Improving Social Protection System Reduces Poverty and Vulnerability, Promote Economic Growth and Increases Social Cohesion

16 January 2019

Government of Indonesia and Australia Recommend a Life-cycle Based Social Protection System That Benefits All Citizens of Indonesia

Representatives from the Indonesian and Australian Governments, academics, practitioners, research organizations, and development partners convened at Hotel Sari Pacific, Jakarta, on January 15th, 2019, to celebrate the launch of the National Team for the Acceleration of Poverty Reduction’s (TNP2K’s) recent publication, “The Future of The Social Protection System in Indonesia: Social Protection for All”. The key recommendation put forward in the discussion is that, by 2024, all Indonesian citizens should be covered by either contributory or non-contributory social protection schemes across their lives as mandated by the constitution.

Indonesia is among the few countries globally to experience an average growth rate of approximately 7 per cent annually prior to the Asian economic crisis. However, this dropped to approximately 5.6 per cent a year between 2007 and 2016, signalling the need to further stimulate the economy.  Furthermore, Indonesians face a wide range of risks throughout their lives, beginning in the womb and continuing through to their final days. These risks are exacerbated by widespread low incomes, meaning that people are less able to respond effectively to a crisis.

While the government of Indonesia is committed to expanding the national social protection system, significant challenges persist.  Existing non-contributory programs target the poorest, but do not comprehensively address the vulnerability of most citizens. Most of the population on middle incomes – the so-called ‘missing middle’ – are still extremely vulnerable to risks and shocks but benefit minimally from the existing social protection system. This is an important basis for improving social protection policies in Indonesia.

Social Protection in Indonesia consists of non-contributory and contributory schemes. Non-contributory schemes, also referred to as Social Assistance, are tax-financed and include Rice for the Poor (Rastra); the flagship conditional cash transfer (Program Keluarga Harapan); an education allowance for school-aged children (Program Indonesia Pintar); and subsidized health insurance for the poor (Program Jaminan Kesehatan Nasional - Penerima Bantuan Iuran). Contributory schemes, referred to as Social Security, are based on the contributions of its members. They include national health insurance (Jaminan Kesehatan Nasional implemented by BPJS Kesehatan); and national employment insurance (Jaminan Sosial Ketenagakerjaan implemented by BPJS Ketenagakerjaan).

The Executive Secretary of TNP2K, Bambang Widianto stated in his opening remarks that the government has undertaken many efforts to reduce the economic burden and promote social welfare through improving the social protection system. “Significant developments have been made to realize a better social protection system for all, such as the ongoing improvements in program targeting, and transforming Rastra into non-cash food assistance (Bantuan Pangan Non-Tunai/BPNT). By the end of 2018, 92.4 million people were receiving subsidized health insurance through JKN, 19.7 million people were benefitting from Program Indonesia Pintar, a 10 million families were benefitting from PKH, and around 15 million families were beneficiaries of Rastra and BPNT programs. Furthermore, the government has also increased the PKH budget from IDR 19.3 trillion to IDR 32.65 trillion this year,” he explained.

The Head of State Budget Policy Centre under the Fiscal Policy Agency of the Indonesia Finance Ministry Hidayat Amir confirms this government’s commitment. “The government has the money. We are not only looking at the cost, but also the benefits, the impacts. From the fiscal side, there are certainly requirements. But looking at the demographic context, when you see population aging, that has to be the main concern,” adds Hidayat Amir.

Despite the strong commitment to improve the social protection system, these programs still only manage to reach the poor and vulnerable and are yet to comprehensively address vulnerabilities faced by the emerging middle class (“the missing middle”).

In their latest publication, TNP2K presents key proposals for each stage of the life-cycle for the next five years. They argue that, gradually, Indonesia needs to take a step away from a system that only provides benefits for the poor and a portion of the working age population, towards an inclusive social protection system that benefits the entire population.

Based on experiences from middle income countries that already have a comprehensive social protection system in place, greater investments in social protection will yield greater benefits.  Improving the social protection system in the future will not only contribute to poverty reduction, but also promote economic growth and social cohesion.

In his closing remarks, the Deputy for Poverty Alleviation and Social Protection of the Coordinating Ministry of Human Development and Culture, TB. A. Choesni expressed similar thoughts. He stated “ideally, social protection must be accessed and felt by the entire population, including the emerging middle class, in order to face challenges and risks across the life cycle. The emerging middle class have been supporting the economy through their contributions in the form of labour, production, economic activities and taxes. Therefore, the benefits of social protection for this group must be a way to give back some of their contributions to Indonesia’s growing economy, so that the relationship and collaboration between the government and its citizens also continues to grow”.

Minister Counsellor for Governance and Human Development of the Australian Government in Jakarta, Kirsten Bishop, expressed her support for the event. “We are very happy to support Indonesia’s efforts in promoting the welfare of its people through improving the current social protection system. I am sure the ideas, feedback, and suggestions captured from this discussion will be beneficial for the welfare of Indonesia in the future,” she said.

This half-day discussion was held by TNP2K  with support from the Australian Department of Foreign Affairs and Trade (DFAT).