Addressing

Poverty
How Indonesia can deal with the challenges of a middle-income country to accelerate poverty reduction

Things that you can do now

Response 1: Reforming current programs

1. Providing the right benefits at the right time 2. Reaching the right people
3. Delivered in the right way

Response 2: Filling in the gaps

Extend Programs: to vulnerable households have the highest risk of falling into poverty and need reliable coverage. Expand programs that have be shown to work and those that have promise: PKH, BSM and Jamkesmas.

Add programs to cover the remaining serious risks: a. Standing shock response system b. Unemployment and old-age benefits

Response 3: Integration and consolidation

1. National Targeting System New registry (PPLS11) for extracting beneficiary lists Update mechanisms to capture new poor
2. Unified safeguard mechanisms Socialization, complaints and grievances system Monitoring & evaluation

3. Common support platform Use the national community-driven development platform to improve supply and accountability

Response 4: Expedite the Revitalization of Agriculture

Through better information
Seed: Providing access to high quality seeds. Process improvement and post harvest infrastructure Penyuluhan: Counseling needs to be redesigned to be more responsive to the needs of farmers and increase the production of "high-value" commodities ICT: better information on market and technology can be well delivered by utilizing innovative information technology and communication

... Through better infrastructure

Infrastructure for market-based instruments : such as improving warehouse receipts, developing weather insurance (weather insurance) Irigasi: need bigger funds to maintain irrigation systems Water Resources Management : Utilizing the successful model of Farmer Water User Association. Rural road: larger investment to improve access and road quality from farm to market

Indonesia Infrastructure investments (4% of GDP) has Response 5: Strongly Increase investment on slightly increased but lower than the pre 1997 level

infrastracture

Total investment in infrastructure by source (% of GDP)

8%

National Gov't
7%
6% 5% 4% 3% 2% 1% 0% 1997 1998 1999 2000 2001 2002 2003

Sub-national

Private

SOE

2004

2005

2006

2007

2008

2009

Sources: Indonesian Government for national and sub-national governments; Annual reports for state-owned enterprises; World Bank PPI database for private investment. Note: 2009 Energy investment data (blue area in left chart) are estimated

Things that you need to prepare for the future

Response 1. Revitalize manufacturing

Make new things

Make things better

Innovation Process Quality upgrading

Make things cheaper

Access to inputs

By reducing congestion costs for investment

Comparison of cost and speed of logistics
6.0 5.4 2,500 5.0

5.0
4.0 3.0 2.0 1.0 0.0

2,225

2,000

2.6 1.7 701 397 500

2.8

1,238 2.6

1,500

1,000 1.4

500 341 302 0

Difficulties in accessing finance, dealing with regulations, and infrastructure are found to reduce productivity by 10%

Bangladesh

China

Vietnam Indonesia Malaysia Philippines Thailand

Leadtime import for port/airport, median case (days) Avg charge (US$) for 40-foot container (import+export) (right axis)
Source: World Bank Logistics Performance Index

By improving ability to expand

Uncertainty in investment procedures, lack of skilled labor , costly tax administration, and constrains firms to expand.
50 40 30 20 10 0 Singapore Malaysia India Thailand Philippines China Vietnam Indonesia
Source: Doing Business, 2012

Starting up a Business
Procedures Days

By investing on long term competitiveness

Measures of national innovation capacity
1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Bangladesh China India 137 0.05 0 Indonesia Malaysia Philippines Thailand 372 0.12 81 0 0.8 0.64 311 0.25 800 600 400 200 1.5 1,070 1200

1000

Low levels of firm sophistication, weak innovation environment constrains firms to improve quality and invest for long-term competitiveness

Research and development expenditures (% GDP) Researchers in R&D (per million people) (right axis)
Source: World Bank Enterprise Surveys, World Development Indicators

Response #2: Creating more jobs and better jobs

Why are workers in Indonesia facing difficulties in finding good jobs? Possible explanations:
Job creation is not keeping pace with new entrants to the workforce. Rigid labor regulations stunt job creation and entrepreneurship, especially for young workers. Barriers to self-employment: microfinance, entrepreneurial skills, etc. Youth prefer to wait for a better job (unemployment as a luxury good). Youth lacking work-relevant skills, and not finding jobs in their field of study (mismatch). Youth do not have access to information about the jobs market.

Response #2: How to tackle unemployment?

Improving employability of youth

Targeted scholarships Links between training schools and industry Reform training programs

Supporting entrepreneurs
Explore expansion of micro-credit targeting youth Improve quality and coordination entrepreneurial training

Connect workers and employers

Integration and coordination of national certification program Pilot job placement services programs Wage subsidies targeting youth

Response #3: Making Decentralization works for the Poor

Constraints Suggestion Cooperation with local universities / think tank in preparing evidence-based planning
Need accurate data and appropriate evaluation

1. capacity constraints
Need understanding of the major constraints facing by the area

2. Incentive constraints
Good performance does not get reward bad performance does not received punishment

Use of performance-based transfers, so the focus shifted from input to output based transfers (for example in Cambodia, Peru and Argentina)

3. Fund constraints
Some areas have fund constraints for public services, while some other areas excess funds

Increase weight of multi-dimensional poverty in DAUFormula

4. System/Law constraint
Unclear job and responsibilities

Improve regulatory framework by reviewing the possibility of uniting framework revision of Law 32 and Law 33 to the Act to enhance coordination and coherence.

SME Finance

Response #4: Comprehensive approach to financial inclusion INTEGRATED FINANCIAL

Ag Finance

INCLUSION:
-Govt to Person Payments, CCTs -Use of existing institutions e.g. Post Offices, Savings Banks -Use of technology -Banks, NBFIs, Investors, Supply Chain all play role -CPFL Responsible Finance -Based on sound Financial Market Infrastructure -meets client needs

Financial Infrastructure

Micro finance

Mobile payments

PREVIOUSLY: Limited Financial Inclusion, focus on specific themes rather than an integrated and strategic framework, microfinance vulnerable to crises

NOW: Comprehensive approach, Universal Financial Inclusion as a goal, sustainable and responsible growth, focus on Impact and Policy Frameworks

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Response #5: Negotiate a Grand Bargain for Labor Reform

1. Simplify regulations, and adjust severance rates downward 1. Introduce expanded pension program 1. Require funding of promised severance benefits

Response #5: How to Negotiate a Grand Bargain?

Option 1: Pooled Fund
Modify/create a severance fund But low coverage

Option 2: Unemployment Assistance

Fund that eligible workers can draw from when unemployed But high institutional demands, risk of low compliance, underfunding

Option 3: Individual Accounts

Regularly deposit contributions into accounts managed by central agency But high administrative costs, financing and institutional challenges Option 4: Unemployment Insurance Support payments for those who want to work but cannot secure a job But institutionally complex, resource intensive