5 1 TEGUH LPEM FEB UI
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
Head of Poverty and Social ProtecAon Research Group, LPEM FEB UI
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
• Concluding Remarks
12/10/15
2
Present Path = Real Problem
Jobless
growth
Real
Problem
Rising
inequality
Declining
compeAAv
eness
Source: Harvard Kennedy School Indonesia Project in Dartanto (2014)
70.00
0.45
60.00
0.40
50.00
0.35
40.00
0.30
30.00
0.25
20.00
0.20
10.00
0.15
0.00
0.10
-10.00
0.05
-20.00
0.00
Poverty Incidence
12/10/15
Growth of GDP Per-Capita
InflaAon Rate
Investment (% of GDP)
Gini Index
Percent
Poverty, Growth, Inequality and Other Macroeconomic
Variables
Gini Index
Source: Author’s compilaCon based on BPS and World Development Indicators
4
Figure'4.'Income'Share'By'Percentile'
50!
45!
Income!share!held!
40!
by!lowest!10%!
35!
The lowest income
group is le_ behind
à divided society
Income!share!held! 30!
by!highest!10%!
25!
Income!share!held! 20!
by!lowest!20%!
15!
Income!share!held!
by!highest!20%!
10!
5!
0!
1984!
1990!
1996!
1999!
2005!
2010!
2011!
!
Ratio!between!the!highest!
10%!and!the!lowest!10%!
Ratio!between!the!highest!
20%!and!the!lowest!20%!
6,66!
5,92!
6,64!
5,90!
7,77!
8,39!
9,52!
4,55!
4,14!
4,52!
4,06!
5,13!
5,72!
6,32!
Source:!World!Development!Indicators!and!Central!Statistical!Agency!(BPS)!
1985
1995
2005
2011
2012
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
!
Decreasing effecAveness of
growth to reduce poverty à
due to jobless growth
(growing of capital intensive
sectors)
12/10/15
Source: Author’s Calculation based on data from World Development Indicators and Central Statistical Agency
5 (BPS)
na: not available
!
Average Expenditure Per Capita Growth (2005-2013)
Source: Author’s CalculaCon based on Susenas 2005, 2008, 2011, 2013
18.00
16.00
14.00
Fuel price adjustment in 2005-2008 and introducing
some social protec[on policies
Growth (%)
12.00
Commodity
Boom: Coal
and palm
oil
10.00
Adverse
impacts of
commodity
boom and
Global Crisis
8.00
6.00
4.00
End of
Commodity
Boom
2.00
0.00
1 4
7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100
2005-2008 (Downward Gini (0.363-->0.350)
2008-2011 (Upward Gini (0.350-->0.410)
2011-2013 (Stable Gini (0.410-->0.413)
Source: Author’s compilaCon
12/10/15
6
Which Province Contribu[ng Most on Inequality?
Divided
Society
Potency of
Social Conflict
12/10/15
Source: Author’s calculaCon
7
Indonesia’s Rising Divide (World Bank, 2015)
Sources of
Inequality
Policies for
Tackling Inequality
Inequality of Opportunity
Improving local service
delivery
Unequal Jobs
PromoAng be-er jobs and
training
High wealth concentraAon
Ensuring social protecAon for
shocks
Low resiliency
Government spending and
taxaAon
12/10/15
8
Current Fiscal Reforms and Its Impact
on Poverty, Growth and Inequality
12/10/15
9
Poverty-Growth-Inequality (PGI) Triangle
POVERTY
Socio
Economic
Condi[on
Global Dependency
(Trade, FDI, Shocks)
INEQUALITY
GROWTH
Socio
Economic
Policies
including
Fiscal
Note
: Indirect RelaAonship
: Direct RelaAonship
Source: adapted from Dartanto and Patunru, 2015
12/10/15
10
Fiscal Reforms: Need Driven
Cujng Fuel Subsidies: Thanks to Decreasing World Oil Price
Energy Subsidy: Burden to the Budget, 2000-2014
Sources: Ikhsan, 2014
30.0
5
4.5
4.4
25.0
March 2005- 30% fuel price Adjustment
October 2005 – 67 % fuel price adjustment
25.3
4.0
4.5
June 2013, 44 % fuel price
adjustment
3.9
3.8
3.7
3.4
20.0
21.2 3.5
3.4
3.1
3
3.0
2.8
16.7
4
15.0
2.5
2
1.9
10.0
1.7
1.7
9.0
October 2008 – 30 % fuel price adjustment
February 2009 – back to October 2009 price regime
Monthly Adjustment
Fuel price 2002-2003
5.0
1.5
1
0.5
0.0
0
2000
2001
2002
2003
2004
2005
2006
2007
% of central government spending
2008
2009
2010
2011
2012
2013
2014
% of GDP (secondary axis)
11
Substan[al Fiscal Reforms in 2015
450
25
409
409
400
376
20
20
350
345
311
18
310
307
20
345
341
19
17
300
290
267
15
250
Ra[o in %
IDR Trilion
256
191
200
178
10
156
146
150
138
7
120
114
100
86
58
50
36
65
64
68 68
75
82
5
52
46
0
0
2011
EducaAon
12/10/15
2012
Infrastruture
2013
Health
Food Security
2014
Energy Subsidy
2015-APBN
2015-APBNP
RaAo Energy Subsidies to Budget
12
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).
12/10/15
13
Fuel Subsidy Reforms: Poverty and Inequality
12
IDR per HH per month
IDR tr
156,000
Fuel (total)
10
130,000
8
104,000
Gasoline
6
78,000
4
52,000
Kerosene
26,000
2
0
0
1
2
3
4
5
6
7
Household consumption decile
8
9
10
Sources: Ikhsan, 2014
• 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.
12/10/15
14
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;
Variables
Length'of'Road:'
Total'National
t"stat
Length'of'Road:'
District'
t"stat
#'observation
R>Square
12/10/15
Poverty
Inequality
0.00137*
0.00000916*
3.22
3.74
>0.00141*
>0.00000995*
"2.98
358
0.684
"3.75
358
0.297
Source: Dartanto et al., forthcoming
15
Universal Health Coverage à Improving Equality of Health
Access
Problem: how to mandate non poor
informal sectors (100 millions) joining
the program?
A hypothetical Gini
Index (Health Exp.)
with UHC = 0.5524
Gini Index
(Expenditure) = 0.410
(with UHC = 0.405)
Gini Index (Health
Exp.) in 2013 = 0.693
Source: LPEM FEUI’s estimate based on Susenas 2013
16
Educa[on (Human Capital):
Equal Opportuni.es for Everyone to be Someone
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
LDPP Scholarship
• 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
Governance Issue (Corrup[on), Social
Assistance and Inequality
12/10/15
18
Source: MeliyawaC, 2015
Government Social Assistance
IniAal CondiAon
CorrupAon on Social Assistance
19
Good Inten[on Bad Outcome:
Social Assistance, Corrup[on and Inequality
Variables
Ratio+between+Social+Assistance+
and+SNG's+Total+Expenditure+(in+%)
Amount+of+Corruption+Detected
(in+IDR+Billions)+
Model+1
Coef.
Robust+SE
@0.20376* 0.10530
Model+2
Coef.
Robust+SE
Model+3
Coef.
Robust+SE
@0.19941*
0.10623 @0.21397*
0.10586
0.00003** 0.00002 0.00003**
0.00002 0.00003**
0.00002
Health'and'Education'Expenditure'per2
20.00605*
0.00318 20.00549*
Capita'(in'IDR)
Share'of'Infrastructure'Expenditure'to'
GRDP'(Gross'Regional'Domestic'
Product)
20.00073*
Dummy'of'Election'(1'='regional'
election;'0'='other)'
0.00073
Constant
0.31470***
0.00351 0.31951***
0.00422 0.32256***
#+Observation
386
386
386
F@Stat
4.7
4.42
3.28
R@Square
0.011
0.019
0.028
*p
Dealing with Poverty, Inequality and
Inclusive Growth
Hotel Grand Hya-, Nusa Dua - Bali
10-11 December 2015
Presented by:
Teguh Dartanto
Head of Poverty and Social ProtecAon Research Group, LPEM FEB UI
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
• Concluding Remarks
12/10/15
2
Present Path = Real Problem
Jobless
growth
Real
Problem
Rising
inequality
Declining
compeAAv
eness
Source: Harvard Kennedy School Indonesia Project in Dartanto (2014)
70.00
0.45
60.00
0.40
50.00
0.35
40.00
0.30
30.00
0.25
20.00
0.20
10.00
0.15
0.00
0.10
-10.00
0.05
-20.00
0.00
Poverty Incidence
12/10/15
Growth of GDP Per-Capita
InflaAon Rate
Investment (% of GDP)
Gini Index
Percent
Poverty, Growth, Inequality and Other Macroeconomic
Variables
Gini Index
Source: Author’s compilaCon based on BPS and World Development Indicators
4
Figure'4.'Income'Share'By'Percentile'
50!
45!
Income!share!held!
40!
by!lowest!10%!
35!
The lowest income
group is le_ behind
à divided society
Income!share!held! 30!
by!highest!10%!
25!
Income!share!held! 20!
by!lowest!20%!
15!
Income!share!held!
by!highest!20%!
10!
5!
0!
1984!
1990!
1996!
1999!
2005!
2010!
2011!
!
Ratio!between!the!highest!
10%!and!the!lowest!10%!
Ratio!between!the!highest!
20%!and!the!lowest!20%!
6,66!
5,92!
6,64!
5,90!
7,77!
8,39!
9,52!
4,55!
4,14!
4,52!
4,06!
5,13!
5,72!
6,32!
Source:!World!Development!Indicators!and!Central!Statistical!Agency!(BPS)!
1985
1995
2005
2011
2012
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
!
Decreasing effecAveness of
growth to reduce poverty à
due to jobless growth
(growing of capital intensive
sectors)
12/10/15
Source: Author’s Calculation based on data from World Development Indicators and Central Statistical Agency
5 (BPS)
na: not available
!
Average Expenditure Per Capita Growth (2005-2013)
Source: Author’s CalculaCon based on Susenas 2005, 2008, 2011, 2013
18.00
16.00
14.00
Fuel price adjustment in 2005-2008 and introducing
some social protec[on policies
Growth (%)
12.00
Commodity
Boom: Coal
and palm
oil
10.00
Adverse
impacts of
commodity
boom and
Global Crisis
8.00
6.00
4.00
End of
Commodity
Boom
2.00
0.00
1 4
7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100
2005-2008 (Downward Gini (0.363-->0.350)
2008-2011 (Upward Gini (0.350-->0.410)
2011-2013 (Stable Gini (0.410-->0.413)
Source: Author’s compilaCon
12/10/15
6
Which Province Contribu[ng Most on Inequality?
Divided
Society
Potency of
Social Conflict
12/10/15
Source: Author’s calculaCon
7
Indonesia’s Rising Divide (World Bank, 2015)
Sources of
Inequality
Policies for
Tackling Inequality
Inequality of Opportunity
Improving local service
delivery
Unequal Jobs
PromoAng be-er jobs and
training
High wealth concentraAon
Ensuring social protecAon for
shocks
Low resiliency
Government spending and
taxaAon
12/10/15
8
Current Fiscal Reforms and Its Impact
on Poverty, Growth and Inequality
12/10/15
9
Poverty-Growth-Inequality (PGI) Triangle
POVERTY
Socio
Economic
Condi[on
Global Dependency
(Trade, FDI, Shocks)
INEQUALITY
GROWTH
Socio
Economic
Policies
including
Fiscal
Note
: Indirect RelaAonship
: Direct RelaAonship
Source: adapted from Dartanto and Patunru, 2015
12/10/15
10
Fiscal Reforms: Need Driven
Cujng Fuel Subsidies: Thanks to Decreasing World Oil Price
Energy Subsidy: Burden to the Budget, 2000-2014
Sources: Ikhsan, 2014
30.0
5
4.5
4.4
25.0
March 2005- 30% fuel price Adjustment
October 2005 – 67 % fuel price adjustment
25.3
4.0
4.5
June 2013, 44 % fuel price
adjustment
3.9
3.8
3.7
3.4
20.0
21.2 3.5
3.4
3.1
3
3.0
2.8
16.7
4
15.0
2.5
2
1.9
10.0
1.7
1.7
9.0
October 2008 – 30 % fuel price adjustment
February 2009 – back to October 2009 price regime
Monthly Adjustment
Fuel price 2002-2003
5.0
1.5
1
0.5
0.0
0
2000
2001
2002
2003
2004
2005
2006
2007
% of central government spending
2008
2009
2010
2011
2012
2013
2014
% of GDP (secondary axis)
11
Substan[al Fiscal Reforms in 2015
450
25
409
409
400
376
20
20
350
345
311
18
310
307
20
345
341
19
17
300
290
267
15
250
Ra[o in %
IDR Trilion
256
191
200
178
10
156
146
150
138
7
120
114
100
86
58
50
36
65
64
68 68
75
82
5
52
46
0
0
2011
EducaAon
12/10/15
2012
Infrastruture
2013
Health
Food Security
2014
Energy Subsidy
2015-APBN
2015-APBNP
RaAo Energy Subsidies to Budget
12
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).
12/10/15
13
Fuel Subsidy Reforms: Poverty and Inequality
12
IDR per HH per month
IDR tr
156,000
Fuel (total)
10
130,000
8
104,000
Gasoline
6
78,000
4
52,000
Kerosene
26,000
2
0
0
1
2
3
4
5
6
7
Household consumption decile
8
9
10
Sources: Ikhsan, 2014
• 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.
12/10/15
14
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;
Variables
Length'of'Road:'
Total'National
t"stat
Length'of'Road:'
District'
t"stat
#'observation
R>Square
12/10/15
Poverty
Inequality
0.00137*
0.00000916*
3.22
3.74
>0.00141*
>0.00000995*
"2.98
358
0.684
"3.75
358
0.297
Source: Dartanto et al., forthcoming
15
Universal Health Coverage à Improving Equality of Health
Access
Problem: how to mandate non poor
informal sectors (100 millions) joining
the program?
A hypothetical Gini
Index (Health Exp.)
with UHC = 0.5524
Gini Index
(Expenditure) = 0.410
(with UHC = 0.405)
Gini Index (Health
Exp.) in 2013 = 0.693
Source: LPEM FEUI’s estimate based on Susenas 2013
16
Educa[on (Human Capital):
Equal Opportuni.es for Everyone to be Someone
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
LDPP Scholarship
• 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
Governance Issue (Corrup[on), Social
Assistance and Inequality
12/10/15
18
Source: MeliyawaC, 2015
Government Social Assistance
IniAal CondiAon
CorrupAon on Social Assistance
19
Good Inten[on Bad Outcome:
Social Assistance, Corrup[on and Inequality
Variables
Ratio+between+Social+Assistance+
and+SNG's+Total+Expenditure+(in+%)
Amount+of+Corruption+Detected
(in+IDR+Billions)+
Model+1
Coef.
Robust+SE
@0.20376* 0.10530
Model+2
Coef.
Robust+SE
Model+3
Coef.
Robust+SE
@0.19941*
0.10623 @0.21397*
0.10586
0.00003** 0.00002 0.00003**
0.00002 0.00003**
0.00002
Health'and'Education'Expenditure'per2
20.00605*
0.00318 20.00549*
Capita'(in'IDR)
Share'of'Infrastructure'Expenditure'to'
GRDP'(Gross'Regional'Domestic'
Product)
20.00073*
Dummy'of'Election'(1'='regional'
election;'0'='other)'
0.00073
Constant
0.31470***
0.00351 0.31951***
0.00422 0.32256***
#+Observation
386
386
386
F@Stat
4.7
4.42
3.28
R@Square
0.011
0.019
0.028
*p