Card, carro and gasoline he flagship programs/policies o reduce povery and inequaliy in Indonesia Arief Anshory Yusuf SDGs Cener, Universias Padjadjaran, Indonesia Cener for Susainable Developmen Goals Sudies www.sdgcener.unpad.ac.id UNPAD Presened a he Sraegic Dialogue on Povery and Inequaliy in Asia and he Pacific UNESCAP, Bangkok 5-6 Ocober 2017 Three conemporary Indonesian developmen challenges Slower economic growh Slower povery reducion Growh elasiciy of povery of he 2000s is half of he 80-90s. Unprecedened rising income inequaliy 70 60 50 40 30 20 10 0 0.45 0.4 0.35 0.3 0.25 Povery incidence (% populaion) 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Urban Rural All Urban Rural All Gini coefficien of inequaliy Indonesia Urban Rural 0.2 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 1
Flagship reform/policy/programs Fuel subsidy reform November 2014 Condiional Cash Transfers (PKH) Jakara Smar Card (Karu Jakara Pinar/KJP) The world has ye o wai o end global povery bu fossil-fuel subsidy reform may conribue a grea deal o accelerae i Domesic Capaciy for Redisribuion o End Global Povery a Various Povery Lines Povery line $1.90 $2.50 $5 $10 Year end of global povery on growh alone Marginal ax raes of 50% or less on hose living on $15/day or more Marginal ax raes of 50% or less on hose living on $10/day or more Reallocaion of fossil-fuel subsidy o povery ransfers Reallocaion of surplus miliary spending o povery ransfers Hoy & Sumner (2016) 2048 2061 2096 2131 50.47 23.39 6.22 5.59 52.39 24.81 25.07 7.5 69.08 69.93 38.74 8.12 59.38 66.79 32.49 8.82 2
In Indonesia, before Jokowi, reforms have been underaken bu never eliminaed i Fuel prices (Rp/Lier) 9000 8000 7000 6000 5000 4000 3000 2000 1000 1 - Wahid and Megawai's period 2- Megawai's reform period 3- Megawai's seback period 4- SBY's reform period 0 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 5 - SBY's seback period 6 - SBY's final yaer period 7 - Jowkoi's period Yusuf, AA (2016) gasoline diesel kerosene Characerisics of Indonesian fuel price reforms from 2000-oday 1. The flucuaion in world oil prices has been he dominan reform-promoing facors 2. Reform inconsisency.the same governmen can reduce subsidy or inroduce progressive reforms can also inroduce sebacks o he reform by abolishing or reducing he srengh of he reform. 3. Poliics has been he key facor of his inconsisency as reform reversal normally occur during he ime when incumben governmen was abou o go for reelecion 4. Compensaing he poor has always been a precondiion in all episodes of imporan pricing reforms. 3
In November 2014 (a few days afer inauguraion), Jokowi abolished gasoline subsidy. 25 US$ Billion (LHS) % of oal budge (RHS) 35 20 15 10 5 0 20.3 5.2 28.6 26.3 6.4 6.7 9.7 3.4 3.5 8.0 13.8 6.6 21.7 9.2 13.3 6.8 16.6 9.2 14.3 20.1 5.0 7.6 9.8 11.4 14.8 14.6 19.1 14.3 12.8 16.7 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: MoF 20.8 19.3 Jokowi s reform 4.8 4.9 3.3 3.3 30 25 20 15 10 5 0 From November 2014, inequaliy in Indonesia decline slighly. To wha exen he reform conribued? 0.42 Gini Coefficien 0.4 POVERTY INCIDENCE (%) 0.38 0.36 0.34 0.32 0.3 Source: BPS Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 4
Modeling approach INFLATION MODEL FUEL PRICES LAGS OF FUEL PRICES MONTHLY SEASONAL EXCHANGE RATE INTEREST RATE INFLATION OF i ALMOST IDEAL DEMAND SYSTEM (AIDS) X i = F(P 1,..., P n ; M) = 1 = 1 ( ) ( ) WITHOUT REFORM WITH REFORM Esimaion resul of inflaion model Acual and prediced inflaion -5 0 5 10 Raw food Processed food Housing 0 1 2 3 4 0 2 4 6 8-4 -2 0 2 4 Apparel acual prediced acual prediced acual prediced acual prediced 0.5 1 1.5 2 2.5 Healh Educaion Transpor Ohers 0 2 4 6 8 10-10 0 10 20 30 0 2 4 6 8 acual prediced acual prediced acual prediced acual prediced Yusuf, e al (2017) 5
Couner-facual of various price levels Resul: Price impac from inflaion model Price level wih reform 280 300 320 340 360 380 210 215 220 225 230 235 prediced counerfacual 280 300 320 340 360 Raw food Processed food Housing 295 300 305 310 315 320 prediced 270 280 290 300 310 counerfacual Shocks o he AIDS prediced Demand Sysem Model 280 300 320 340 360 counerfacual Sep 15 210 220 230 240 250 270 280 290 300 310 320 Apparel Price level wihou reform Healh Educaion Transpor Ohers prediced counerfacual prediced counerfacual prediced counerfacual prediced counerfacual prediced counerfacual Yusuf, e al (2017) Findings: November 2014 fuel subsidy reform conribue 17.5% o he declining inequaliy a year afer. This exclude he effec of cash compensaion Inequaliy in Sepember 2015 wih and wihou November 2014 fuel subsidy reform Simulaion 1: Fuel Price Reform Simulaion 1 + 50% of Cash Transfer Simulaion 1 + Cash Transfer Sep-14 Sep-15 Change (%) Gini Change (%) % Conribuion Gini Change (%) % Conribuion Gini Change (%) % Conribuion Toal 0.414 0.402-2.98% 0.411-0.52% 17.52% 0.406-1.40% 46.79% 0.397-2.27% 76.15% Urban 0.433 0.419-3.23% 0.431-0.44% 13.16% 0.427-0.92% 27.65% 0.421-1.41% 42.15% Rural 0.336 0.329-2.12% 0.334-0.57% 27.02% 0.327-2.26% 106.08% 0.314-3.96% 186.01% Source: Auhors calculaion Yusuf, e al (2017) 6
Indonesia s social proecion programs 2017. $15B, 11.6% of budge, 1.4% GDP No. Program's name Targe (million) Uni Budge (Rp Trilion) Budge ($Billion) Type Year sared 1 LPG subsidy Households 45 3.33 Price subsidy 2007 2 Elecriciy subsidy 29.5 Households 42 3.11 Price subsidy 2007 3 Ferilizer subsidy - - 31 2.30 Price subsidy 1970 4 Healh insurance subsidy 92 Households 21.1 1.56 Healh insurance 2014 5 Rice Subsidy (Rasra) 14.2 Households 19 1.41 Price subsidy 1998 6 House ownership suppor (FLPP/SSB/SBUM) 0.895 Households 16 1.19 advance, ineres sub. 2015 7 Condiional cash ransfers (PKH) 7 Households 11.3 0.84 CCT 2007 8 School subsidy (PIP) 18.1 Sudens 11.1 0.82 School assisance 2008 9 Communiy-iniiaive houses suppor 0.11 Houses 1.91 0.14 Financial assisance 2015 10 Food voucher (BNPT) 1.2 Households 1.6 0.12 Food fouchers 2017 11 Universiy scholarship (Bidik misi) 0.0825 Sudens 1.19 0.09 Scholarship 2010 12 Agriculure insurance subsidy - - 0.481 0.04 insurance subsidy 2015 13 Solar energy subsidy 0.096 Package 0.333 0.02 Price subsidy 2017 14 Job/enreprenership raining (PKKU/PKWU) 0.089 individuals 0.192 0.01 Training 2000 15 Social enerprise (KUBE) 0.0536 Individuals 0.107 0.01 Capial 1982 16 Indigenous communiy suppor (KAT) 0.00264 groups 0.094 0.01 Various assisances 1969 17 Disabiliy suppor (ASPDB) 0.00225 individuals 0.066 0.00 Financial assisance 2006 18 Child/family suppor (TEPAK) 0.07742 Children 0.064 0.00 Financial assisance 1982 19 Old age suppor (ASLUT) 0.03 individuals 0.06 0.00 Financial assisance 2011 20 House renovaion suppor (RS-RSTLH) 0.00171 Houses 0.02565 0.00 Financial assisance - Source: TNP2K Indonesia s social proecion programs 2017. $15B, 11.6% of budge, 1.4% GDP Sill very low by inernaional sandard. Half is energy and ferilizer subsidy. Serious argeing problems. Large amoun (US$1.2B) is housing suppor. Is main arge is no really he poor (middle-class) Rice subsidy is among he larges (US$1.4B). Serious inclusion errors and he rice is of low qualiy. Universal healh insurance is large (US$1.6B) and has he larges beneficiaries (92M) CCT has been making good impac 7h larges in erms of budge. 3rd larges if energy, ferilizer, rice and housing subsidy is excluded. 7
Condiional Cash Transfers (PKH) Feaures of he CCT Cash given o mohers quarerly Condiionaliy and cash penaly Field faciliaors Improvemen in supply-side readiness. Condiionaliy Four prenaal care visis Taking iron ables during pregnancy Two posnaal care visis Complee childhood immunizaions Monhly weighing for children under-3 and biannually for children under-5 Viamin A wice a year for children under five Minimum aendance rae of 85% for primary school-aged children Minimum aendance rae of 85% for junior secondary school-aged children The cash is 15-20% of he consumpion Impac of PKH Based on hree peer-reviewed journal aricles: World Developmen (2017), Prevenive Medicine (2017), Social Science & Medicine (2016). Mehods: Clusered Randomized Trial, DID Findings: Increases vaccinaion rae by 30% for four children under-12m, modes increase for 12m-23monhs Equiy enhancing (Impac is higher for children w/ less educaed mohers) Increases consumpion of milk & fish by 19% Reduce probabily of wasing (33%) and severe wasing (41%) increases prenaal and posnaal care and faciliy delivery by up o 6.7% Noe: PKH is sill low coverage (only 7m now) and upscaling has been consrained by insiuional problems and supply side consrains. 8
Jakara Smar Card (KJP) Provincial governmen iniiaive and budge, sared in 2012 (by Jokowi/BTP) Jakara province: 10 million populaion, he mos unequal province (Gini: 0.44) Financial assisance in non-uiion schooling expendiures: Books, saionaries, uniforms, ransporaion, and many more. KJP Beneficiaries in 2016: 692,000 sudens (7% populaion) oalling of $192 million (Rp2.5T), 4% of oal budge. Rp 340,000 630,000/monh/suden ($26-$48) Province s minimum wage is Rp3.1m ($238) Province s povery line is RP 521,000/monh/person ($40) KJP 65%-121% of povery line, more wih more children. A ypical 10% poores household wih wo school-aged children will ge 30%-56% heir expendiure. Key feaures of KJP Transfers canno be cashed Purchase in assigned oules (auhorized shops) Close collaboraion wih province-owned bank Paren, communiy, school are involved in he argeing processes. Evoluion 2012, 2013, 2014: cash and bank book wihdrawals 2015: cash for rouine expendiure (ranspor, snack), non-cash for occasional (uniforms ec) 2016: 100% non-cash, EDC purchase, JakCard for bus 9
Lessons learned & challenges Lessons learned Poliical leadership and commimen o progressive policies is very imporan The case of fuel-subsidy reform in Indonesia and KJP in he province of Jakara Devils is in he deail and learning by-doing Qualiy of bureacracy is insrumenal Communiy involvemen Piloing is imporan Challenges Poliical economy and business ineress preven fiscal reforms (he case of fuel subsidy reform) Condiionaliy is no easy o mee and monior. Supply of services consrained upscaling of CCT Commied and hard-working poliical leaders are sill excepion raher han he norms in Indonesia. Replicaion is difficul. Thank You! Cener for Susainable Developmen Goals Sudies Universias Padjadjaran www.sdgcener.unpad.ac.id Presened a he Sraegic Dialogue on Povery and Inequaliy in Asia and he Pacific, organized by UNESCAP, Bangkok 5-6 Ocober 2017 10