Poverty Alleviation Strategy

The issue of poverty is multidimensional, meaning it is not only related to economic limitations but also the lack of access to education, health and other dimensions. Therefore, poverty alleviation must be multisectoral

Poverty alleviation has always been the main focus of development. Indonesia itself succeeded in reducing the poverty rate from the range of 40 percent in the mid-1970s down to 9.22 percent in 2019. During this period, the poverty rate increased, especially during the 1997-1998 and 2006-2007 crises.

The same thing happened during the Covid-19 pandemic, with the poverty rate increasing to 9.78 percent in March 2020 and 10.19 percent in September 2020. The trend of decreasing poverty in the last four decades as well as an increase in poverty in several "crisis" periods shows that poverty and welfare issues are very dynamic. In addition, the issue of poverty is also multidimensional, meaning it is not only related to economic limitations but also the lack of access to education and health, and other dimensions.

Therefore, poverty alleviation must be multisectoral. This is the main reason for the formation of the National Team for the Acceleration of Poverty Alleviation (TNP2K) in 2010, which is led directly by the Vice President with cross-sector ministers as members.

Measuring poverty

Poverty is measured by comparing spending on food and non-food needs per capita with the poverty line. If a household\'s per capita spending is lower than the poverty line, it is categorized as poor.

Indonesia has calculated poverty by using the cost of basic needs approach or cost of basic needs for food and non-food items.

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The calculation of food needs is equivalent to a minimum nutritional intake of 2,100 kilocalories/capita/day, while non-food spending includes expenditures for housing, energy sources, transportation, education, health and a number of other needs.

Globally, the calculation of poverty line relies on the concept of purchasing power parity (PPP), which can be compared between countries so that the exchange rate used is not the exchange rate in the market. The calculation and comparison of the global poverty rate uses the definition of extreme poverty according to World Bank and UN standards, which is equivalent to US$1.9 PPP. The use of the PPP concept is to get a welfare consistent line, both between countries and over time.

This extreme poverty line is lower than our national poverty line, which in 2020 was equivalent to $2.5 PPP. Indonesia\'s poverty rate, if using the World Bank standard of $1.9 PPP by 2020, is 3.9 percent much lower than the national poverty rate of 9.78 percent according to Statistics Indonesia (BPS).

In line with the commitment of the Sustainable Development Goals (SDGs) to eradicate global extreme poverty by 2030, President Jokowi has provided direction so that extreme poverty of $1.9 PPP in Indonesia can reach zero percent by the end of 2024.

Alleviation strategy

The government uses two main poverty alleviation strategies. First, reduce the burden on the expenditures of the poor and vulnerable groups through social protection programs and subsidies. Second, conducting empowerment in order to increase the productivity of the poor and vulnerable groups to increase their economic capacity.

The planning of various programs and activities is based on a number of evidence-based empirical studies. The multidimensional nature of poverty means that poverty is closely related to other socio-economic factors, such as the level and quality of education, health conditions and types of work. James Heckman, a Nobel laureate economist, emphasized the importance of educational interventions in early age groups that provide higher returns than interventions to adult age groups.

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To that end, the government has launched the Family of Hope Program (PKH), Smart Indonesia Program (PIP), the Program for the Acceleration of Prevention of Childhood/Stunting, as well as expanding access to education to break the chain of poverty and prevent intergenerational poverty. The existing law has obliged the government to allocate 20 percent of the state budget for education.

In the health sector, the government runs the National Health Insurance Program (JKN), one of the largest social insurance-based health programs in the world, and improves people\'s access to health facilities. For those who are poor and vulnerable, JKN contributions are borne by the government.

Regarding the second strategy, the government encourages increased productivity of the poor and vulnerable groups, among others, through the empowerment of MSMEs. This is because many poor and vulnerable households work in this sector.

This effort is carried out in three ways. First, increase the business capacity and competence of MSMEs through training, mentoring, development of technical capacity and quality of products, as well as support technology adoption and digitization of MSMEs.

The second pillar is to encourage financial institutions to be more friendly to MSMEs. From the regulatory side, the government will gradually increase the mandatory portion of bank credit for MSMEs from 20 percent currently to 30 percent in 2024. The government expands the micro business credit (KUR) program by introducing the super micro KUR scheme, improving and increasing the effectiveness of ultra micro (UMi) financing and cooperative financing through the Periodical Fund Financing Agency (LPDB).

The government also supports PT Permodalan Nasional Madani to expand the Mekaar Program which targets women from poor and vulnerable families. In addition, the government also supports the development of Micro Waqf Banks, Baitul Maal wa Tamwil (BMT) and Sharia Micro Financial Institutions (LKMS) to reach out to micro and small businesses.

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The third pillar, improvement of the supporting ecosystem for MSMEs, starting from increasing ease of doing business, simplifying licensing procedures and processes, support for standardization and product certification including halal certification, support for developing industrial areas to utilizing public infrastructure, such as airports and rest areas (at toll roads), to be utilized by micro and small businesses (MSEs).

Lastly, to ensure that these various programs reach those who really need them, the government has had a national targeting system through an integrated database (BDT) since 2012. The database that includes socio-economic data for 40 percent of the poorest households help the government to set targets for social protection programs.

Until now, this database has become an important institutional part of the Ministry of Social Affairs, which has become known as Integrated Social Welfare Data (DTKS).

Kompas/Hendra A Setyawan

A toddler lies down on a cart pulled by his mother in the Ciledug area, Tangerang, Banten, Friday (7/5/2021). Based on data from the Central Statistics Agency in February 2021, Indonesia\'s poverty rate in September 2020 again touched double digits, to be precise 10.19 percent or an increase of 0.41 percentage points from March 2020 and 0.97 percentage points from September 2019.

Challenges during a pandemic

Restrictions on people mobility, as part of the efforts to prevent Covid-19, of course result in obstruction of access to goods or services, and community economic activities.

As a result, economic growth contracted 2.07 percent in 2020. The lowest 40 percent of the poor or vulnerable groups and MSEs are the most affected by the loss of income, even livelihoods, during 2020. Almost 90 percent of MSEs saw a decline in sales.

During the pandemic, the government provides Social Cash Assistance (BST) and Village Fund Direct Cash Assistance (BLT-DD) to the maximum extent possible taking advantage of the DTKS coverage which reached 40 percent. However, the people who need assistance are estimated to be in the bottom 60 percent of households. For this reason, at the beginning of the distribution of these programs, the local administrations and the community played an important role in identifying and registering potential beneficiaries to complete group data above 40 percent.

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Besides being used to distribute social assistance during the pandemic, these various data proposals can be used as initial data for the updating of the DTKS planned for 2021.

In addition to assistance for households, the government has also launched programs for the productive age population affected by the crisis, such as subsidized wages assistance (BSU) and productive assistance for micro businesses (BPUM), as well as adjusting the components of the Preemployment Card program so that part of the funds can be utilized as social assistance.

These three programs are intended so that assistance can reach those who suddenly need help due to economic shocks caused by the pandemic so that their welfare does not drop sharply.

KOMPAS/AGUS SUSANTO

Two residents repair the tin roof of their house on the banks of the Ciliwung River in Kebon Manggis, Matraman, East Jakarta, Wednesday (17/2/2021).

The greatest challenge in the long-term, which has far-reaching implications, is the need to adapt and strengthen poverty alleviation strategies. In general, the strategies to reduce burdens through various social assistance and strategies to increase productivity through empowerment do not change, they only need to be adjusted to the pattern of recovery and the stages of crisis management.

Experts are of the opinion that the pattern of Indonesia\'s economic recovery will resemble the letter K (K-shaped recovery), that is, not all levels of society have the same speed of recovery. It will take longer for the poor and vulnerable groups to recover, which has the potential to widen the gap between rich and poor groups. Poverty alleviation efforts must also consider the three stages of recovery before the economy can recover and achieve growth in accordance with its potential, namely the stages of survival, recovery and transformation. The three of them can run parallel with different emphasis.

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By taking into account the patterns and stages of recovery, poverty alleviation programs are part of the national economic recovery (PEN) program. As part of the survival stage, the government will continue various social assistance programs, such as PKH, food assistance, cash social assistance, electricity bill assistance and productive assistance for micro-businesses.

This is the first time in an economic crisis that the government has provided direct cash assistance to MSEs through the BPUM program. In addition, social assistance for the elderly will also be extended.

For this reason, 50 percent of the PEN program budget is allocated for direct assistance to households and MSEs. In order to encourage the effectiveness of the distribution target of these programs, updating the DTKS and improving the database of micro and small enterprises must be completed immediately using methodologies with the best available practices.

KOMPAS/TOTOK WIJAYANTO

A man walks along the train tracks to a public bath in a densely populated residential area on the edge of the KRL line, Petamburan, Central Jakarta, Thursday (25/3/2021). Based on data from the Central Statistics Agency, Indonesia\'s poverty rate as of September 2020 was 10.19 percent.

In the economic recovery phase, the government realizes that the speed of recovery will differ between layers of society. For this reason, in an effort to drive the economy, the government considers it important to continue to pay attention to MSMEs. In addition to continuing the BPUM program, the government together with Bank Indonesia (BI) and the Financial Services Authority (OJK) have also provided loan restructuring facilities to MSMEs.

The government also plans to extend the provision of additional KUR interest rate subsidies until the end of December 2021 so that the debtor can only bear the 3 percent KUR interest rate. The government will also continue the loan guarantee program for MSMEs and increase the maximum unsecured KUR ceiling from Rp 50 million to Rp 100 million and increase the credit ceiling for Small KUR to Rp 20 billion. The credit guarantee program for labor-intensive corporate businesses with a minimum number of employees of 100 will be continued and expanded.

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Although Indonesia\'s economic growth is estimated at 4-5 percent in 2021, this will not necessarily be followed by adequate employment. Therefore, the labor-intensive program continues to absorb the workforce, including 2.5 million new workers every year.

Furthermore, in the transformation stage, economic growth is aimed at recovering and being enjoyed by all levels of society. The first transformation is reforming social assistance to cover the whole society throughout the life cycle, as is the case with social assistance in middle-income countries. The transformation is carried out through a combination of a contribution-based formal social protection system for those who can afford it and for those who are less able to be covered by the government. This system will later protect all Indonesian citizens and ease the fiscal burden because the costs are borne by the government and citizens who can afford it.

BPMI SEKRETARIAT WAPRES

Ma\'ruf Amin

The next step is the transformation of business and the business world, which requires human resources with new skills in line with changes in the post-Covid-19 world order. The ability to utilize digital technology for all economic and industrial players, including MSMEs, is the key to compete.

Ma’ruf Amin, Vice President of the Republic of Indonesia.

This article was translated by Kurniawan Siswoko.