See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/24077015

Anti-Poverty Programs in Indonesia

Article  in  Bulletin of Indonesian Economic Studies · February 2002

DOI: 10.1080/00074910215535 · Source: RePEc

CITATIONS READS

45 1,064

2 authors, including:

Daly Anne
University of Canberra
96 PUBLICATIONS   1,323 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Graduate outcomes - case studies to assess graduate skills View project

competition in banking industry View project

All content following this page was uploaded by Daly Anne on 25 August 2017.

The user has requested enhancement of the downloaded file.

 Bulletin of Indonesian Economic Studies, Vol. 38, No. 3, 2002: 309–29

ANTI-POVERTY PROGRAMS IN INDONESIA

Anne Daly
University of Canberra

George Fane*
Australian National University

Between 1994/95 and 1997/98, Indonesia’s spending on anti-poverty programs grew

from 0.1% to 0.3% of GDP. The introduction of the ‘social safety net’ raised anti-
poverty spending to 1.4% of GDP in 1998/99 and changed its main focus from job
creation schemes, financed mainly by loans and grants to small firms and commu-
nity groups, to in-kind subsidies for rice, public health care, scholarships for chil-
dren in poor families and grants to schools in poor areas. The most accurately targeted
program was health care, which covered twice as many people in the two poorest
deciles as in the remaining eight. For most other programs, this targeting ratio was
only about 1.5. We argue that the education and health care programs were the most
successful, and doubt that the rice subsidy, job creation and loans schemes were
worthwhile.

INTRODUCTION
This paper has three objectives: to de-
scribe Indonesia’s main anti-poverty
programs and summarise government
spending on them, to survey research on
the extent to which they have reached
their target groups and to draw policy
conclusions. The third objective is much
the most difficult, and the policy con-
clusions we draw in the final section are
correspondingly tentative.
We define ‘anti-poverty programs’ to
be those whose benefits are specifically
targeted at the poor. We draw the line
between ‘targeted at the poor’ and ‘not
targeted at the poor’ in such a way that
Indonesia’s anti-poverty programs are
those that were part of the ‘social safety
net’ (SSN) introduced in 1998, the simi-
lar programs that preceded the SSN on
a much smaller scale, and those that re-
placed it in 2001.
Programs that benefit the poor can
take any of the following forms:
(1) cash transfer schemes in which
the net receipts are phased out as in-
come rises;
(2) benefits in kind of rationed and
subsidised amounts of ‘essential’
goods to people below some specified
poverty line (‘essential’ goods are
those that make up a relatively large
proportion of the total consumption
of the poor, such as kerosene, rice,
health care and primary education);
(3) job creation schemes for un-
skilled workers;
(4) universally available price sub-
sidies, with no rationing, for essential
goods.
In industrial countries, cash transfers
(type 1) are often used to implement the
most important social welfare pro-
grams—such as unemployment and
sickness benefits, age and disability pen-
sions and child support. However, cash
transfers are usually of little or no im-

ISSN 0007-4918 print/ISSN 1472-7234 online/02/030309-21 © 2002 Indonesia Project ANU

310
portance in most developing countries,
which lack both the bureaucratic appa-
ratus to administer such blanket cover-
age schemes and the revenues to pay for
them. Instead, developing countries of-
ten use government agencies, state-
owned firms, or government controlled
clinics and schools to provide essential
goods. If benefits in kind are restricted
to the poor (type 2), then the programs
come within our definition of anti-
poverty programs; however, if the quan-
tities that each household is allowed to
buy are not phased out as income rises
(type 4), the schemes are outside our
definition of anti-poverty programs.
Examples of this latter type include the
Indonesian government’s fuel price sub-
sidies and its provision of universal free,
or highly subsidised, health care and
basic education.
Job creation schemes (type 3) differ
from pure price subsidies (type 4) by
raising the price of something that the
poor typically sell (unskilled labour),
rather than reducing the price of things
that they typically buy. Besides raising
the incomes of the poor, these schemes
usually improve public infrastructure in
poor areas. One can debate whether job
creation schemes are targeted to the
poor, or are universally available to all
sellers of unskilled labour, many of
whom are members of families above
the poverty line. We classify Indonesia’s
job creation schemes as anti-poverty
programs because attempts were made
to locate them in poor areas and to em-
ploy mainly poor people. Job creation
schemes and rationed and targeted ben-
efits in kind therefore provide the main
examples of anti-poverty programs in
Indonesia.
Table 1 gives a summary of govern-
ment spending by type of anti-poverty
program, as defined above, and table 2
shows the size of the programs relative
to total government anti-poverty spend-
Anne Daly and George Fane
ing. The individual schemes are identi-
fied in the body of table 1 and in the
notes to it. The most important indi-
vidual schemes are briefly described in
the next section. The section that follows
it summarises the development of anti-
poverty programs and Indonesia’s suc-
cesses and failures in reducing poverty.
We then summarise research on the tar-
geting of the main schemes and finally
draw policy conclusions.
INDONESIA’S MAIN
ANTI-POVERTY SCHEMES
Cash Transfers
The only time Indonesia has used cash
transfers was in October–December 2000
when, in partial fulfilment of conditions
stipulated in its January 2000 letter of
intent to the IMF, the government re-
duced domestic fuel price subsidies and
partially compensated the poor by allo-
cating Rp 800 billion from the resulting
budgetary savings to finance three anti-
poverty programs, one of which aimed
to provide the poorest 6.7 million fami-
lies with Rp 30,000 per month (SMERU
2001). Data previously gathered by the
National Fam ily Planning Agency
(BKKBN) were used to try to define and
identify eligible households, but the pro-
gram proved very difficult to adminis-
ter and was discontinued after three
months.
Rationed and Targeted
Benefits in Kind
Rice. In terms of expenditure, the most
important of Indonesia’s targeted
schemes providing rationed benefits in
kind is the subsidised rice program
OPK (Operasi Pasar Khusus, Special
Market Operations), which was intro-
duced partly in response to the eco-
nomic crisis and partly in response to
the drought that affected many parts of
eastern Indonesia in 1997–98. It was
therefore targeted at poor villages and
Anti-poverty Programs in Indonesia 311

TABLE 1 Expenditure on Anti-poverty Programs as a Percentage of Total Central Government

Expenditure, 1994/95–2000 a

94/95 95/96 96/97 97/98 98/99 99/00 2000b

Cash transfers 0.11

Benefits in kind 0.49 0.69 5.73 5.14 2.96
Subsidised rice (OPK) 3.70 3.14 1.22
Health care & nutrition 0.16 0.34 0.97 1.16 0.99
Education 0.33 0.36 1.06 0.84 0.75
Job creation (including
infrastructure & loans) 0.61 1.37 1.21 1.27 3.94 1.87 2.58
IDT 0.59 0.61 0.53 0.13
KDP 0.22 0.33 0.29
UPP 0.04 0.28
PDM–DKE 1.16 0.40 0.24
Village & urban infrastructure 0.33 0.26 0.61 0.61 0.51 0.43
Labour intensive (PK) 1.01 0.22
Loan schemes 0.02 0.43 0.43 0.53 0.46 0.48 0.92
Other 0.49 0.12 0.20
Total 0.61 1.37 1.70 1.96 9.67 7.01 5.65
Memo items
Total anti-poverty
programs (Rp trillion) 0.43 1.07 1.54 1.98 14.24 13.95 10.35
Total anti-poverty
programs (% of GDP) 0.11 0.23 0.28 0.29 1.39 1.23 1.05

a
A brief indication of the programs included under each heading is given below. Full details
(including explanations of the acronyms used) can be obtained from a spreadsheet available
at: http://economics.anu.edu.au/staff/fane/fane.html (go to: ‘poverty’, and double click
on: ‘Daly & Fane, tables 1 and 2’).
• Cash transfers are those under the fuel subsidy replacement program.
• IDT, KDP and UPP: defined in text.
• PDM–DKE: Regional Empowerment Program to Alleviate the Crisis (a village credit
scheme).
• Village and urban infrastructure: P3DT; P2MPD; and the village infrastructure program
under the fuel subsidy replacement program.
• Labour intensive: three PK (padat karya) programs; two programs to allevia te
unemployment; and the program to alleviate the drought and manpower situation.
• Loan schemes: four programs financed through Bank Rakyat Indonesia; two financed by
Bank Indonesia; one financed by BKSN; the TPSP–KUD program financed by the Ministry
of Cooperatives; and the micro-finance facility under the fuel subsidy replacement program.
• Other: PEMD; and three programs to improve food production under the SSN.
b
Up to and including 1999/2000, Indonesia’s fiscal year ran from 1 April to 31 March. The
fiscal year 2000 was a transitional one that ran from 1 April to 31 December. As of 2001, the
Indonesian fiscal year coincides with the calendar year.
Sources: National budget data: see table 4; other data: Bappenas (National Planning Agency).
312
to those in drought affected areas. The
rice was acquired centrally by the na-
tional logistics agency (Bulog) and trans-
ported to distribution points throughout
the country. The government originally
intended that each of the 8 million
households in the poorest group, as in-
dicated by BKKBN data, should receive
10 kilograms of medium quality rice per
month at Rp 1,000/kg, when the mar-
ket price was Rp 2,500–3,000/kg (Su-
marto, Suryahadi and Widyanti 2001).
The benefit per household was therefore
about Rp 15,000–20,000 per month. This
is about 5% of the total expenditure of a
household of four people at the official
poverty line.1 The target allocation per
household was later doubled to 20 kg
per month and the entitlement was ex-
tended to include the 9.4 million house-
holds in the second poorest group, as
indicated by the BKKBN data. In April
2000 the allocation was changed again,
to between 10 and 20 kg per household
per month. In practice, as described
later, coverage and allocation per house-
hold were well below these targets.
Scholarships and School Grants. The
recession of the late 1980s had been as-
sociated with a decline in school enrol-
ments and there was official concern in
1998 that this should not be repeated.
Therefore, before the beginning of the
school year in late August 1998, the
government, the World Bank and the
ADB (Asian Development Bank), as-
sisted by other external donors includ-
ing AusAID (the Australian Agency for
International Development), hastily as-
sembled the Scholarships and Grants
Program (SGP), which was designed to
prevent a fall in school enrolments. The
external donors made their contribu-
tions conditional on the government
not reducing its own real spending on
education.
The program aimed to provide schol-
arships for 6% of pupils in the senior
Anne Daly and George Fane
three grades of primary school, for 17%
of those in lower secondary school and
for 10% of those in upper secondary
school. The actual coverage achieved in
1998/99 was much lower than these tar-
gets.2 The monthly value of the schol-
arships was Rp 10,000 for primary
students, Rp 20,000 for lower second-
ary students and Rp 25,000 for upper
secondary students.
Data on poverty from the Central Sta-
tistics Agency (BPS, Badan Pusat Statis-
tik) were used to identify relatively poor
districts and municipalities. The central
government decided how many schol-
arships and school grants each district
and municipality would receive, and the
allocation of scholarships to particular
children was made at the level of indi-
vidual schools, by committees that con-
sisted of the school principal and
representatives of the local community,
parents and students. The actual alloca-
tion of money was done from the cen-
tral government to the student’s family
through the post office network.
Block grants that could be spent on
books, materials, minor renovations, as-
sisting poor children or waiving formal
and informal school fees were allocated
to schools in poor areas. Subdistrict gov-
ernments selected the primary schools
and district governments selected the
lower and upper secondary schools. The
aim of the program was to provide
grants to 60% of schools at each level.
At the primary school level the annual
block grants per school were Rp 2 mil-
lion; for lower and upper secondary
schools they were Rp 4 million and
Rp 10 million, respectively.
Health Care. Like the education pro-
gram, the health care program that was
introduced as part of the social safety
net in 1998 included a mix of direct fund-
ing to individual households and block
grants to service providers, such as hos-
pitals, clinics and family planning ser-
Anti-poverty Programs in Indonesia
vices (World Bank 2000). Health care
cards that entitled holders to free health
care from designated providers were
allocated to districts on the basis of the
BKKBN estimates of the number of very
poor or poor households in the district.
Local officials made the final allocations
to households. A separate nutrition pro-
gram, which operated from 1998 until
2000, provided supplementary food and
vitamins for infants and pregnant
women.
Schemes to Create Jobs for
Unskilled Workers
Indonesia’s first anti-poverty program
was the IDT program (Inpres Desa
Tertinggal, Presidential Instruction for
Underdeveloped Villages), which com-
menced in the financial year 1994/95
and ended at the close of 1997/98. It
provided selected poor villages with
Rp 20 million (then about $9,000) each
per year. The selected villages were re-
sponsible for distributing this amount
among groups of poor people, who
were invited to submit proposals for
using the funds. The allocations to vil-
lages were grants that did not have to
be repaid, but the allocations from vil-
lages to groups whose proposals were
successful were supposed to be revolv-
ing loans. However, according to BPS
data cited by Alatas (2000), only 60%
of the recipients repaid any part of the
funds received.
About one-third of all villages were
selected according to criteria that in-
cluded the quality of village infrastruc-
ture, housing and the environment,
average ownership of livestock and con-
sumer durables, the availability of elec-
tricity, school enrolment rates and
indicators of health and infant mortality.
Alatas (2000) found that the selection of
villages accorded almost perfectly with
the criteria specified in the design of the
program.3
313
Alatas argues that the guidelines on
the use of funds were so vague that the
program amounted to a mixture of cash
grants and loans for any income gener-
ating purpose—and the loans were effec-
tively grants in the many cases in which
the funds were not repaid. The IDT pro-
gram is classified here as a job creation
scheme, since it was supposed to help
poor people ‘by creating and expanding
productive job opportunities through
promotion of various development ac-
tivities’ (Presidential Instruction No. 5/
1993, cited and translated in Alatas 2000).
By comparing villages that received
IDT funds with similar ones that did
not, Alatas concluded that the main
effects of the scheme were to raise
household expenditure, raise the em-
ployment of women in rural areas, raise
the employment of children (aged 10 to
18 years) and raise the proportion of
spouses of household heads who were
self-employed.
A scheme with some similarities to
the IDT scheme, in that it also supports
development spending at the village
level, is the Kecamatan Development
Program (KDP), introduced in 1998/99
and financed by a World Bank loan. It
has two components: the first provides
grants for the development of infrastruc-
ture; the second provides loans for busi-
ness activities. Each village can submit
up to two proposals, and the choice of
successful proposals is made at the sub-
district level. Where a village puts up
two proposals, one must be from the
village women. Each subdistrict com-
mittee can choose its preferred mix of
infrastructure and business activities.
Village implementation of the infra-
structure projects is supported by tech-
nical assistance from the subdistrict
level, and there is an explicit require-
ment for the continued maintenance of
the investment. The loans for business
activities are made to groups at market
314
rates and are supposed to be repaid
within 18 months (National Manage-
ment Consultants 2000). The KDP has
an urban equivalent, the urban poverty
program (UPP), which provides credit
for small and medium enterprises and
funds for community-based infrastruc-
ture development in poor urban areas.
Additional job creation and infra-
structure development schemes were
developed in response to the crisis. In
some cases, known as padat karya
(labour-intensive) programs, low-
skilled workers were employed to build
or repair public infrastructure. Of the
employees of these programs, 81%
were male, and 64% of them were em-
ployed to repair roads (Sumarto, Surya-
hadi and Widyanti 2001: notes 24 and
25). In other cases, the government pro-
vided grants to local communities to fi-
nance loans to community groups, or
to small and medium enterprises, to
fund labour-intensive projects. We re-
fer to all these schemes, and not just the
padat karya programs, as ‘job creation
schemes’.
In 1998/99 there was a rapid prolif-
eration of job creation schemes, as
government ministries seized the oppor-
tunity to tap the budget to finance
schemes that they could control. Sepa-
rate schemes were created to provide
employment in villages, in forestry, for
women, for urban services, for roads
and for irrigation. This chaotic situation
was tidied up in 1999/2000, when the
number of separate schemes was re-
duced to two—the Public Works Sector
Padat Karya Program and the Special
Initiative for Unemployed Women (Su-
marto, Suryahadi and Widyanti 2001:
note 14).
Using information on local condi-
tions—for example, the existence of a
drought—and aggregate data on poverty
rates and infrastructure needs, the cen-
tral government allocated funds for job
Anne Daly and George Fane
creation schemes to the districts, which
distributed them to the subdistricts. Par-
ticular projects were then selected from
proposals made at the village level. The
criteria that individuals had to satisfy to
qualify for inclusion in these programs
were less precise than those for the other
crisis programs. Individuals wishing to
work on a job creation scheme were ex-
pected to have some independent evi-
dence that they were poor, unemployed
and in need of assistance under the pro-
gram—for example, a letter from their
village head.
POVERTY REDUCTION
AND THE DEVELOPMENT
OF ANTI-POVERTY PROGRAMS
Three Phases of
Program Development
There have been three phases in the de-
velopment of Indonesia’s anti-poverty
programs: the pre-crisis period, the cri-
sis, and the subsequent period of slow
recovery. In the pre-crisis period, Indo-
nesia spent very little on anti-poverty
programs, although their importance
gradually increased between their intro-
duction in 1994/95 and 1997/98, when
total spending on them still accounted
for only 0.3% of GDP. The importance
of these programs increased abruptly in
1998, when the SSN was introduced in
response to fears that the economic cri-
sis might cause poverty to climb back to
the levels of the 1980s, or even the 1970s.4
These fears turned out to have been ex-
aggerated, and total spending on anti-
poverty programs has been reduced
subsequently, although it still far ex-
ceeds the pre-crisis level.
Table 2 shows that the relative im-
portance of the different types of anti-
poverty programs varied in the three
phases. Job creation schemes accounted
for more than three-quarters of all
spending on anti-poverty programs in
the period before the crisis. In response
Anti-poverty Programs in Indonesia 315

TABLE 2 Shares of Individual Programs in Total Anti-poverty Spending a

(%)

1994/95 1998/99 2000 b 1994/95

–1997/98 –1999/2000 –2000

Cash transfers 0.0 0.0 1.9 0.5

Benefits in kind 22.8 66.2 52.4 57.9
Subsidised rice (OPK) 0.0 41.5 21.6 32.0
Health care & nutrition 9.7 13.3 17.6 13.9
Education 13.2 11.4 13.2 12.1
Job creation (including
infrastructure & loans) 77.2 33.8 45.6 41.6
IDT 29.9 0.0 0.0 3.4
KDP 0.0 3.4 5.1 3.4
UPP 0.0 0.3 4.9 1.4
PDM–DKE 0.0 8.8 4.2 6.7
Village & urban infrastructure 22.0 6.7 7.7 8.7
Labour intensive (PK) 0.0 5.3 4.0 4.4
Loan schemes 25.3 5.8 16.3 10.5
Other 0.0 3.4 3.5 3.0
Total 100.0 100.0 100.0 100.0

a
See table 1, note a.
b
See table 1, note b.

Source: Bappenas.

to the crisis, each broad type of anti- spending on anti-poverty programs is

poverty program received an increased
share of total budget allocations, but the
importance of the jobs, infrastructure
and loans schemes declined relative to
that of benefits in kind and, in particu-
lar, relative to the newly introduced
scheme to sell rice at subsidised prices
to poor families. This scheme became
the largest single program, accounting
on its own for over 40% of total spend-
ing on anti-poverty programs in 1997/
98 and 1998/99. In the post-crisis recov-
ery period, the subsidised rice scheme
has declined in importance relative to
the health care, education and infra-
structure schemes, and the relative im-
portance of job creation schemes has
recovered, though their share in total
still much lower than before the crisis.
Cash transfers have always been of neg-
ligible importance and were abolished
entirely in 2001.
The SSN involved targeted, rationed
provision of subsidised amounts of
food, health care and education, and job
creation schemes. It was designed and
financed by the government in conjunc-
tion with the main external donors—
namely, the aid agencies of foreign
governments, such as USAID (United
States Agency for International Devel-
opment) and AusAID, and the multi-
lateral lending agencies, such as the
World Bank and the ADB.
The SSN programs have a number of
common elements that reflect the speed
316
with which they had to be developed
and the objectives of the external donors.
The lack of alternative comprehensive in-
formation—household expenditure data
are available only for sample surveys of
the population—forced the administra-
tors of the SSN programs to use BKKBN
criteria and data to decide which house-
holds were poor. According to these cri-
teria, a household was in the poorest
group (keluarga pra-sejahtera, sometimes
translated as ‘pre-prosperous family’) if
it failed to meet all five of the following
conditions: (1) all household members
are able to practise their religious prin-
ciples; (2) all household members are
able to eat at least twice a day; (3) all
household members have different sets
of clothing for home and work or school;
(4) the largest floor area of the house is
not earth; and (5) the household has ac-
cess to modern medical assistance for
sick children and to family planning ser-
vices (Sumarto, Suryahadi and Widyanti
2001). These criteria were subsequently
expanded so that the poorest group also
included families that consumed protein
only once a week, families with children
who dropped out of school for economic
reasons, and families headed by unem-
ployed adults. Community groups and
village leaders were allowed some scope
in adjusting coverage, particularly in
situations where the BKKBN data were
thought to be deficient. For example,
the BKKBN database covered only
households with married couples and
excluded households with a single or
widowed head (Kusumastuti et al.
1998). Coverage was also considered in-
adequate in many urban areas because
of high levels of migration during this
period and the incomplete registration
of households in locations to which
they had just moved.
In designing the SSN, the donors
tried to promote ‘good governance’ and
‘empowerment’. The latter term is
Anne Daly and George Fane
World Bank jargon for involving local
community organisations in imple-
menting programs, rather than relying
entirely on local government bureau-
cracies. The SSN Adjustment Loan ne-
gotiated between the government of
Indonesia and the World Bank illus-
trates the design features demanded by
the donors.5 A condition of the loan was
that each of the programs supported by
it should have
(i) internal monitoring and operational
controls including monthly reports to
the oversight group and control team;
(ii) independent verification of pro-
gram performance and monitoring re-
ports; (iii) campaigns to reach the grass
roots level with information about the
program design, budget and channel
for complaints; (iv) a complaint reso-
lution mechanism that would be super-
vised by the control team; and (v) civil
society involvement at every level of
monitoring (Filmer et al. 1999: 2).
To evaluate the SSN, the external do-
nors set up two monitoring units, the
Central Independent Monitoring Unit
(CIMU) and the Social Monitoring and
Early Response Unit (SMERU). We
summarise the main findings of these
units in the next section.
The SSN was wound up at the end
of 2000, partly because Indonesia had
begun to recover from the worst effects
of the crisis, and partly because the gov-
ernment and the main external donors
were dissatisfied with the design of
some of the programs. Although the
share of total government spending al-
located to all anti-poverty programs
certainly fell between 1998/ 99 and
2000, the magnitude of the fall is prob-
ably exaggerated by table 1. Part of the
reduction recorded in table 1 was the
result of Indonesia’s new decentralisa -
tion policies: with the passage of Laws
22 and 25 of 1999, many of the expendi-
tures that were formerly administered
by the central government, including
Anti-poverty Programs in Indonesia
most of the SSN programs, became the
responsibility of district and municipal
governments. 6 There seems to be no
way of knowing how much is now be-
ing spent on anti-poverty programs at
the local government level, because
even the central government ministries
do not have comprehensive data on
this. This is an important area for fu-
ture research.
Indonesia’s Performance
in Reducing Poverty
Studies of poverty trends in Indonesia
are unanimous in finding large falls in
poverty incidence during the New Or-
der period, but disagree about their ex-
tent and the rate at which poverty
incidence fell. Booth (1993: 59) reports
that, according to a poverty line devised
by Professor Hendra Esmara, the na-
tional headcount poverty rate (that is,
the proportion of people living in house-
holds whose average per capita income
is below the poverty line) fell from 47.4%
in 1970 to 45.2% in 1976, and then to
34.4% in 1987. BPS has produced esti-
mates of national poverty incidence
from 1976 onwards. Relative to the BPS
poverty line, the headcount poverty rate
was lower than that found by Esmara
and fell much more dramatically be-
tween 1976, when it was 40.1% relative
to the BPS line, and 1987, when it was
only 17.4% according to BPS (Booth
1999: table 6). Poverty continued to fall
in the early and mid 1990s, and by Feb-
ruary 1996 was estimated to be only 11%
relative to the BPS poverty line (Booth
1999: table 6).
There were corresponding improve-
ments in other social indicators in the
first three decades of the New Order
regime. Almost universal entry into pri-
mary education was achieved in the
early 1980s, and the net enrolment rate
has been maintained at about 95% at the
primary level since then (Jones, Hagul
317
and Damayanti 2000). Life expectancy
at birth rose from 55 years in 1980 to 65
years in 1997, and the estimated propor-
tion of children dying before reaching
their fifth birthday fell from 125 per
1,000 for those born in 1980 to 52 per
1,000 for those born in 1998 (World Bank
2001: 276).
The surveys conducted since the cri-
sis all confirm that poverty rose sharply.
The special mini survey of household ex-
penditure carried out by BPS in Decem-
ber 1998 suggested that the headcount
poverty rate was then 24%. However,
much of the apparent rise was due to an
increase in the poverty line. Relative to
the former poverty line, the headcount
rate rose from 11% in 1996 to 17% in
1998. Relative to the new poverty line,
the rate rose from 18% in 1996 to 24% in
1998 and then fell slightly to 23% in 1999.
Measured poverty after the onset of the
crisis may have slightly overstated real
poverty because the anti-poverty pro-
grams that provided benefits in kind—
subsidised rice, school grants and
subsidised health care and nutrition—
would not have affected the expendi-
ture-based measures of poverty, even
though they reduced real poverty, be-
cause their benefits were not included
in measured expenditure. 7
EVALUATION OF THE
SSN PROGRAMS
Comprehensive studies of the coverage
and targeting performance of the SSN
programs have been undertaken by re-
searchers at SMERU. Table 3 summarises
some of their principal findings. Two
measures of ‘targeting’ are presented: the
ratio of a program’s coverage of the poor-
est 20% of the population—as measured
by household expenditure surveys—to
its coverage of the remaining 80% of the
population, and the ratio of its coverage
of the poorest 20% of the population to
its coverage of the richest 20%.8 Since the
318
BKKBN poverty criteria are only fairly
weakly correlated with low expendi-
ture, it is not surprising that the pro-
grams turned out not to have been
targeted very accurately to those in the
bottom 20% of the distribution of ex-
penditure.9 And since random errors in
the survey data on expenditure would
make even a perfectly targeted scheme
appear to contain a random element,
the estimated targeting performance of
the schemes probably understates their
true performance.
Subsidised Rice
As described above, the objective of this
program in 1999/2000 was to provide
20 kg of subsidised rice per month to the
17.4 million households in the two poor-
est BKKBN groups. In the event, about
10 million households in total actually
received subsidised rice in 1999/2000
(National Coordinating Team for Social
Safety Net Programs 2001), and not all
of them were in the two poorest groups.
The SMERU estimates summarised in
table 3 indicate that only 53% of those
in the bottom 20% of the expenditure
distribution received subsidised OPK
rice, and those in this poorest 20% were
only 40% more likely to benefit from the
scheme than the rest of the population.
Nevertheless, the last column in table 3
shows that the scheme was relatively ac-
curately targeted away from households
in the richest 20% of the population.
Among the problems encountered in
the distribution process were those re-
lated to delays in distribution to remote
areas. Another reason why the target
households typically received less than
their full monthly allocations of subsi-
dised rice was that many village com-
munities insisted on allocating some
rice to every household, rather than
providing all the benefits to those that
met the official criteria (Kusumastuti et
al. 1998). Where the differences in in-
Anne Daly and George Fane
come within villages are small, or
where the official criteria are poor mea-
sures of poverty, this is an appropriate
strategy. Another reason for not selling
all the rice just to the households that
met the official criteria is that it was
often difficult for poor households to
accumulate the Rp 20,000 needed to
purchase their monthly allocation. In
such cases, some rice remained unsold,
and some was sold to those who could
afford it but were outside the original
target group (Kusumastuti et al. 1998).
Education
In the first year, problems in the admin-
istration of the SGP were encountered
in remote areas, where the cost of col-
lecting the scholarship was high, and
occasionally exceeded its total value. In
addition, local post offices complained
of congestion. However, Hardjono
(1999: 30–1) concluded that in the small
region of West Java covered by her sur-
vey, the administration of the SGP was
relatively effective. A survey of 355 pri-
mary and lower secondary schools in 22
provinces conducted by CIMU found
that 41% of the first tranche and 70% of
the third tranche for the 1998/99 school
year were collected from the post offices
by the schools rather than by the stu-
dents themselves (CIMU 2000a). In sub-
sequent years, this initially informal
practice was officially sanctioned.
In some cases, local committees de-
cided to share the scholarships among
students rather than give them to se-
lected poor students for the duration of
their schooling at a particular institution.
In other cases, some or all of the money
was retained by the school to pay off
debts, replace fees or cover ongoing
costs. In these cases, the scholarships
therefore acted like a block grant. Nev-
ertheless, the CIMU survey found that
the majority of primary and lower sec-
ondary students directly received over
Anti-poverty Programs in Indonesia 319

TABLE 3 Coverage and Targeting of Anti-poverty Programs, August 1998 to February 1999 a

Program Coverage of Group by Program (%) Targeting Ratios

Poorest Poorest Whole of Coverage Coverage
20% of 40% of Potential of Poorest of Poorest
Potential Potential Group 20%/ 20%/
Group Group Coverage Coverage
of Remain- of Richest
ing 80% 20%
(1) (2) (3) (4) (5)

Subsidised rice 52.6 49.4 40.1 1.4 2.2

Primary scholarships 5.8 5.3 4.0 1.6 2.8
Lower secondary scholarships 12.2 11.2 8.5 1.6 2.5
Upper secondary scholarships 5.4 5.2 3.8 1.6 2.8
Health care 10.6 8.9 6.4 2.0 3.4
Nutrition 16.5 16.6 15.9 1.0 1.2
Job creation 8.3 7.6 5.6 1.7 3.3

Column (4) = [4 x column (1)]/[5 x column (3) – column (1)].

a

Coverage of the richest 20% = column (1)/column (5).

Coverage = number covered/size of potentially eligible group. The definitions of the number
covered and the size of the potentially eligible group vary from scheme to scheme and are
given below for the national coverage estimates in column (3). The definitions for the other
expenditure quintiles are exactly analogous.
Size of ‘potentially eligible’ group:
• Subsidised rice and job creation programmes: all 50.4 million Indonesian households.
• Scholarships: the number of children in the relevant type of school—29.7 million children
enrolled in primary school; 10.4 million in lower secondary school; and 6.4 million in upper
secondary school.
• Health care: the 27.6 million individuals estimated to have visited a health care provider
in the three months prior to the survey.
• Nutrition: the 20.0 million individuals in the group ‘pregnant women and children under
three years old’.
Number covered:
• Subsidised rice and job creation schemes: the number of households in which any member
had received any benefits under the relevant scheme in the six months prior to the survey.
• Scholarships: the number of children that had received a scholarship in the 1998/99
academic year.
• Health care: the number of individuals seeking treatment in the three months prior to the
survey who had used a health card to obtain free treatment.
• Nutrition: the number of individuals who had obtained benefits under the program in the
six months prior to the survey.
Source: Sumarto, Suryahadi and Widyanti (2001: appendix table 2). Their estimates are
derived from the special module on the SSN that was included in the National Socio-
Economic Survey (Susenas) conducted in February 1999 and that covered the preceding
six months.
320
two-thirds of their annual scholarship
entitlement. There was, however, con-
siderable regional variation in these out-
comes.
Since school fees had contributed to
the high dropout rates of children from
poor families in the late 1980s, govern-
ment schools were directed not to charge
fees for the 1998/99 academic year. Al-
though the government did not directly
provide funds to replace the fees that
were supposed to be waived (CIMU
2000b: 5), the SGP block grants helped
to compensate for fees in those schools
that received these grants.
The SGP has been cited by both
SMERU and the World Bank as one of
the most successful of the SSN pro-
grams, and total school enrolments did
not fall. The age-specific school enrol-
ment ratio for 7–12 year olds remained
constant at just over 95% between 1997
and 1999, while the corresponding ra-
tios for 13–15 year olds and 16–18 year
olds rose slightly over the same period,
from 77% and 49% to 79% and 51%, re-
spectively (BPS 1999: 53).10 However,
these increases are modest relative to the
13.5% increase in total government
spending on education (at constant
1996/97 prices) between 1997/98 and
1999/2000 shown in table 4.
Lanjouw et al. (2001) use data from
the Susenas (National Socio-Economic
Surveys) for 1995–98 to estimate the
marginal impact on households in each
expenditure quintile of public spending
at the primary, lower secondary and
upper secondary levels. They find that
additional expenditure on primary edu-
cation is particularly beneficial for
households in the poorest quintile.
However, additional government ex-
penditure on lower and upper second-
ary education provides relatively larger
benefits to richer households. These re-
sults suggest that by preventing a cut in
expenditure on primary education at the
Anne Daly and George Fane
time of the crisis, the SGP helped allevi-
ate the effects of the crisis on poverty,
but that the subsidies it provided to
lower and upper secondary education
had smaller effects on poverty.
Concern has been expressed because
the scholarship program did not reach
the very poor children who were not
enrolled in any school, or those who
attended low quality private schools
that were excluded from the program
(Jones, Hagul and Damayanti 2000).
There is also survey evidence that the
aggregate picture may disguise differ-
ent results for particular groups. For
example, there is some evidence that
dropout rates rose among poor urban
teenagers following the crisis (Filmer
et al. 1999; Jones, Hagul and Damayanti
2000).
The targeting scores reported in
table 3 suggest that the SGP was better
targeted than the subsidised rice and nu-
trition programs, but not as well tar-
geted as the health care or job creation
programs. Cameron (2000) reports simi-
lar overall targeting results using the 100
Villages Survey. However, her measure
of targeting relates to households con-
taining students who received a schol-
arship, not to the scholarship status of
an individual student. Her measure for
targeting will therefore overestimate the
number of individuals receiving schol-
arships. Her estimates imply that the
targeting improved with level of edu-
cation, whereas table 3 implies that at
each level of education the poorest 20%
of students (measured according to av-
erage expenditure per household mem-
ber) were 60% more likely to receive
scholarships than the richest 80%. 11
There is an important sense in which
both the table 3 targeting estimates and
those of Cameron exaggerate the target-
ing performance of scholarships at the
secondary school level, and particularly
at the upper secondary level: both sets
Anti-poverty Programs in Indonesia 321

TABLE 4 Total Budgetary Spending on Education, and Spending on Education under Anti-
poverty Programs, 1995/96 to 1999/2000

95/96 a 96/97 97/98 98/99 1999/ Growth

2000 96/97–
99/00
(% p.a.)

Expenditures (Rp trillion) b

Anti-poverty program
spending on education n.a. 0.30 0.36 1.56 1.67 77.2
Total anti-poverty programs 1.07 1.54 1.98 14.24 13.95 108.3
Education, routine budget 3.64 4.22 5.18 5.67 7.49 21.1
Education, development budget 1.81 2.14 2.09 1.98 7.21 50.0
Education, total budget 5.44 6.35 7.27 7.65 14.70 32.3
Education, total budget, 1996/97
prices 5.79 6.35 6.50 4.15 7.38 5.1
Shares (%)
Education anti-poverty
as % education budget n.a. 4.72 4.95 20.33 11.35
Education budget
as % of total budget 6.97 7.01 7.19 5.20 7.39
Education budget
as % of GDP 1.16 1.14 1.05 0.75 1.30

a
n.a. = not available.
b
Anti-poverty program spending on education is defined as in table 1 and derived from the
sources given there. CPI data are from the CEIC Ltd (Hong Kong) Asia Database. Budgetary
spending on education excludes spending on religious schools by the Ministry of Religion
and Home Affairs.

Sources: Budgetary data on education were taken from National Ministry of Education (2000:
157, table 81).

of estimates refer to coverage of children of school between August and Decem-

in school, not to coverage of all children
in the relevant age group. Since children
from poor families are much less likely
than those from richer families to be
enrolled in secondary school, it may well
be that, relative to all children in the rel-
evant age group, the scholarships at
upper secondary level were targeted
towards rich families and away from
poor ones.
Cameron also estimated regressions
using the 100 Villages Survey to explain
the probability of a child dropping out
ber 1998 as a function of scholarship
availability and a set of control vari-
ables that included the ages and gen-
der of the child and the socio-economic
characteristics of its household. For
each of the three levels of schooling
(primary, lower secondary and upper
secondary), she estimated one regres-
sion that included a village-specific ef-
fect and another that did not include
such an effect. In five of the six result-
ing regressions, the estimated effect of
the scholarship program on the prob-
322
ability of dropouts was not statistically
significant, and in the sixth case—the
regression with village-specific effects
for lower secondary school students—
the estimated coefficient implied that
being in a household in which some
child received a scholarship reduced
the probability (evaluated at the sample
mean) of dropping out at the lower sec-
ondary level by 3.5 percentage points.
In the 100 Villages Survey, 13.6% of
lower secondary students were in
households that received scholarships,
but according to the Susenas data in
table 3 the coverage at this level was
only 8.5%. However, Cameron’s seem-
ingly low estimates of the effects of the
SGP on retention rates relate only to
dropouts in the course of a school year.
Using her data set it is impossible to es-
timate the presumably much larger ef-
fect of the offer of a scholarship on the
probability of re-enrolment at the start
of a school year.
Retention rates are not the only rel-
evant criteria for assessing the SGP.
Jones, Hagul and Damayanti (2000)
emphasise the positive implications of
the program for quality of education.
Increased funds for schools allowed
them to maintain facilities and to reduce
the fees for children who were not of-
fered scholarships. There is also evi-
dence that this injection of funds enabled
schools to be more generous with stu-
dents who were unable to pay their
school fees than had been the case in the
late 1980s, when some schools excluded
students who were unable to pay (Jones,
Hagul and Damayanti 2000).
Health Care
The subsidised health care program for
poor households that was introduced
in 1998 was not subject to the same ex-
tensive and systematic reviews as the
education program. The World Bank
report on health care programs (World
Anne Daly and George Fane
Bank 2000) reported difficulties in al-
locating funds, inadequate publicity for
the program among beneficiaries and
health care providers, and unnecessar-
ily complex administrative procedures.
Against these negative assessments,
there is evidence from some surveys
and field visits that the program helped
to improve ante-natal and post-natal
care and raised the availability of re-
sources in a health care system that was
facing extreme difficulties as a result of
the economic crisis.
Available evidence suggests that the
free health care service scheme achieved
a higher coverage rate among the poor
and was more closely targeted to poor
households than the nutrition program.
SMERU’s analysis of the 100 Village
Survey and the Susenas data shows that
the poorest 20% of households were
twice as likely to receive free health care
treatment as the non-poor. Lanjouw et
al. (2001) estimate that households in the
poorest quintile of the expenditure dis-
tribution receive a share of the benefits
from public expenditure on primary
health care that is equal to their share in
total household expenditure, but that the
poorest households share less than pro-
portionately in public expenditure on
hospitals.
The rate of participation in the nutri-
tion program, however, was almost
equal for poor and non-poor households
(16.5% of poor households compared
with 15.9% of all households, according
to the Susenas data).
Job Creation and
Infrastructure Development
The job creation schemes were intended
to induce self-selection of poor unskilled
workers by paying no more than mini-
mum wages. Sumarto and Suryahadi
(2001: 13) estimate that the average wage
of workers in these schemes was 54%
below the average daily wage in the con-
Anti-poverty Programs in Indonesia
struction sector and 4% below that in the
foodcrop sector.
However, estimates of the targeting
performance of the job creation
schemes are mixed. According to table
3, the coverage of the poorest 20% (by
expenditure) exceeded that of all other
households by 70%, and exceeded that
of the richest 20% of households by a
factor of 3.3. Similar results were found
from the 100 Village Survey. Hardjono
(1999: 23) gives a different and much
less favourable picture of padat karya
programs, on the basis of a small but
very detailed survey in April and May
1999 of a single area of 22 hamlets on
the northern coastal plain of West Java.
In this sample, only 5% of participants
in padat karya schemes belonged to
households in the poorest quintile,
whereas 34% belonged to households
in the middle quintile and 16% to
households in the richest quintile.
Hardjono reports that villagers were
cynical about these schemes on the
ground that employees were allegedly
selected on the basis of their connec-
tions with village authorities or con-
tractors. She also reports that: ‘It so
happened that in one hamlet padat karya
work was in progress on the day when
the survey was conducted. The small
road that was being “improved” led to
the lurah’s (village headman[’s]) house’
(Hardjono 1999: 23). 12
Even the table 3 estimates of the tar-
geting of the job creation schemes are
much less impressive than the targeting
achieved by Argentina’s Trabajar Pro-
gram, in which 80% of the employees
were drawn from the poorest 20% of
households (Jalan and Ravallion 1999).
Nevertheless, they are still better than
the estimates of targeting achieved by
any SSN scheme other than the health
care program. However, we believe that
the table 3 estimates exaggerate the ex-
tent to which the benefits of the job cre-
323
ation schemes go to the poor. Even if
Hardjono’s sample was highly atypi-
cal—which we doubt—and even if most
of the employees were unskilled work-
ers in households below the poverty
line, the benefits to unskilled workers
would still only be a small fraction of
the budgetary outlays by the govern-
ment, given plausible estimates of the
elasticities of supply and demand for
unskilled labour. Suppose, for illustra-
tive purposes, that the elasticities of sup-
ply and demand for unskilled labour are
three and minus one, respectively. Un-
der these assumptions, the direct ben-
efit of job creation schemes to unskilled
workers would be only a quarter of the
total budgetary cost of the schemes.13 If
the elasticities are larger than those as-
sumed above for illustrative purposes,
the benefits to unskilled workers would
be an even smaller fraction of the bud-
getary cost of the programs. It is widely
argued that the supply of unskilled
labour is indeed very elastic in devel-
oping countries; and the demand is
probably also very elastic, since the glo-
bal markets for manufactured goods
produced by internationally mobile
capital and unskilled labour have be-
come increasingly competitive and in-
tegrated. Of course, there are additional
benefits to the poor from the infrastruc-
ture built or repaired by the job creation
schemes. However, if the purpose is to
provide infrastructure, tendering among
specialist firms that compete on the basis
of price, quality and efficiency is more
efficient than ad hoc programs with mul-
tiple goals. Finally, to be efficient, the
provision of infrastructure must be
planned well in advance, and projects
carefully selected using cost–benefit cri-
teria. In contrast, job creation schemes
are often expanded, or contracted, ac-
cording to short-term expediency—as
happened in Indonesia in the wake of
the crisis.
324
The above analysis does assume that
in the absence of the job creation
schemes, unskilled wages would adjust
so that the people employed on them
would instead be employed in other
unskilled jobs. We think that this as-
sumption is much more realistic than
the alternative view that they would
otherwise be unemployed. Strong evi-
dence for the flexibility of wages in In-
donesia is provided by the fact that the
huge fall in the demand for labour be-
tween August 1997 and August 1998
was associated with a fall in real wages
of about 34%; unemployment increased
over this period only from 4.7% to 5.5%,
and total employment actually rose by
3% (SMERU 1999: 1).
OVERVIEW
To make a definitive appraisal of social
welfare programs it is necessary at least
to know the marginal cost to the rest of
the society of raising the real incomes of
the poor by some given amount by ex-
panding each individual program.
Given a value judgement about the rela-
tive social values of a unit of income to
the poor and the rich, one could then
decide which programs should be ex-
panded and which contracted or abol-
ished. Even this information would be
much too crude, both because there are
degrees of poverty and of affluence, and
because different categories of poor
people—for example, those who are ill,
and those who have low money in-
comes—are benefited by very different
amounts by different programs. Since no
study has yet produced this information
for any of the Indonesian social welfare
programs, any attempt to appraise them
must be very tentative.
At least at the low levels of expendi-
ture on anti-poverty programs that In-
donesia has been able to afford, these
programs have clearly been of minor
importance in alleviating poverty com-
Anne Daly and George Fane
pared with macroeconomic perfor-
mance. Despite spending very little on
poverty programs in the three decades
preceding the recent economic crisis,
Indonesia managed to reduce poverty
considerably, and despite greatly in-
creased spending on poverty programs
in 1998, poverty rose very sharply. Of
course, it does not follow from the rela-
tive unimportance of the schemes that
they have been wasteful.
Economists have traditionally argued
that benefits should be in cash, rather
than in kind, on the ground that, for a
given amount of tax levied on the rich
to finance a program, the poor benefit
more if they are free to decide how to
spend the amount transferred to them
than if the government decides for them.
This argument is correct as far as it goes,
but it ignores the fact that provision of
benefits in kind rather than in cash al-
lows them to be targeted towards the
needy at lower cost and with less harm-
ful effects on incentives. The reason is
that subsidising products that are only
desired by those in need allows the ben-
efits to be allocated by self-selection,
rather than by administrative decision.
Health care subsidies provide the
clearest illustration of this point: if large
cash grants were made available to all
those certified by doctors as needing
heart surgery, some healthy people
would undoubtedly manage to acquire
the cash benefits fraudulently to spend
on general consumption. In contrast,
fraudulent claims would not occur if the
cash could be spent only on heart sur-
gery. The huge bulk of the Indonesian
anti-poverty programs provided ben-
efits in kind, and we think that this
choice was probably correct.
Table 3 shows that if the poor are de-
fined to be those in the lowest quintile
of the distribution of households by ex-
penditure, then the SSN programs were
not particularly well targeted towards
Anti-poverty Programs in Indonesia
them, and quite substantial amounts of
the benefits went to all quintiles, includ-
ing the richest. This is consistent with
the evidence from field-based research
that many of the local committees in
charge of distributing benefits chose to
ignore program guidelines and to divide
the benefits of the programs equally
among all villagers. Table 3 suggests
that the health care program was more
effectively targeted towards the poor (as
measured by low expenditure) than any
other part of the SSN. In addition, since
self-selection ensures that health care
subsidies are targeted towards the sick,
it follows that table 3 understates the ef-
fectiveness of this program in helping
the needy, who obviously include the
sick as well as those with low monetary
expenditure.
Poor targeting is not a decisive objec-
tion to a program designed to reduce
poverty if the program satisfies two con-
ditions: it is paid for by the rich and it
does not generate large inefficiencies.
Part of Indonesia’s anti-poverty pro-
grams have been directly financed by
central government revenue, and part
by foreign loans—usually at concession-
ary rates—that must eventually be re-
paid using government revenue. Since
non-tax revenues (for example, oil rev-
enue) cannot be increased to meet addi-
tional spending, the marginal cost of
anti-poverty programs falls on tax pay-
ers. It seems reasonable to assume that
the share of the poor in program ben-
efits at least exceeds their share in tax
payments. We therefore assume that the
first condition is satisfied.
The second condition is likely to be
satisfied if the program does not result
in a large amount of wasteful competi-
tion for benefits, and if the subsidised
product is such a basic item that it is
one of the things on which the poor
would freely choose to spend much of
any addition to their incomes. None of
325
the assessments of which we are aware
has attempted to estimate the extent of
wasteful competition. The second part
of the condition probably holds for gov-
ernment subsidies to health care, nu-
trition and basic education (that is,
elementary and lower secondary edu-
cation). The evidence of Lanjouw et al.
(2001) suggests that public spending on
primary education is a particularly ef-
fective way of helping families in the
poorest quintile of the expenditure dis-
tribution. A strong case can therefore
be made for these subsidies as ways of
combating poverty in the medium to
long run.
The danger in using education as a
way of alleviating poverty is that at any
level of education beyond primary, the
proportion of children from rich fami-
lies who are enrolled is higher than the
proportion from poor families. The net
benefits of subsidies to education paid
out of general tax revenue may end up
going to the rich, not the poor. This dan-
ger was probably overcome in the SGP
at the primary and lower secondary
levels by the deliberate attempt to tar-
get the scholarships to poor families,
and to target the grants to schools in
poor areas. In the case of subsidies at
the upper secondary level, the evidence
is inconclusive.
While we think that scholarships and
grants for basic education that are tar-
geted at the poor are probably an effec-
tive way of reducing poverty, we doubt
that it makes sense to have two chan-
nels for funding education, namely the
special SGP arrangements and the regu-
lar budgetary funding of government
and religious schools that is channelled
through the Departments of Education
and of Home and Religious Affairs. The
reason for setting up the SGP as a sepa-
rate funding channel appears to have
been that the external donors believed
that funds channelled through the De-
326
partment of Education would be less
likely to reach schools and pupils than
funds channelled through a special pro-
gram over which they would have some
control. To the extent that this argument
is valid, it suggests that increased au-
diting and monitoring of the Ministry
of Education might be an even better
way of helping schools and pupils than
setting up a separate channel for fund-
ing education.
We doubt that the subsidised rice pro-
gram and the various job creation pro-
grams were cost effe ctive ways of
alleviating poverty. Table 3 implies that
the targeting of the subsidised rice pro-
gram was worse than that of any other
program except nutrition. In addition,
table 3 may overstate the extent to which
the rice program was targeted towards
the poor, because coverage is defined in
terms of the number of households that
benefited from the program, and does not
take account of the amount of subsidised
rice bought by each household. In some
cases, according to SMERU’s studies, the
rice was made equally available to all
households in particular villages, but the
poor did not have enough funds to buy
their full entitlements; in other villages,
the rice was simply put on sale at a
subsidised price. In both these situations,
rich households are likely to have bought
more rice than poor ones. It might have
been possible to improve the targeting of
the rice program by distributing low,
rather than average, quality rice.
NOTES
* We are grateful for help from many gov-
ernment officials, staff members at the
SMERU (Social Monitoring and Early
Response Unit) Research Institute, Vivi
Alatas, Lisa Cameron and three anony-
mous referees. None of these people is
responsible for opinions expressed, or
mistakes that remain.
Anne Daly and George Fane
Although table 3 shows that employ-
ment in job creation schemes was rela-
tively accurately targeted towards the
poor, the net gains to unskilled workers are
likely to be only a small fraction of the
budgetary cost of the schemes, given
plausible estimates of the elasticities of
supply and demand for unskilled labour
(see note 13).
Total spending on all social welfare
programs, as defined here, increased
from around 2% of total government
spending before the crisis to 10.7% in
1998/99. This share had already been
reduced to 5.7% in fiscal year 2000 and it
is scheduled to fall still further. This level
of spending is probably too small to dis-
tort incentives significantly, and we are
not in favour of changing it.14 Rather, we
think that spending on these programs
should be concentrated on basic health
care, and on scholarships and grants for
basic education targeted to poor students
and to schools in poor areas.
Cross-country comparisons, and
Indonesia’s own history since the 1960s,
suggest that, while they are outside the
present definition of anti-poverty pro-
grams, the liberalisation of trade and
foreign investment are also very impor-
tant ways of reducing poverty.15 Simi-
larly, although improving the quality of
universal primary education and pub-
lic health are also outside the present
definition of anti-poverty programs,
they are probably also effective ways of
reducing poverty.
1 Separate official poverty lines are used
for urban and rural areas in each prov-
ince. In 2000, the average for urban areas
was Rp 92,000 per person per month. In
rural areas, the average was Rp 74,000
per person per month. The average size
of all Indonesian households in 2000 was
4.0 people.
Anti-poverty Programs in Indonesia
2 According to the estimates in column (3)
of table 3, the coverage was 4.0% at the
primary level, 8.5% at the lower second-
ary level and 3.8% at the upper second-
ary level.
3 In 1993, of a total of 66,000 villages in her
sample, only 75 were wrongly classified
as IDT and only one was wrongly classi-
fied as non-IDT.
4 Evans (1998: 8) reports predictions that
half the population would be in poverty
by the end of 1998.
5 The SSN Adjustment Loan was initially
intended to provide $600 million to fi-
nance SSN programs, and a first tranche
of $300 million was disbursed in 1998;
however, the World Bank decided in
January 2001 that the conditions attached
to the loan were not being addressed sat-
isfactorily. It therefore cancelled the sec-
ond tranche of $300 million.
6 The decentralisation arrangements are
summarised in McLeod (2000: 30–8).
7 We are grateful to the editor for this
point.
8 In table 3, ‘coverage’ of each program is
defined so as to exclude from the relevant
population those that could not conceiv-
ably be covered by such a program. For
example, the population used for mea-
suring the coverage of the scholarship
programs is the population of children
enrolled at the relevant schooling level.
Details are given in the notes to the table.
9 The December 1998 100 Village Survey
indicates that there is only a fairly weak
correlation between the expenditure -
based measure of poverty and the crite-
ria used by the BKKBN to define ‘poor’
households. Suryahadi, Suharso and Su-
marto (1999) estimate that only 25% of
the households that are poor according
to the BKKBN criteria were in the poor-
est 20% of households according to the
expenditure criterion, and that 38% of
households in the poorest 20% accord-
ing to the expenditure criterion were not
classified as ‘poor’ according to the
BKKBN criteria.
10 The age-specific enrolment ratio is the
proportion of all children in the age
327
group that are enrolled in any level of
school.
11 Cameron’s data (in her table 2) imply that
the poorest 20% of households, by expen-
diture, were 10% more likely to receive
scholarships at the primary level than the
richest 80%. The corresponding excesses
at the lower and upper secondary levels
were 77% and 137%, respectively.
12 Hardjono also found evidence of inverse
targeting by one of the most important
revolving credit schemes (the village
credit scheme known as PDM-DKE): only
5% of participants came from households
in the poorest quintile, whereas 38% be-
longed to households in the richest
quintile (Hardjono 1999: 24). She at-
tributes this to the fact that loans were
only given to households that were
judged to be creditworthy.
13 If, for example, job creation schemes em-
ploy 4% of unskilled workers, their cost
would be 4% of the unskilled wage bill,
and they would raise unskilled wages by
1%. This would be enough, given the il-
lustrative elasticities assumed above, to
raise the supply of unskilled labour by
3% and to reduce private demand by 1%,
thus making room for the 4% of unskilled
labour demanded by the schemes. Since
unskilled workers have to give up lei-
sure, the benefit of the schemes to them
is only the 1% rise in their wage rates, or
one-quarter of the cost of the schemes.
14 Administrativ e costs aside, efficiency
losses are proportional to the square of
the rate of a tax or subsidy, whereas
transfers are proportional to the rate of a
tax or subsidy. Therefore, at very low
rates of taxes and subsidies, both trans-
fers and efficiency losses are small, and
efficiency losses are themselves small
compared to transfers.
15 For evidence that reducing barriers to
trade promotes growth, see Dollar (1992);
Edwards (1992; 1993; 1998); Harrison
(1996); Sachs and Warner (1995); and
World Bank (1993). For evidence that, on
average, the poor share equally (in pro-
portionate terms) in growth with the non-
poor, see Dollar and Kraay (2000).
328
REFERENCES
Alatas, Vivi (2000), Evaluating the Left Be-
hind Villages Program in Indonesia: Ex-
ploiting Progr am Rules to Iden tify
Effects on Employment and Expendi-
tures’, Princeton University, Princeton
NJ (mimeo).
Booth, Anne (1993), ‘Counting the Poor in
Indonesia’, Bulletin of Indonesian Economic
Studies 29 (1): 53–83.
Booth, Anne (1999), ‘Survey of Recent De-
velopments’, Bulletin of Indonesian Eco-
nomic Studies 35 (3): 3–38.
BPS (Badan Pusat Statistik) (1999), Welfare
Indicators, Jakarta.
Cameron, Lisa (2000), ‘An Analysis of the Role
of Social Safety Net Scholarships in Reduc-
ing School Drop-out during the Indonesian
Economic Crisis’, UNICEF Innocenti
Working Paper No. 82, Florence. Online
at www.economics.unimelb.edu.au/
lcameron/lisaspage.html.
CIMU (Central Independent Monitoring
Unit) (2000a), Warta [News], January,
Jakarta.
CIMU (Central Independent Monitoring
Unit) (2000b), Warta [News], September,
Jakarta.
Dollar, David (1992), ‘Outward-Oriented
Developing Economies Really Do Grow
More Rapidly: Evidence from 95 LDCs,
1976–1985’ , Economic Development and
Cultural Change 40 (3): 523–44.
Dollar, David, and Aart Kraay (2000) ,
Growth Is Good for the Poor, World Bank
Washing ton DC (mimeo ). Online at
www.worldbank.org/research/growth.
Edwards, Sebastian (1992), ‘Trade Orienta-
tion, Distortions and Growth in Develop-
ing Countries’, Journal of Development
Economics 39 (1): 31–57.
Edwards, Sebastian (1993), ‘Openness, Trade
Liberalization, and Growth in Develop-
ing Countries’, Journal of Economic Litera-
ture 31 (3): 1,358–93.
Edwards, Sebastian (1998), ‘Openness, Pro-
ductivity and Growth: What Do We Re-
ally Know?’ Economic Journal 108 (March):
383–98.
Evans, Kevin (1998), ‘Survey of Recent De-
velopments’, Bulletin of Indonesian Eco-
nomic Studies 34 (3): 5–36.
Anne Daly and George Fane
Filmer, Deon, Haneen Sayed, Boediono,
Jiyono, Nanik Suwaryani and Bambang
Indriyanto (1999), ‘Impact of Economic Cri-
sis on Basic Education in Indonesia’, Watch-
ing Brief, East Asia and the Pacific Region,
World Bank, Washington DC. Online at
www.worldbank.org/eapsocial/library/
wbrief2.pdf.
Hardjono , Joan (1999), ‘The Micro Data
Picture: Results of a SMERU Social
Impac t Survey in the Purwaka rta–
Cirebon Corridor’, SMERU Research
Institute Working Paper, Jakarta. Online
at www.smeru.or.id.
Harrison, Ann (1996), ‘Openness and Growth:
A Time-Series, Cross-Section Analysis for
Developing Countries’, Journal of Develop-
ment Economics 48 (2): 419–47.
Jalan, Jyotsna, and Martin Ravallion (1999),
‘Income Gains to the Poor from Workfare:
Estimates for Argentina’s Trabajar Pro-
gram’, Policy Research Working Paper
No. 2149, World Bank, Washington DC.
Online at: econ.worldbank.org.
Jones, G., P. Hagul and Damayanti (2000), A
Study of the Impact of the Scholarships
and Grants Program, World Bank, Jakarta
(mimeo).
Kusumastuti, Sri R., H. Akhmadi, P. Wi-
bowo, S. Budiati, M. Nabiu, S. Usman, L.
Bailey and J. Maxwell (1998), ‘Implemen-
tation of Special Market Operation (OPK)
Program: Results of a SMERU Rapid Field
Appraisal Mission in Five Provinces’,
SMERU Research Institute Special Report,
Jakarta.
Lanjouw, Peter, Menno Pradhan, Fadia
Saadah, Haneen Sayed and Robert Spar-
row (2001), ‘Poverty, Education and
Health in Indonesia: Who Benefits from
Public Spending?’, World Bank Health
and Population Working Paper No. 2739,
World Bank, Washington DC. Online at:
econ.worldbank.org.
McLeod, Ross H. (2000), ‘Survey of Recent
Developments’, Bulletin of Indonesian Eco-
nomic Studies 36 (2): 5–40.
National Coordinating Team for Social
Safety Net Programs (2001), Indonesia’s
Social Safety Net Programs and Its Safe-
guarding: An Expression of People’s
Anti-poverty Programs in Indonesia
Right to Development, Paper presented
at a seminar on The Financial Crisis and
the Right to Development, Jakarta, 27 Feb-
ruary.
National Management Consultants (2000),
Kecamatan Development Program, Second
Annual Report, 1999/2000 , Jakarta.
National Ministry of Education (2000), Indo-
nesia: Educational Statistics in Brief, 1999/
2000, Jakarta.
Sachs, J.D., and A. Warner (1995), ‘Economic
Reform and the Process of Global Integra-
tion’, in W.C. Brainard and G.L. Perry
(eds), Brookings Papers on Economic Activ-
ity, Brookings Institution, Washington DC.
SMERU (Social Monitoring and Early Re-
sponse Unit) Research Institute (1999),
‘Labor Market Adjustments as a Response
to the Crisis’, And the Data Say, August,
Jakarta. Online at: www.smeru.or.id.
SMERU (Social Monitoring and Early Re-
sponse Unit) Research Institute (2001),
Bulletin, March/April, Jakarta. Online at
www.smeru.or.id.
Sumarto, Sudarno, Asep Suryahadi and
Winefrida Widyanti (2001), ‘Designs and
Implementation of the Indonesian Social
Safety Net Programs: Evidence from the
329
JPS Module in the 1999 Susenas’, SMERU
Resea rc h Ins titute Working Paper,
Jakarta. Online at www.smeru.or.id.
Sumarto, Sudarno, and Asep Suryahadi
(2001), ‘Principles and Approaches to Tar-
geting: With Reference to the Indonesian
Social Safety Net Programs’, SMERU Re-
search Institute Working Paper, Jakarta.
Online at www.smeru.or.id.
Suryahadi, Asep, Yusuf Suharso and Sudarno
Sumarto (1999), ‘Coverage and Targeting
in the Indonesian Social Safety Net Pro-
grams: Evidence from 100 Village Survey’,
SMERU Research Institute Working Paper,
Jakarta. Online at www.smeru.or.id.
World Bank (1993), The East Asian Miracle:
Economic Growth and Public Policy, Oxford
University Press, New York.
World Bank (2000), ‘Health Strategy in a Post-
Crisis, Decentralizing Indonesia’, Report
No. 21318–IND, Human DevelopmentSec-
tor Unit, East Asia and Pacific Region,
World Bank, Washington DC. Online at
www-wds.worldbank.org.
World Bank (2001) World Development Re-
port 2000/2001 , Oxford University Press,
Oxford.
View publication stats