[Kabar-indonesia] AFR/Jakarta Observed: Welfare Cash an Unconditional Success

[JoyoNews at aol.com]

Australian Financial Review
Wednesday, June 21, 2006

Jakarta Observed

Welfare Cash an Unconditional Success

by Morgan Mellish

Last October, the Indonesian government introduced a radical policy
initiative virtually no one thought would work. As part of a decision
to raise fuel prices, it decided to compensate the nation's poor by
directly handing out $US10 billion in cash - the largest such program
in the world.

Under the plan, 15.5 million households, or 28 per cent of the
population, would get quarterly payments of 300,000 rupiah ($45)
distributed through the nation's post offices. The logistics were
mind-boggling.

Indonesia, the experts warned, was one of the most corrupt countries
in the world and the money would just disappear. The Australian
government, for its part, advised such a system would take two years
to implement. So there was dismay when Jakarta said it would start
sending out the cash almost immediately.

But, to everyone's surprise, this unconditional cash transfer (UCT)
program, as it's known, has proved a huge success. And it has given
Indonesia an important opportunity - the government is considering
extending the payments indefinitely and making them the first plank of
a much-needed social welfare system.

There was a lot riding on the success of this scheme. When President
Susilo Bambang Yudhoyono announced last year he would move to shore up
the nation's struggling budget by cutting fuel subsidies, there was
real concern about further civil unrest. Political observers believed
if anything could spark another descent into anarchy, this was it.

But there was no doubt the government had to act. In 2004, rising fuel
prices meant it was spending more on subsidising fuel than it was on
education. Left untouched, the subsidies would have totalled $US15.5
billion ($21 billion) in 2005.

So in March last year, with much of the nation holding its breath,
Yudhoyono raised domestic fuel prices by 29 per cent. Then in October
he raised prices by another 114 per cent. The unconditional cash
transfer, which began in October, was designed to protect the poor
against these rises and, it was hoped, convince them not to riot in
the streets. It was of course, designed to save Yudhoyono's political
skin as well. Since coming to power in 2004, the country's first
directly elected president had failed to meet his pledge to cut
poverty in half, keep prices in check and increase employment.

Under the scheme, poor households were defined as those with a monthly
income up to Rp 175,000.

Luckily for the President - and for Indonesia as a whole - the cash
transfers went off without a hitch. In a country where little seems to
work properly or efficiently, somehow the bulk of the money got to the
vast bulk of the people who needed it.

Distributing the cash through post offices worked efficiently and was
largely corruption free. Simple things like publicly listing families
receiving the payments also helped local communities monitor whether
wealthier households were rorting the system.

"Considering that the program was prepared in a few months, the UCT
performed remarkably well," the World Bank concluded last week. "Given
the scale of the UCT and the time line to create it, this is a
remarkable achievement.

"The fact that the sharp increase in fuel prices passed without major
public protest is further evidence that the program has largely
achieved its objectives."

Fiscally, the program was also a success. Giving cash to the poor
directly helps the economy at a time when it needed it, while cutting
the fuel subsidies mainly hurt the well-off because they were the ones
using the most fuel.

At last week's meeting of the Consultative Group on Indonesia - a
collection of the country's main foreign donors - Co-ordinating
Minister for the Economy Boediono made his strongest comments yet that
the government plans to extend the cash payments beyond the end of
this year.

Addressing delegations from about 30 countries, Boediono said he
wanted to use the payments to create a welfare system. There are now
no transfers from the government to the public, no old-age pension, no
sickness benefits, nothing.

But, rather than being unconditional, he indicated future payments
would be tied to health and education benefits. For example, families
would get these payments only if they sent their children to school,
got them vaccinated or attended antenatal services.

"He talks as if this is the beginning of a social welfare safety net
in Indonesia, which they've never had before," a diplomat who was at
the meeting says.

"This was the strongest indication I've heard from him that they're
going to do something. It looks as though the payments are definitely
going to stay."

In a nation where unemployment is at about 10 per cent and about
another 30 per cent of the workforce is underemployed, the success of
the cash transfer program has raised hopes that Indonesia's poor will
finally get some much needed help.

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Joyo Indonesia News Service
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