Process/development of initiatives linked to the SPF approach

Before 1997 crisis: social protection was not a priority

Once ranked as a high performing Asian Economy (World Bank, 1993), Indonesia had on average 7.4 percent GDP growth in three decades prior to 1997. Amidst the notion of strong and stable economic foundation, social protection was not part of the Government’s priority. Government-provided social protection was minimal, and social spending was concentrated on social services (Sumarto & Suryahadi, 2002).

Post 1997 Crisis: the beginning of Social Safety Net Programs

It was not until the onset of the Asian Financial crisis—which revealed great vulnerability of the economy—that social protection shows its urgency. Unemployment and dramatic decline in real wage, among others, had sent 25 percent of Indonesian non poor population to poverty (World Bank, 2006). In response to the situation, the Government then launched a social safety net (JPS) program in 1998, which marked the first nation-wide social protection scheme. The program emphasized on subsidizing staple food, basic education and basic health services and employment opportunity through public works and revolving credit funds.

Contemporary Indonesia: sustained economic growth but increased inequality and high vulnerability

Following the recovery from the late 1990s crisis, strong economic growth was maintained and poverty rate has steadily declined. The national poverty rate fell from 24.23 percent in 1998 to 17.42 percent in 2003 and 13.33 percent in 2010 (BPS, 2010). Per capita consumption over the period 1996 to 2010 grew by 1.4 percent on average. Unfortunately this growth has not shown to be pro-poor. While the richest ten percent experienced more than 1.7 percent growth of per capita consumption on average, the poorest ten percent had around 0.6 percent growth (World Bank, March 2011). Inequality, as indicated by (national real) Gini coefficient, has increased from 32 in 1996, to 34 in 2007 and further to 35 in 2010.

Currently, though extreme poverty—indicated by the World Bank as those living on PPP US$1-a-day or less—is relatively low, nearly half of the population is on the brink of poverty as 43.3 percent of the population is within the PPP US$2-a-day boundary (World Bank, March 2011). An analysis by the World Bank revealed that “in any given year, the risk that a large portion of households will fall below the poverty line, even if currently not poor, is high” (World Bank, 2006). Looking at a panel data of income and consumption, over 38 percent of poor households in 2004 were not poor in 2003 (World Bank, 2006) which indicates movements in and out poverty.

In face of inequality and vulnerability issues, the development of sustainable anti-poverty and social assistance programs and a strategy to expand social security coverage for all

Indonesia has undergone a reform in its social spending since 2005, by shifting from universal fuel subsidy to targeted social protection programs. The 2010-2014 Medium Term Development Plan (RPJM) tries to sharpen the focus on poverty alleviation, organizing the antipoverty strategy in three clusters, i.e. household-based integrated social assistance, community empowerment-based social assistance/PNPM, and micro enterprise development-based social assistance. Next to governance reform and poverty alleviation, health; education and food security are on top of the development priorities.

Indonesia in the last few years has also seen a major progress towards the extension of social security to all, through two important milestones: the amendment of the 1945 constitution regarding the extension of social security to the entire population and the enactment of the National Social Security System Law (Sistem Jaminan Sosial Nasional/SJSN law). The social security law was designed to create a social security system covering all Indonesian workers and their dependents in both the formal and informal economy. Though it has not reached implementation stage, it showcases the Government’s commitment to social protection to all.

Social security schemes and programs by branch