*

Chris Manning, Adjunct Fellow, ANU and

Riyana Miranti, Senior Research Fellow, NATSEM-IGPA,

University of Canberra

*

Simplifying quite a bit

1. SBY’s governments made much progress on poverty and was innovative in policy

2. The foundations for sustained poverty alleviation are precarious, however, because of:

*ambivalence on jobs and labour

*political pragmatism

3. Income distribution worsened a lot, but this was mostly beyond the control of the government*

*But it could have done more to address the problem

*

Three contentions

1. We argue that improved living standards for the poor is critical for a better income distribution of income

2. At the heart of a successful poverty alleviation policy is creation of better jobs

* Improving agricultural productivity

*moving people out of low productivity agriculture and the informal sector

3. Creating a fairer society also depends on targeted and well administered social welfare

*Reducing subsidies and collecting taxes from richer people and corporations

*

Four sections

1. Economic policy and its impact on jobs and welfare

2. The labour market: jobs and wages

3. Poverty trends and policies

4. Income distribution

*

Reiterate some points made by Hal Hill

*Prudent economic policy matters for the poor, especially stable prices

Indonesia good by international standards

*Resources boom a benefit and a ‘curse’ for the poor – more revenue for the government...but

bigger rents for resource owners and politicians/bureaucrats

Higher prices at home and overvalued rupiah (higher value) hurt consumers, exporters and workers

*Squibbing it on fuel prices politically expedient but hurt the poor (and the middle class) in the medium term

*

*Two contrasting periods under SBY. But one underlying problem of ‘surplus labour’ remained

unsolved, partly because of pragmatic policies

*The contrasting periods: First period: ‘jobless’ growth, high (though

falling) unemployment, stagnant wages

Second period: formal labor market makes big

gains during investment boom

Percentage share of Jobs in Formal &

Informal Sectors, SBY’s Ist and 2ndTerms

(2004-12)

8

0

10

20

30

40

2004 2005 2006 2007 2008 2009 2009 2010 2011 2012 2013

%

AGRIC Informal NON-AGRIC Informal NON-AGRIC Formal

IFS expands, FS contracts

– slow growth in jobs

SBY’S first term SBY’S 2nd term

FS expands rapidly

(though slows down),

IFS contracts

The Unemployment/Underemployment Record

o A sustained decline in unemployment since 2005, (but

slows down)

o Under-employment also falls from around 2009-10

9

0

2

4

6

8

10

12

14

16

04 05 06 07 08 09 09 10 11 12 13

SBYs 1st TERM 2004-09 SBYs 2nd Term 2009-12

Unemployment Under-employment

Rate of Unemployment and Under-employment, SBY Years (%)

*

*The boom in SBYs second term masked the underlying problem: ‘surplus’ labour continued to depress wages

and living standards of most people

Government caves in on wage policy in SBYs second

term, declaring the era of low wages ‘is over’

oit bets on the minority, more vocal and higher paid workers in ‘protected’ jobs versus sector, versus

the majority in lower paid, more vulnerable jobs

Real Monthly Average Wage in Agriculture, Manufacturing and

All Sectors (Rp. Million)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

1999 2000 2001 2002 2003 2004 2004 2005 2006 2007 2008 2009 2009 2010 2011 2012 2013

R

p

M

i

l

l

i

o

n

All sectors Agriculture Manufacturing

Crisis and Recovery SBY's first term

SBY's 2nd term

Labour–intensive

exports drive wage

rise, agric, wages flat

0.00

0.50

1.00

1.50

2.00

2.50

2004 2006 2008 2010 2012 2014

R

u

p

i

a

h

M

i

l

l

Jakarta Kota Tangerang Kota Bogor

Kota Bandung Kota Semarang Kota Surabaya

Real Minimum Wages in Selected Urban Locations in Java (2014 prices)

Sharply rising minimum wages

at the end of SBYs second term

rejection of low wage policy

*

*

*SBY government makes major progress partly as a result of growth and partly innovative policy

*Statistics mainly related to the poor as ‘officially’ defined, but the gains are broad than that

*The decline in poverty rates have been sustained (despite hick-up with oil price rise in 2005-6) and large

0

5

10

15

20

25

30

1996

1998

1999

2000

2001

2002

2003

2004

2004

2005

2006

2007

2008

2009

2009

2010

2011

2012

2013

2014

Per

cent

Total Rural Urban

SBY's first term SBY's second term Soeharto period, crisis &

recovery

Incidence of Poverty, Urban and Rural Areas, Indonesia 1996-2014

0

10

20

30

40

50

60

1996 1999 2001 2003 2005 2007 2009 2009 2011 2013

Num

ber

of

poor

people

(m

illion)

Total

SBY's first term SBY's second term Soeharto years, Crisis

& Recovery

Number of Poor People in Indonesia, Before SBY

and in the SBY Years (Millions)

*

*Growth is associated with large declines in poverty (growth ‘elasticity’ is as large as under Soeharto)

*It is big in comparative terms and improvements reflected in other indicators

*Closer to China and Vietnam than India and the Philippines

*MMR, IMR, drinking wate and sanitation all improve considerably under SBY (serious about MDGs)

Change in Poverty and GDP per Capita Compared

Soeharto and SBY Years Compared

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

1987-1996 2004-13

SOEHARTO YEARS SBY YEARS

%

% change:GDP/percapita

% change: Poverty

Elasticity

0 10 20 30 40 50 60 70

China

INDONESIA

Philippines

India

Viet Nam

% of the population

% of Population below the international poverty line (

0 50 100 150 200 250 300 350 400

Maternal Mortality Ratio

Infant Mortality Ratio

Access to basic sanitation (%)

390

68

25

250

34

52

210

26

58

102

23

62

Baseline 2005 Latest data MDGs Target 2015

Progress in Fullfilling MDG Goals During

the SBY Years

*

Government policies

*Innovative and extensive programs despite limited budget *‘Unconditional’ the cash transfers (BLT and BLTS) – improved

systems, administration and targeting

*Regional poverty alleviation (PNPM) broad despite some important gaps

*‘Conditional’ cash transfers (PKH): small but effective *Range of other programs (eg. health, scholarships) broader

impact, though some big leakages (subsidized rice – raskin)

*

*Major support through Vice President’s office (TNP2K) *Authority of VP

*Strong VP commitment, including high quality research and evaluation and strong bureaucratic support.

*

*Source: Kanbur, Rhee and Zhuang

(2014)

*Increasing inequality is a global phenomenon both in developed and

developing countries

*Also happening in Asian countries including Indonesia

*Increasing faster in Indonesia than in its neighbours, second after China

*

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

19

96

19

99

20

00

20

01

20

02

20

03

20

04

20

04

20

05

20

06

20

07

20

08

20

09

20

09

20

10

20

11

20

12

20

13

Gini IndexSBY's first

term SBY's

second

term

Suharto

period,

crisis and

recovery

*

8.3 7.3

28.5 30.6

0

5

10

15

20

25

30

35

1999 2002 2005 2008 2010 2011

Pe

r ce

nt

Year

Income share held by lowest 20% Income share held by highest 10%

SBY's term

SBY’s twp Recovery

period

*

7.7

5.4

16.2

12.9

25.04

31.87

0 10 20 30 40

2004

2012

Per cent

Share of total wage bythe highest decile

Share of total wage bythe second 20%

Share of total wage bythe lowest 20%

*Increased share to the top decile and top quintiles, declined share of the bottom quintiles

*The richest decile has now consumed more than 4 times of the bottom quintile in 2011

compared to 3.4 times in 2005 and 2.7 times just

post AFC

*The richest decile has also earned 5.9 times that those who were in the bottom wage quintile in

2012

*

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

20

00

20

01

20

02

20

03

20

04

20

04

20

05

20

06

20

07

20

08

20

09

20

09

20

10

20

11

20

12

Gin

i In

dex

Urban RuralSource: Yusuf et al. (2014)

Recovery

Period

SBY's second term

SBY's first

term

Higher inequality in urban areas, but Gini increases both in rural and urban areas

31

*

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

20

00

20

03

20

04

20

04

20

05

20

06

20

07

20

08

20

09

20

09

20

10

20

11

20

12

20

13

We

alth

pe

r ad

ult

(C

on

stan

t U

SD)

China

Indonesia

India

SBY's first

term

SBY's second

term

Recovery

period

Indonesia: Top 10% holds 75% of total

wealth in 2013 while top 1% holds

47.9%

*

0.30

0.35

0.40

0.45

0.50

0.55

0.60

Market In

com

e

Net M

arket Inco

me

Disp

osab

le Inco

me

Po

st-Fiscal Inco

me

Final In

com

eBrazil (2009)

Mexico (2010)

Sri Lanka (2009)

Indonesia (2012)

Gini Index taking into account different types of income

32

Source: Afkar, Jellema and Wai-Poi (2014, forthcoming)

33

*

0

2

4

6

8

10

12

14

16

18

20

2005 2006 2007 2008 2009 2010 2011 2012 2013

Per

cent

of

GD

P

China Indonesia Malaysia Thailand

Source: World Bank, WDI data

34

*Current fiscal policy leads to small reductions in poverty and inequality with

less equalising effect than in other

countries- weak equity perspective

*Low ratios of Indonesian tax revenues to GDP, low collection rates and low

compliance

*No change in the tax rates during the SBY year

1.Part it related to the issue of wealth/asset distribution and increasing share of the top

income decile

2.Part of it related to labour market – increasing demand for skilled workers (issue of skilled

premium), slow growth in labour intensive

manufacturing sector

*

36

3. Part of it may be related to policies (challenges for the next government)

*Fiscal policy in terms of expenditure has less equalising effect

* Previous research found that fuel subsidies are regressive in nature

*Nevertheless, the subsidies contributed to the larger share of income of the poor

* Preclude key expenditures on infrastructure required to create better jobs and raise incomes at the bottom end of the distribution

* Low tax compliance and revenue

4. Other factors: e.g. resource boom in 2000s (coal and palm oil)

*

1. SBY’s governments made much progress on poverty and was innovative in policy

2. The foundations for sustained poverty alleviation are precarious:

*ambivalence on jobs and labour *political pragmatism

3. Income distribution worsened a lot, although much was beyond the control of the government*