Introduction: Unleashing Poverty Reduction in Emerging Asia Mr. Chairman, Excellencies, Ladies and Gentlemen; I am delighted to be part of this Conference on “Promoting Growth and Ending Poverty”. I thought if I could come here and figure out how to do that – promote growth and end poverty – it would be a good use of time! No, we are not modest in our objectives in Indonesia either. Promoting Growth and Ending Poverty is part of the terms of reference of our Cabinet. I would like to use this opportunity to share some of the challenges this means to decision makers in Asian countries – and to challenge all of you; to help us achieve these objectives. We take pride in the fact that there has been a faster decline in poverty in Asia over the past 3 decades than perhaps anywhere else in the world over any similar period of time in history. In Indonesia, the share of people under the national poverty line has fallen from 40 percent in the mid-1970s to close to 15 percent today. In the past 20 years, three-quarters of global poverty reduction in the developing world has happened in China. The percent of people living under a dollar a day in Asia has declined from close to 35 percent in 1990 to about 20 percent in 2003. Yet the “End of Poverty” is not upon us. Asia still has 70 percent of the world’s population under 2 dollars a day. Moreover, after the rapid rates of poverty reduction of the past 30 years, now we get to a more difficult stage. How do we sustain continued poverty reduction; and how do we tackle the difficult second generation issues facing many of our countries? Let me suggest that we need to focus our energies on 3 areas going forward. First we need to make growth work for the poor. Second, we need to make services work for the poor. And, third, we need to make social protection work for the poor. Each poses its own set of challenges. And to address them, we need to think hard about how we can work in partnership for the poor. 1. We Need to Make Growth Work for the Poor Our own experience in Indonesia has shown that growth is perhaps the single most important driving force behind poverty reduction. We, like many of you, are attempting to harness an ongoing structural transformation – a virtuous cycle of growth and poverty reduction.
How can we sustain pro-poor growth? First, we must get growth to the poor -- by helping enhance productivity in agriculture and generating non-farm employment. In most of our countries, poverty continues to be predominantly rural. And the land constraints faced in many of our densely populated Asian nations makes this all the more imperative. Second, we must also get the poor to growth. We must connect the rural poor to growth markets, including in urban areas. And it is also becoming important to get the non-agriculture based poor into more productive jobs. Making growth work for the poor is not without its challenges for policy makers. Some of the implications are self-evident; but so too are the difficulties.
But this is easier said than done. In Indonesia, for example, I face a number of challenges on this front. One tough issue --- that is shared by many of our countries --- is that of poverty in remote areas. While 60% of Indonesia’s poor live on densely populated Java (where the poverty rate is 15%), 3% of our nation’s poor live in the remote areas of Papua, East Indonesia (where the poverty rate is 40%). This poses a great dilemma; on the margin, should I allocate resources to connecting many more of the poor to the growth hubs of Java? Or, should the money go to the much more expensive costs of connecting up the fewer but more marginalized poor in our nation’s remote regions? Clearly there are equity questions here, as there are political issues.
2. We Need to Make Services Work for the Poor Services delivery is often not working for the benefit of the poor. Despite reductions in income poverty, we continue to see weak results in human development outcomes, which are poverty indicators in themselves. It also undercuts the positioning of our Asian countries if we are to compete in the global market place -- with an educated, competitive, and healthy workforce. Asians deserve better human development outcomes and quality services to help achieve them. Progress in increasing the percentage of births attended by skilled health personnel has been uneven in Asia and lacking in several countries, including my own. Not surprisingly, the reduction of maternal mortality in Asia has not been as strong as it should. In education, poor children are dropping out of school too early. In Indonesia, the transition rate to junior secondary school needs to be improved, especially among poorer households and more remote areas. Access to clean water and sanitation is also lagging. The provision of services to Asia’s poor has taken on a new dimension with rapid urbanization. Asian countries including China, India, Indonesia, Bangladesh and Pakistan have urbanized rapidly over the last 30 years, and all are projected to continue doing so over the next two decades. The urban poor also lack access to basic amenities and affordable services. At least one in three of Asia’s urban population do not have safe and secure housing, and often lack access to basic services, water and sanitation. To halt and reverse the rapid spread of HIV/AIDS in the region represents an enormous challenge. Overall HIV rates in the region are low in most countries, but effective prevention programs are needed to stop further spread from high risk groups. How can we ensure that services are better delivered to the poor?
Rapid growth in the region provides governments with increasing resources to address difficult issues such as regional disparities and excluded and marginalized groups. This creates potential for addressing some of the harder-to-achieve MDG targets. In Indonesia, we are trying to make spending more pro-poor by focusing on investments in basic infrastructure (such as roads, water, and irrigation) and in the social sectors (namely in health and education). But how do I go about spending more on the poor when what matters to them differs so much by region, and by rural versus urban areas? In Java, for example, additional spending to increase primary enrollment is not the problem; but in Papua it still remains very much a problem. Decentralization, in theory, helps address this issue. In Indonesia, now as much as one-third of all public spending is under the authority of local governments. But there are challenges here too. For example, I mentioned that connecting the rural poor to growth is a national priority for poverty reduction. However, now rural roads are the responsibility of local governments. How does the central government ensure that more is spent by local governments in a pro-poor fashion, say by increasing spending on rural roads and their maintenance? These are difficult questions, without easy solutions.
As Finance Minister, I know that throwing more money at pro-poor sectors alone does not buy us results in better service delivery for the poor. In order to improve the effectiveness in spending, we need to improve performance and accountability at all levels of government. There are several ways in which we can think about doing this. • Let’s make funding flows more transparent. We need to do so to avoid the risk of diversion of public resources as well as that of just plain bad public management. In Uganda, simply publishing data on district and school budgets resulted in a 12 percent increase in the funds actually reaching front line providers. We would like to undertake a public expenditure tracking exercise for some of our programs in Indonesia, but the task is more complicated in the context of multiple funding flows under decentralization. • Let’s increasingly use the voice of the client to improve the quality of services. In India, citizen score cards have helped do this. In Indonesia, for this purpose we also use community based approaches. Empowering communities to choose, implement, and monitor their own services is an effective approach to directing service delivery to the poor. Community-driven development projects are not only useful for the hard infrastructure they produce, but also for increasing the capacities and empowerment of communities involved. They are also cost-effective. A study by our Ministry of Planning has found that some of our community driven development programs result in cost savings in excess of 50% relative to contractor-executed construction of community infrastructure while also leveraging community contribution to financing. • Let’s also adopt a culture of monitoring expenditure programs for results. For example, recently in Indonesia we launched new programs in health, education, and village infrastructure. One of my concerns is whether service providers under these programs are made accountable enough to the clients or intended beneficiaries, namely the poor. Indeed, block grants to under-funded service providers such as schools, clinics, and villages are one way to improve service delivery. But how can we ensure that they then have the incentives to serve the poor? We are undertaking a basic assessment of the effectiveness of these programs in order to check upon and improve their design in this regard.
Let’s face it. Sometimes the poor would be much better served if they did not have to rely on the public sector for service delivery. In some instances quality is marginal at best. And competition in service delivery between the public and private sector, when it does occur, is not a bad thing in this regard. In other instances, especially in remote areas, the public sector facilities are just not there. One option is that of contracting-out the private sector or NGOs to deliver services on behalf of government, especially in remote areas. In Cambodia, the contracting-out of health services by the public sector to NGOs did increase access to health care. Government can facilitate and strengthen the capacity of the private sector to deliver services to the poor. In Indonesia, this may be relevant in the health sector, where the poor make use of private providers, such as midwives, just as much as they use public health clinics. So the question I am faced with is this; do I increase funding to an under capitalized public health system in the hope that it can expand service delivery to the poor? Or should we facilitate and encourage the private sector and NGOs to do more? The answer is probably both. But clearly the more we rely on delivery of fundamental public health services by the private sector and NGOs, the more pressing become questions such as: How do we regulate while we facilitate? And how do we ensure that the private sector has incentives to deliver a public good to the poor with appropriate coverage and quality, even if we subsidize these services using public funds? In Indonesia, these are not hypothetical questions but ones that we are actively struggling with.
A key challenge to making services reach the poor is considering how best to target the poor. There is targeting that can be done at different levels, for different purposes. In Indonesia, we need to consider each; and each poses its own challenges.
3. We Need to Make Social Protection Work for the Poor The poor and near poor are particularly vulnerable to shocks of all sorts – whether it be natural disasters; price changes; localized economic downturns; or household health crises. There is a danger that these shocks can throw families into poverty traps from which they cannot escape. In Indonesia, with almost 25 percent of the population being “near poor” – or living above our national poverty line but below $2 a day -- this is particularly an issue. Marginalized groups – such as migrants, urban slum dwellers, or disabled people – are often the least able to cope and recover from shocks. While households and communities can take matters into their own hands to mitigate and cope with shocks, often informal risk pooling mechanisms are not available. As incomes rise and Asian nations go through both structural and demographic transformations, our governments need to consider taking measures to protect the poor – either through public action or the facilitation of private action -- a challenge in addition to that of reducing poverty. Sometimes, risk sharing crosses national boundaries. A dramatic example of this, of course, was the tsunami disaster of 2004. Here it was truly a global pooling of efforts that is allowing many of our countries to recover, including the poor and newly poor. Please allow me take this opportunity to thank all of you, our development partners and our Asian neighbors for your assistance in our time of need. Similarly we must continue to extend our helping hands to Pakistan and India following last year’s earthquake. Indonesia is currently in the midst of a major re-orientation of its social protection and transfer programs. One of my most challenging undertakings since joining the Cabinet has been to help Indonesia move from a massive but regressive, general fuel subsidy to a more targeted cash transfer program. Of our US$ 8 billion fuel subsidy in 2004, only 8.5 percent of this amount ever reached the poorest quintile. Believe me, doubling fuel prices was not politically an easy route. But it was necessary; and we are committed to make it work for the poor. We have re-allocated some US$ 3 billion of these savings to fund 4 major poverty programs. One of these programs, that has assisted in mitigating the impact of the fuel price increase on the poor, is in fact a major-targeted social protection program. The SLT Program is now the world’s largest unconditional cash transfer program, reaching some 18 million of our poorest households. Our work in designing a social protection program is far from done. We are actively exploring transforming the Unconditional Cash Transfer program into a Conditional Cash Transfer program. Such a program would allow for income support to poor households while also leveraging household behavioral change to allow us to make better progress toward key human development outcomes, such as improving transition rates to junior secondary school among the poor, lowering maternal mortality and malnutrition rates among children. Likewise, we are considering a self-targeted work-fare program to address the commonplace issue of localized economic shocks. There’s a lot we can learn from fellow Asian countries, such as Bangladesh, as well as from experiences from other regions, such as Brazil and Colombia in Latin America, where targeted and conditional cash transfers have been shown to be cost effective and achieved results. But in the end, the challenges of designing social protection programs are very country specific, and here again we are struggling with difficult issues. For instance, is household-level targeting as opposed to community-level targeting the way to go when almost half our population remains below $2 a day? How viable are conditional cash transfers given the inaccessibility of poor households in remote areas to public health and education facilities? And a separate issue we are grappling with linked to social protection, is that of social insurance. In the face of our demographic transition and aging workforce in Asia, will new Middle Income Countries (such as Indonesia) be ready to adopt full-fledged social security systems, including pension and health insurance? Can we afford it? These are the kinds of issues that keep a Minister of Finance awake at night.
Partnerships for Poverty Reduction Mr. Chairman, Excellencies, Ladies and Gentlemen; I have laid out 3 areas where I believe we need to take action if we are to fulfill the promise of “promoting growth and ending poverty”. No, the development and poverty reduction agenda for Asia is not done. We have come a long way; and we have some way’s to go. As I have outlined, the challenges and choices that we all face at this juncture of our development process are not straight-forward. Others have gone before us, and others may follow, but we will need to come up with our own solutions, relevant at this point of our transformation, this era, and this region. It is also clear to me that we must come together, to address these difficult issues, in partnership. First, we, the leaders of Asia, must learn from each other. There is huge scope for South-South knowledge sharing within Asia. My country will want to learn from the regional development experiences of China and the experiences of social protection programs in India, for example. And in Indonesia, we have some experiences to share that I am sure would be of relevance to many of you. Second, we also need the continued support of our development partners throughout the world. But you must also recognize the nature of the challenges we face; the political economy we operate in; and the specificity of our needs. In Indonesia, let me assure you that we are quite focused on the objectives of poverty reduction – and in getting results. Our objectives are plainly stated in our medium term plan, and these will be the results against which our Government is judged. As we articulate our reform and program agenda to achieve our poverty reduction objectives, we would like to have your financial and technical support. In particular, I would be grateful to see financial support harmonized in line with our own development agenda. I welcomed the recent example of program financing by the World Bank, jointly with ADB and Japan, in support of our extensive reform agenda. I would like to propose an increase in such program support -- specifically backing our poverty reduction agenda and our program to achieve Indonesia’s Development Goals, in line with the Millennium Development Goals. This is an approach more generally applied in low income countries. But I trust we will come away from this Conference with an agreement that indeed the challenge of poverty reduction has unfortunately not just “gone away” as our Asian countries move through the Middle Income Country threshold. Rather, it remains – perhaps different in nature and all the more challenging to address. This is an argument for your continued support and for appropriate modalities to back it. Aid effectiveness is something we all care about. Neither you nor we want scarce aid resources not coordinated or used effectively. Key to this is country-led efforts to reduce poverty. I know that for your development efforts to be aligned to support us, we -- the leaders of Asia -- must lead the vanguard to unleash poverty reduction in Asia. It is only in that way that you – our partners -- can fall in to support us. Indeed it is the challenge of our century to put an end to poverty. I am committed to this goal. I think we all are. Let’s do it together. Bersama kita bisa. Together we can do it. |
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