/ 15% Industry 6% Agriculture 72% 135 POOR HOUSEHOLD

TRADABLES AND NON TRADABLES IN GDP 2001‐2010 (%)10,00 8,96 9,00 8,55 8,19 7,81 8,00 7,43 7,13 7,00 6,30 6,02 6,00 5,28 4,89 5,00 3.81 3.85 3.86 3.85 4,00 3.51 3.23 3.72 3.47 3.05 3,00 6,35 6,01 6,10 2.64 5,69 5,50 4,50 4,78 5,03 4,58 2,00 3,64 1,00 0,00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 PDB GDP Sektor non tradable Non Tradable Tradable tradable SektorSektor tradable: (1) Agriculture, Animal Husbandry, Forest and Fishery, (2) Mining (3) Manufacturing Industry. Sektor non‐tradable: 1. Electricity, Gas, Clean Water, 2. Construction, Trading, Hotel, and Restaurant, 3. Transportation and Communication, 4.Finance, Real Estate and Corporate Service, 5. Social Services.GRIPS_2012 www.ginandjar.com 136

REGIONAL DISPARITY 35 31.9 32.0 30 Jakarta = 3,75%, Papua = 25 31,98%, Indonesia = 23.0 21.2 20 12.49% 18.8 19.6 19.7 16.9 17.5 15.8 15.8 16.1 15 13.9 14.214.2 14.612.5 10.3 10.7 11.3 10 8.5 8.5 8.6 8.7 9.0 9.2 7.4 6.6 6.8 5.3 5.8 6.3 5 3.7 4.2 0 P.Barat Keppri Gorontalo Papua Sumut Maluku Jambi Jakarta Yogya Sumbar Sumsel Babel Kaltim Aceh Jatim Sultra Banten NTT Lampung Sulut Bengkulu Malut Kalbar Kalteng Jateng NTB Kalsel Sulbar Sulteng Jabar Bali Sulsel Riau Poverty incidence by provice (2011)GRIPS_2012 www.ginandjar.com 137

WESTERN VS EASTERN INDONESIA % RGDP 1980 1990 2000 2010 WI 80 84 83 82 EI 20 16 17 18 % 1980 1990 2000 2010 Population WI 83 82 81 80 EI 17 18 19 20 Gini 2007 2008 2009 2010 Coefficient WI 0.33 0.31 0.32 0.35 EI 0.34 0.33 0.34 0.38Western Indonesia: Aceh, Sumut, Sumbar, Riau, Kepri, Jambi, Sumsel, Babel, Bengkulu, Lampung, DKI, Jabar, Banten, Jateng, DIY, Jatim, BaliEastern Indonesia: Kalbar, Kalteng, Kalsel, Kaltim, Sulut, Gorontalo, Sulteng, Sulsel, Sultra, Sulbar, NTB, NTT, Maluku, Malut, Papua, Papua Barat GRIPS_2012 www.ginandjar.com 138

 THE HUMAN DEVELOPMENT INDEX IS A SUMMARY MEASURE OF HUMAN DEVELOPMENT. IT MEASURES THE AVERAGE ACHIEVEMENTS IN A COUNTRY IN THREE BASIC DIMENSIONS OF HUMAN DEVELOPMENT: 1. A LONG AND HEALTHY LIFE, AS MEASURED CY LIFE EXPECTANCY AT BIRTH. 2. KNOWLEDGE, AS MEASURED BY THE ADULT (OVER 25) POPULATION MEANS YEARS OF SCHOOLS AND EXPECTED YEARS OF SCHOOLING. 3. A DECENT STANDARD OF LIVING, AS MEASURED BY GDP PER CAPITA IN PURCHASING POWER PARITY (PPP) TERMS IN US DOLLAR.GRIPS_2012 www.ginandjar.com 140

HDI ASEAN 2010 2010 COUNTRY LEVEL INDEX SINGAPORE 27 0.846 BRUNEI 37 0.805 MALAYSIA 57 0.774 THAILAND 92 0.654 PHILLIPINES 97 0.638 INDONESIA 108 0.600 VIET NAM 113 0.572 CAMBODIA 124 0.490 MYANMAR 132 0.451 169 In 2009 Indonesia’s HDI was 111 Source: HDR 2010: The Real Wealth of Nations (UNDP)GRIPS_2012 www.ginandjar.com 141

HDI BY COMPONENTS (Selected Countries, 2011) LIFE EXPECTANCY MEANS YEARS OF EXPECTED YEARS SCHOOLING OF SCHOOLINGPhilippines 68.7 8.9 11.9China 73.5 7.5 11.6Thailand 74.1 6.6 12.3Malaysia 74.2 9.5 12.6Indonesia 69.4 5.8 13.2Viet Nam 75.2 5.5 10.4Source: HDR 2010: The Real Wealth of Nations (UNDP)GRIPS_2012 www.ginandjar.com 142

HDI BY PROVINCE, 2004 ‐ 2010*Using BPS incidesSource: BPSGRIPS_2012 www.ginandjar.com 143

HUMAN DEVELOPMENT INDEX INDONESIA, 1980‐2011Source: Human Development Report – UNDP, 2011GRIPS_2012 www.ginandjar.com 144

INDONESIA’S HDI TRENDS (By Components) LIFE EXPECTED MEANS YEARS GNI PER HDI VALUE EXPECTANCY YEARS OF OF CAPITA AT BIRTH SCHOOLING SCHOOLING (2005 PPP$) 1980 57.6 8.7 3.1 1.318 0.423 1985 60.0 10.1 3.5 1.539 0.460 1990 62.1 10.4 3.3 2.007 0.481 1995 64.0 10.5 4.2 2.751 0.527 2000 65.7 11.1 4.8 2.478 0.543 2005 67.1 11.8 5.3 2.840 0.572 2010 68.9 13.2 5.8 3.644 0.613 2011 69.4 13.2 5.8 3.716 0.617Based on consistent time series data, new component indicators and methodologySource: Human Development Report – UNDP, 2011 GRIPS_2012 www.ginandjar.com 145

1998 CRISIS 146

 IN MOST DEVELOPING COUNTRIES POOR PEOPLE HAVE TROUBLE GETTING PROMPT, EFFICIENT SERVICE FROM THE PUBLIC ADMINISTRATION.  TO CHANGE THIS, THE FIRST STEP IS BUILDING THE CAPACITY OF PUBLIC ADMINISTRATION.  OFFICIALS NEED TRACTABLE REGULATORY FRAMEWORKS, WITH PROPER PERFORMANCE INCENTIVES AND MECHANISMS TO ENSURE ACCOUNTABILITY AND RESPONSIVENESS TO CLIENTS, INCLUDING POUR PEOPLE. POOR ORGANIZATIONAL DESIGN ENGENDERS INEFFICIENCY AND CORRUPTION, TYPICALLY HURTING POOR PEOPLE THE MOST. (World Development Report 2000/2001: Attacking Poverty, World Bank)GRIPS_2012 www.ginandjar.com 147

 DURING THE PAST TWO DECADES, AS SOCIETIES AND THEIR GOVERNMENTS HAVE BECOME AWARE OF THE NEED OF PUBLIC SECTOR REFORMS TO FOCUS PUBLIC ACTION AND PROGRAMS ON SOCIAL PRIORITIES AND INCREASE THE CAPACITY OF THE STATE TO REDUCE POVERTY.  PUBLIC SECTOR REFORM AND MODERNIZATION HAVE GREAT POTENTIAL TO REDUCE POVERTY, IF THEY ARE AT THE CORE OF A DEVELOPMENT STRATEGY THAT ESTABLISHES CLEAR PRIORITIES FOR PUBLIC ACTION. GRIPS_2012 www.ginandjar.com 148

 THE FUNCTIONAL AND ORGANIZATIONAL STRUCTURE OF THE PUBLIC SECTOR NEEDS TO BE RATIONALIZED TO IMPROVE RESOURCE ALLOCATION FOR PROGRAMS THAT ARE SOCIAL PRIORITIES AND HAVE GREATER CAPACITY TO REDUCE POVERTY.  MOST IMPORTANT IS TO STREAMLINE AND "RIGHTSIZE" PUBLIC ADMINISTRATIVE ENTITIES AND PRIVATIZE PUBLIC ENTERPRISES AND OTHER OPERATIONAL PUBLIC PROGRAMS. GRIPS_2012 www.ginandjar.com 149

 BEYOND RATIONALIZING THE STRUCTURE OF THE PUBLIC SECTOR THERE IS A NEED TO IMPROVE PUBLIC MANAGEMENT SYSTEMS TO MAKE PUBLIC PROGRAMS MORE EFFICIENT AND ACCOUNTABLE.  INVOLVING CIVIL SOCIETY IN PLANNING, MONITORING, AND EVALUATING PUBLIC PROGRAMS AND POLICIES IS ALSO CRUCIAL TO ENSURE STEADY PROGRESS TOWARD A FULLY RESPONSIVE AND ACCOUNTABLE STATE. GRIPS_2012 www.ginandjar.com 150

 LEGISLATIVE OVERSIGHT OF THE EXECUTIVE, CARRIED OUT ACCORDING TO TRANSPARENT PROCEDURES, IS AN IMPORTANT PART OF MONITORING AND IMPROVING PERFORMANCE. PUBLIC ADMINISTRATIONS ALSO NEED TO BE SUPPORTED AND ACTIVELY MONITORED BY POLITICAL LEADERS.  BUT SOMETIMES THIS PROCESS BECOMES SUBJECT TO POLITICAL PARTY’S INTEREST OR THE PERSONAL GOALS OR WHIMS OF INDIVIDUAL POLITICIAN, RESULTING IN EXCESSIVE POLITICAL INTERFERENCE. THE QUALITY OF PUBLIC SERVICE IS REDUCED WHEN PUBLIC OFFICIALS ARE HELD ACCOUNTABLE MORE TO THEIR HIERARCHICAL SUPERIORS THAN TO THE PEOPLE THEY SERVE.GRIPS_2012 www.ginandjar.com 151

1998 CRISIS 152

ON POVERTY POVERTY IN INDONESIA HAS THREE SALIENT FEATURES.  FIRST, MANY HOUSEHOLDS ARE CLUSTERED AROUND THE NATIONAL INCOME POVERTY LINE OF ABOUT PPP US$1.25‐A‐DAY, MAKING EVEN MANY OF THE NON‐POOR VULNERABLE TO POVERTY.  SECOND, THE INCOME POVERTY MEASURE DOES NOT CAPTURE THE TRUE EXTENT OF POVERTY IN INDONESIA; MANY WHO MAY NOT BE ‘INCOME POOR’ COULD BE CLASSIFIED AS POOR ON THE BASIS OF THEIR LACK OF ACCESS TO BASIC SERVICES AND POOR HUMAN DEVELOPMENT OUTCOMES.  THIRD, GIVEN THE VAST SIZE OF AND VARYING CONDITIONS IN THE INDONESIAN ARCHIPELAGO, REGIONAL DISPARITIES ARE A FUNDAMENTAL FEATURE OF POVERTY IN THE COUNTRY. GRIPS_2012 www.ginandjar.com 153

 THREE IMPORTANT ELEMENTS FOR EFFECTIVE POVERTY REDUCTION.  FIRST, ALL PROGRAMS SHOULD INTEGRATE EQUITY OBJECTIVES. IT WAS A CORRECTION FOR THE PAST APPROACH EMPHASIZING ONLY EFFICIENCY.  SECOND, THE POOR, WHO ARE THE FOCUS OF THE PROGRAMS, MUST PARTICIPATE FULLY IN THEIR DESIGN, IMPLEMENTATION, AND MONITORING.  THIRD, MORE SPECIFICALLY, THEY MUST BE EMPOWERED TO RUN THE PROGRAMS THEMSELVES. THE KEY IS EMPOWERMENT, NOT CHARITY.GRIPS_2012 www.ginandjar.com 154

ON EQUITABLE DEVELOPMENT INCOME DISPARITY IS A PROBLEM IN INDONESIA AS IT IS IN MOST OF THE DEVELOPING WORLD.  DESPITE THE POSITIVE TRENDS IN POVERTY REDUCTION AND ECONOMIC GROWTH, THE GAP IS NOT NARROWING, IT IS WIDENING. GROWTH IS ESSENTIAL, THROUGH GROWTH NEW JOBS WILL BE CREATED, THE COUNTRY’S DEBT WOULD BE BETTER SERVICED, MACROECONOMIC STABILITY WOULD BE STRENGTHENED AND MOST IMPORTANTLY, POVERTY WOULD DECLINE. GRIPS_2012 www.ginandjar.com 155

 BUT GROWTH IS NOT AN END IN ITSELF. IT IS OF UTMOST IMPORTANT TO ENSURE THAT GROWTH WILL NOT RESULT IN INCREASES IN INEQUALITY, AS OFTEN OCCURS IN MOST DEVELOPING ECONOMIES INCLUDING IN INDONESIA. HIGH GROWTH IS MOST DESIRABLE, BUT IT ALSO HAS TO BE BALANCED AND INCLUSIVE, AND ALSO SUSTAINABLE.GRIPS_2012 www.ginandjar.com 156

 THE PATTERN OF GROWTH IS JUST AS IMPORTANT AS THE RATE GROWTH. THE RIGHT KIND OF GROWTH IS NOT THE VERTICAL FLOWS ALLOWING FOR THE TRICKLE DOWN OF BENEFIT TO THE POOR, BUT THE KIND THAT ALLOWS HORIZONTAL FLOWS, BROADLY BASED, EMPLOYMENT INTENSIVE AND NOT COMPARTMENTALIZED (KENDRA AND SILK, 1995 AND RANIS, 1995)  THERE IS NO SUCH THING AS A TRICKLE DOWN EFFECT OF GROWTH TO EQUILIZE BENEFIT OF DEVELOPMENT. IT MAY TRICKLE DOWN BUT ONLY IN TRICKLES, THE MAIN STREAM GOES INTO OTHER DIRECTION, THE HAVES.GRIPS_2012 www.ginandjar.com 157

 INDONESIA’S RELATIVELY HIGH GROWTH SO FAR HAS BEEN AT THE EXPENSE OF ITS ENVIRONMENT. ITS FOREST HAS BEEN OVER EXPLOITED, RIVERS POLLUTED, CITIES LITTERED WITH WASTE.  THE SAD STORY OFTEN TOLD IN INDONESIA ABOUT ITS WEATHER WHEN IT IS DRY THERE IS SHORTAGE OF WATER WHICH AFFECTS THE CROPS. BUT WHEN IT IS WET THE RICE FIELDS AND THE VILLAGES ARE FLOODED. SO THE CARE OF ENVIRONMENT SHOULD BE SPELLED IN THE SAME BREATH AS THE NEED FOR GROWTH. GRIPS_2012 www.ginandjar.com 158

 PUTTING A CURB ON INDIVIDUAL INITIATIVE, INVENTIVENESS AND COMPETITIVENESS, IS NOT AN OPTION. ON THE CONTRARY IT SHOULD CONTINUE TO BE ENCOURAGED.  BUT THE WEALTH OF THE INDIVIDUALS SHOULD BE SHARED BY OTHERS, IN A FAIR AND JUST WAY.  NOT ONLY FOR THE RICH TO GET RICHER, BUT ALSO TO GET THEIR BUSINESS SUCCESSES DIRECTLY BENEFIT THE PEOPLE.  SOME COUNTRIES, INCLUDING INDONESIA ADOPTED. CORPORATE SOCIAL RESPONSIBILITY (CSR). IT IS FINE BUT NOT ENOUGH. GRIPS_2012 www.ginandjar.com 159

 ONE OPTION IS PROGRESSIVE INCOME TAX SYSTEM. TAX SYSTEM NOW FAVOURS THE RICH. INDONESIA SHOULD ADOPT PROGRESSIVE TAXATION, A RISING TAX RATES AS INCOME RISES. IT CAN GO TO AS HIGH AS 50% FOR THE HIGHEST INCOME BRACKET, AND FOR INHERITANCE.  JAPAN, SCANDINAVIAN AND OTHER EUROPEAN COUNTRIES HAVE DOING SO FOR DECADES. IF THE RICH WANT TO AVOID THE HIGH INCOME TAX, THEY CAN ALWAYS REINVEST AGAIN, SO THE TAXABLE INCOMES WILL NOT GROW THAT MUCH AND BY DOING SO THEY WILL CREATE MORE JOBS, AND STILL CONTINUE TO BECOME RICHER.GRIPS_2012 www.ginandjar.com 160

 THERE IS A NEED TO RECALIBERATE INDONESIA’S ECONOMIC DEVELOPMENT STRATEGY. MORE ACTIVE ROLE OF THE GOVERNMENT TO MAKE SURE THAT THE IDEALS OF ECONOMIC DEMOCRACY AND SOCIAL JUSTICE EMBODIED IN THE CONSTITUTION, ARE ACHIEVABLE.  MORE ACTIVE REDISTRIBUTION EFFORT FROM THE GOVERNMENT IS A MUST. GRIPS_2012 www.ginandjar.com 161

 IN CONCLUSION, THE GOVERNMENT SHOULD NOT BECOME A SPECTATOR IN THE ECONOMIC GAME, BELIEVING THAT THE LESS GOVERNMENT IS THE BETTER GOVERNMENT AND THE LEAST GOVERNMENT IS THE BEST GOVERNMENT. THE GOVERNMENT NOT ONLY HAS TO SET THE RULES OF THE GAME AND MAKE SURE THE RULES ARE FOLLOWED, BUT THE GOVERNMENT SHOULD TAKE PART IN THE GAME AS A PACE MAKER. AFFIRMATIVE ACTION AND SMART INTERVENTION ON THE PART OF PUBLIC ADMINISTRATION ARE IMPORTANT ELEMENTS IN POVERTY ERADICATION AND EQUITABLE DEVELOMENT.GRIPS_2012 www.ginandjar.com 162

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DEVELOPMENT FOR THE PEOPLE: Equity and Poverty

by Ginandjar Kartasasmita

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DEVELOPMENT FOR THE PEOPLE: Equity and Poverty Presentation Transcript

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