Why social protection need to be universal in Indonesia

Presentation for Workshop Economic development and social protection Institute of Economics Federal University of Rio de Janeiro and Celso Furtado June 28, 2010 Sugeng Bahagijo dan Mickael B Hoelman INDONESIA

Content

  

Background Three arguments The challenges

Background : Growth and poverty

    Indonesia is middle income countries: economic pie is sufficient for social spending - GDP growth is positive 5 percent for the last 10 years (2.300 usd per capita). Indonesia is part of 20 largest economy – G20.

Indonesia budget is stable and healthy: 2 percent budget deficits: annual budget 1000 trilion rupiah (100 billion usd) But, a severe poverty and inequality is remain huge and systematic problem. High rate of maternal and underfive mortality. Goverment plan to reduce from 13 percent to 8 percent within 5 years (i.e. among women, elderly and children) And, corruption is widespread and systematic, about 30 percent of government and state owned companies procurements is problematic

Background : Social policy and social protection

 Limited coverage of social protection, less than 70 million covered by public and health insurance (“you get what you paid” in health system).     Contributory and Bismarkian type : only for civil servants and small private sectors Targeted/selective approach: Health insurance for poor (jamkesmas) currently cover 70 million beneficiaries.

Informal sectors and farmers, fisherman etc are outside the social protection system(i.e health insurance) Recents experiences with conditional and nonconditional cash transfer (PKH and BLT since 2004)

3 arguments for broader social protection

   Minimize the poverty and socio economic inequality Strengthening democracy and trust building among citizen and between citizen and government Strengthening/complementing the existing social policy and social protection : more effective and redistributive social policy in facing the risk of flexible market and financial globalization and massive decentralization (implement Basic Income or BI types as a universal, citizen rights)

Our proposal; BI types

     Universal coverage and monthly basis: but started for children, women and elderly (at minimum 150 million beneficiaries) 2 percent of GDP (Indonesia budget is about 19-20 percent GDP) Increase tax revenue target from 13% GDP to 8% GDP Additional tax revenue (0,5 percent of VAT and 0.01 of all financial/electronic transaction) Better and more effective tax collection (reduce the massive leakage)

The Challenges

    Re designing subsidy : from energy and fuel subsidy toward social policy and social protection financing (around 0.5 to 1 % GDP) Low level of social spending: less than 1 % GDP for public health. Less than 1 percent of GDP for social protection Administrative feasibility: PKH-Bolsa familia type experiment, BLT-direct/unconditional cash transfer Political feasibility: lack of knowledge of social welfare and social protection. Stagnancy of the implementation of 2004 Law on social security (health insurance and pension system)