5 1 TEGUH LPEM FEB UI

(1)

Fiscal Reforms in Indonesia:

Dealing with Poverty, Inequality and

Inclusive Growth

Hotel Grand Hya-, Nusa Dua - Bali 10-11 December 2015

Presented by:

Teguh Dartanto

(2)

Outline PresentaAon

• Stylized Facts of Poverty, Growth and

Inequality Triangle

• Fiscal Reforms in 2015 and 2016

• Reforms and Possible Impacts on Poverty,

Growth and Inequality

(3)

Present Path = Real Problem

Source: Harvard Kennedy School Indonesia Project in Dartanto (2014)

Real

Problem

Jobless

growth

Declining compeAAv

eness

(4)

0.00

Poverty Incidence Growth of GDP Per-Capita InﬂaAon Rate Investment (% of GDP) Gini Index

(5)

12/10/15 5 Figure'4.'Income'Share'By'Percentile'

!

Ratio!between!the!highest!

10%!and!the!lowest!10%! 6,66! 5,92! 6,64! 5,90! 7,77! 8,39! 9,52!

Ratio!between!the!highest!

20%!and!the!lowest!20%! 4,55! 4,14! 4,52! 4,06! 5,13! 5,72! 6,32!

Source:!World!Development!Indicators!and!Central!Statistical!Agency!(BPS)!

1984! 1990! 1996! 1999! 2005! 2010! 2011!

Income!share!held!

Poverty Elasticity of Growth (national

poverty line) -0.74 -0.12 -0.52 -0.16 -0.16

Poverty Elasticity of Growth ($ 2 per

day (PPP)) -0.34 -0.39 -1.05 -0.19 na

Poverty Elasticity of Growth ($ 1.25 per

day (PPP)) -0.76 -0.57 -0.62 -0.09 na

Gini Elasticity of Growth -0.0021 0.0010 0.0034 0.0029 0.0000

Employment Elasticity of Growth 1.12 0.24 0.34 0.26 0.21

Source: Author’s Calculation based on data from World Development Indicators and Central Statistical Agency (BPS) na: not available

!

The lowest income group is le_ behind

à divided society

Decreasing eﬀecAveness of

growth to reduce poverty _à

due to jobless growth

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0.00

Average Expenditure Per Capita Growth (2005-2013)

Source: Author’s CalculaCon based on Susenas 2005, 2008, 2011, 2013

2005-2008 (Downward Gini (0.363-->0.350) 2008-2011 (Upward Gini (0.350-->0.410) 2011-2013 (Stable Gini (0.410-->0.413) Adverse

impacts of commodity

boom and Global Crisis

Commodity

Fuel price adjustment in 2005-2008 and introducing some social protec[on policies

(7)

Which Province Contribu[ng Most on Inequality?

12/10/15 7

Divided Society

Potency of Social Conﬂict

(8)

Indonesia’s Rising Divide (World Bank, 2015)

Sources of

Inequality

Inequality of Opportunity

Unequal Jobs

High wealth concentraAon

Low resiliency

Policies for

Tackling Inequality

Improving local service delivery

PromoAng be-er jobs and training

Ensuring social protecAon for shocks

(9)

Current Fiscal Reforms and Its Impact

on Poverty, Growth and Inequality

(10)

Poverty-Growth-Inequality (PGI) Triangle

Source: adapted from Dartanto and Patunru, 2015

INEQUALITY GROWTH

POVERTY

Socio Economic Condi[on

Global Dependency (Trade, FDI, Shocks)

Socio Economic

Policies including

Fiscal

Note

(11)

Fiscal Reforms: Need Driven

Cujng Fuel Subsidies: Thanks to Decreasing World Oil Price

11

Energy Subsidy: Burden to the Budget, 2000-2014

% of central government spending % of GDP (secondary axis) Monthly Adjustment

Fuel price 2002-2003

March 2005- 30% fuel price Adjustment October 2005 – 67 % fuel price adjustment

October 2008 – 30 % fuel price adjustment

February 2009 – back to October 2009 price regime

June 2013, 44 % fuel price adjustment

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Substan[al Fiscal Reforms in 2015

(13)

The 2016 Fiscal Reforms

• Larger Coverage:

–

 

Premium Aid Recipient (PBI): 86.4 millions (2014)

à

92.4 millions

(2016)

–

 

CondiAonal cash transfer (PKH): 720 thousand HHs (2007)

à

6 million HHs (2016)

• Larger Budget: village transfer fund--IDR20.8T (2015)

à

IDR47T

(2016);

• Be-er Targeted: Electricity Subsidy– IDR73.1T (2015)

à

IDR38.4T(2016);

• 5% allocaAon of central government budget on health in 2016;

• ConAnuing welfare program: Family Saving Welfare Card (cash

transfer), EducaAon Card (KIP), Health Card (KIS), CondiAonal

Cash Transfer (PKH), Rice for the poor (Raskin).

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Fuel Subsidy Reforms: Poverty and Inequality

• Fuel subsidies reforms in 2014/2015

à

contribute to

reducing inequality.

• Reforms in 2014/2015 contribute to increase in poverty in

March 2015 since compensaAon are not Amely and increasing

rice price.

0

Household consumption decile

IDR per HH per month

Gasoline

Fuel (total)

Kerosene

(15)

Infrastructure and Inequality (preliminary ﬁndings)

• Infrastructure projects (naAonal wide/big project) promote

economic growth and (reducing?) poverty; but tend to increase

inequality;

• Small projects (regency/district level), basis infrastructure and

village funds will reduce inequality and poverty but not

signiﬁcantly promote economic growth;

12/10/15 15

Length'of'Road:'

Total'National 0.00137* 0.00000916*

t"stat 3.22 3.74

Length'of'Road:'

District' >0.00141* >0.00000995*

t"stat "2.98 "3.75

#'observation 358 358

R>Square 0.684 0.297

Variables Poverty Inequality

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Universal Health Coverage

_à

Improving Equality of Health

Access

Source: LPEM FEUI’s estimate based on Susenas 2013

Gini Index (Health Exp.) in 2013 = 0.693

A hypothetical Gini Index (Health Exp.)

with UHC = 0.5524

Gini Index

(Expenditure) = 0.410

(with UHC = 0.405)

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Educa[on (Human Capital):

Equal Opportuni.es for Everyone to be Someone

•  Equal in educaAon access but not equal in educaAon quality _à inequality in income

•  How to improve the quality of educaAon?

12/10/15 17

Early Development: Pregnancy and Golden Age Period Policy: Condi[onal

Cash Transfer

Junior and Senior High School

Scholarship (Indonesian Smart

Card)

Undergraduate Level

Bidik Misi Scholarship

Graduate Level

(18)

(19)

19

IniAal CondiAon Government Social Assistance

CorrupAon on Social Assistance

(20)

Good Inten[on Bad Outcome:

Social Assistance, Corrup[on and Inequality

Source: Dartanto and MeliyawaC, forthcoming

Coef. Robust+SE Coef. Robust+SE Coef. Robust+SE

Ratio+between+Social+Assistance+

and+SNG's+Total+Expenditure+(in+%) @0.20376* 0.10530 _@0.19941* 0.10623 _@0.21397* 0.10586

Amount+of+Corruption+Detected

(in+IDR+Billions)+ 0.00003** 0.00002 _0.00003** 0.00002 _0.00003** 0.00002

Health'and'Education'Expenditure'per2

Capita'(in'IDR) 20.00605* 0.00318 _20.00549* 0.00316

Share'of'Infrastructure'Expenditure'to' GRDP'(Gross'Regional'Domestic'

Product) 20.00073* 0.10413

Dummy'of'Election'(1'='regional'

election;'0'='other)' 0.00073 0.00574

Constant 0.31470*** 0.00351 _0.31951*** 0.00422 _0.32256*** 0.00422

#+Observation F@Stat

R@Square

*p<0.1,'**p<0.05,'***p<0.01

Variables Model+1 Model+2 Model+3

386 386 386

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Fiscal Reforms: Good Enough is Not Enough

Indonesia (health) S.ll Le= Behind Others

12/10/15 21

! Source:!WHO!(http://apps.who.int/nha/database/ViewData/Indicators/en)!

!

2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2012! 2013!

%"

Indonesia! Thailand! Cambodia! Malaysia!

Philippines! Singapore! Viet!Nam!

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0.0

Government Expenditure on Educa[on (% of GDP)

Indonesia Malaysia Philippines Thailand Vietnam

(23)

Concluding Remarks

•  Seriously eﬀorts on tackling inequality (divided society _è slower economic growth and the risks of conﬂict), though, poverty is sAll problem in many regions in Indonesia;

•  ConAnuous reforms on energy (fuel) subsidies _è inconsistent fuel subsidy reforms _à 2 weeks _à 6 months _à forgot (due to no ﬁscal pressure);

•  Universal health coverage (in the presence of informality_è health seeking behavior and low compliance on the premium payments)_è ﬁscal risks

àincreasing bailouts every year;

•  Balancing between big infrastructure projects and small/basic/regional infrastructure projects;

•  Spend more resources to improve good governance (corrupAon

eradicaAon) _è lowering inequality, promoAng economic growth and building trust;

•  Good enough is not enough _è ﬁscal reforms _è outward looking (what other countries do?) _è improving global compeAAveness;