Designing the Assistance Program for the Lower Middle Class

KOMPAS/ERIKA KURNIA

A line of dozens of drivers, street vendors, workers at Depok Terminal to receive lunch assistance on Wednesday (15/4/2020). Assistance is provided by the social organization Aksi Cepat Tanggap (ACT) and the Indonesian Volunteer Society.

The Covid-19 outbreak has created new problems related to social assistance for groups in need.

As disclosed by my colleague Rema Hanna in this newspaper on Wednesday, April 22, the Government of Indonesia has focused its social assistance program on the poor. The government has acted quickly in expanding existing programs, which provided badly needed assistance in overcoming the situation. Those government steps are correct. However, these days, economic pressure due to the Covid-19 outbreak has seen many people who were still working a few weeks ago lose their income. And now they really need help to buy food, pay off installments or rent and meet other basic needs.

This raises new problems. Many lower middle-class families have not received any social assistance from the government, because – so far – they are not part of the poor group. Therefore, the government needs a new approach for identification. The goal is that citizens who fall into poverty can get help.

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This new approach must also consider how the assistance is provided. This step is accompanied by aspects of social restrictions, for example avoiding meetings in groups. If people have to get together physically or queue to receive the help, the virus can spread.

Moreover, the government budget is also limited. My colleague Chatib Basri will discuss that on Friday, April 24. Indeed, Indonesia can still seek additional fiscal space to be used for social protection, but there are limits, of course. Therefore, we need to identify and verify the people who need the most, namely those who lose their jobs, lose their business income; then give them direct assistance.

How can this be implemented quickly and well? A program can be good conceptually, but if not implemented properly, its impact will be limited. This is not easy, because there are urgent needs that need to be met quickly. What, then, can be done?

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KOMPAS/HENDRA A SETYAWAN

Kompas Humanity Fund Foundation (DKK) members prepare staple food packages to be donated to residents of Gelora subdistrict, Tanah Abang, Central Jakarta, on Thursday (16/4/2020). The aid was handed over from DKK chairman Rusdi Amral to Gelora subdistrict head Nurul Huda, who will distribute it to residents affected by Covid-19. The DKK also gave assistance to residents in Kebon Jeruk subdistrict.

Three options

There are three policy ideas that can be taken into consideration. These three options are based on our research, which shows that they can be implemented. First, the government recently announced the pre-employment card program, which was quickly adapted to respond to the Covid-19 crisis. Card holders can get Rp 600,000 per month in cash for four months to be spent on online training. The response to this program has been positive as millions of people have applied for it.

Many of them were recommended by large entrepreneurs and small business associations. The funding is available for more than five million unemployed workers. This is a very good first step, because it can fill the gap with the existing social assistance programs. This program aims to provide assistance to those affected by Covid-19 at this time, but has not been included in other social assistance programs. I consider the expansion of this program to be a very reasonable option.

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In line with increasing the scale of the program, there are opportunities to further improve the training component. Training is important because it can help to improve skills for when the economy starts to move again.

Besides that, there are other benefits of requiring training as a condition to get the assistance, if the training is done properly. Asking people to register and complete a training program can be used as a mechanism to identify those who really need it. The logic goes like this: Those who are unemployed and really need help will complete the training. Meanwhile, those who have opportunities to earn income in other ways will choose to work rather than spending their time in online training courses.

However, in the future, of course, in line with increases in the scale of the program, the government must allocate more money for cash assistance than training. What is interesting here is the fact that expanding an online course from 1,000 people to 10,000 people does not incur a lot of additional costs. Therefore, if the program is expanded, there are training costs that can be saved. These saved costs can then be used for cash assistance that can be given directly to groups of beneficiaries.

Second, the government can utilize digital technology in new ways: As a tool to identify beneficiaries in need and as a mechanism for transferring cash while still abiding by social restrictions. Mobile phones are an extraordinary and untapped source of data. Telecommunications companies can identify the lower middle class through their cellphone records and purchasing behavior. Most SIM cards can be linked to the population identification number (NIK), so that the government can ensure that this assistance is only given to households that have not received aid under any other program. This way, the government can also ensure that people who have a second SIM card are not mistaken for being "poor", while in reality they actually have another SIM card that is often used. This technology can also help ensure that no one receives a transfer more than once.

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Under normal conditions, there may be problems with data confidentiality if this method is used. However, in a crisis situation like now, the government can make an exception. Programs like this can be done quickly and automatically. For example, every person being identified immediately receives help. Or, to target unemployed persons more precisely, the government can request registration in advance, and use this data as part of the verification process.

Mobile phones also open space to provide assistance electronically. Transfers can be made via phone credit or e-wallet. This can be done by making it convertible to a bank account, or to a digital wallet that can be used to buy goods or for cash payments. It will also provide additional benefits with the increasingly broad scope and use of digital money. Research has shown the economic benefits of this. Of course, to enable this to be implemented, it is necessary to relax some rules.

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KOMPAS/AGUS SUSANTO

An ojek (motorcycle taxi) driver distributes food and cash aid to Mardiyo, who was affected by Covid-19, in Duren Jaya village, Bekasi, West Java, on Thursday (16/4/2020). With the implementation of large-scale social restrictions (PSBB), The West Java provincial administration has started distributing aid through PT Pos Indonesia with the help of ojek drivers.

Community-based targeting

Third, the government can use community-based targeting, by asking the community directly who in the neighborhood unit (RT) or community unit (RW) most urgently needs help. Our previous research (Alatas, Banarjee, Hanna, Olken, and Tobias, 2012), for the case of Indonesia, shows people have information, or know who needs it the most, both in rural and urban areas. Our research also shows that this information can be used to determine aid targets. At present, even with social restrictions, WhatsApp and other online systems can be used to find out from the community who in their neighborhood is hardest hit by Covid-19.

With clear guidance on how to do door-to-door distribution through the RT/RW network, this method can be an effective tool for identifying and distributing aid to those who need it the most while still maintaining social restrictions.

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NEWS.MIT.EDU

Benjamin A Olken

We know that social assistance is not the only thing that must be met by the government. In a crisis like this, many things must be fulfilled by the government, such as spending on public health or assistance to the business world. This all requires funds. The government needs to consider all of this. In tomorrow\'s article, Chatib Basri will discuss the extent to which the government budget is able to do this, and how to finance it. As the challenges that the government faces today are different from the previous ones, a new approach to providing this assistance can help.

Benjamin A Olken, Professor of Economics at Massachusetts Institute of Technology (MIT), Director of MIT’s Abdul Latif Jameel Poverty Action Lab (J-PAL).