Indonesia’s Recent Economic Developmentsand Inclusive Growth under Jokowi

Arief Anshory Yusuf - Universitas PadjadjaranAndy Sumner - King’s College, London

Forum Kajian Pembangunan, 7 October 2015 Smeru Research Institute, Jakarta

Outline of the presentation

Recent economic development

•Economic growth

• Inflation, prices and poverty

•Balance of payment

•Fiscal policies

A note on inclusive growth under Jokowi

•Direction and current status

•The ‘GoJek’ economy: A new model of inclusive growth in Indonesian cities?

1 2

4.72

4.67

0

1

2

3

4

5

6

7

Jul,

20

09

Sep

, 20

09

No

v, 2

009

Jan

, 20

10

Ma

r, 2

010

Ma

y, 2

010

Jul,

20

10

Sep

, 20

10

No

v, 2

010

Jan

, 20

11

Ma

r, 2

011

Ma

y, 2

011

Jul,

20

11

Sep

, 20

11

No

v, 2

011

Jan

, 20

12

Ma

r, 2

012

Ma

y, 2

012

Jul,

20

12

Sep

, 20

12

No

v, 2

012

Jan

, 20

13

Ma

r, 2

013

Ma

y, 2

013

Jul,

20

13

Sep

, 20

13

No

v, 2

013

Jan

, 20

14

Ma

r, 2

014

Ma

y, 2

014

Jul,

20

14

Sep

, 20

14

No

v, 2

014

Jan

, 20

15

Ma

r, 2

015

Ma

y, 2

015

Economic Growth Quarterly yoy (%)

Jokowi's inauguration

Recent economic growth performanceGrowth in quarter 2, 2015 is slightly slower than quarter 1. The slowest in 5 years. Growth coincides with the declining world commodity prices.

0

20

40

60

80

100

120

140

160

Jan-

09

May

-…

Sep

-09

Jan-

10

May

-…

Sep

-10

Jan-

11

May

-…

Sep

-11

Jan-

12

May

-…

Sep

-12

Jan-

13

May

-…

Sep

-13

Jan-

14

May

-…

Sep

-14

Jan-

15

May

-…

Monthly Commodity Price Index (2011M1=100)

Coal Copper Crude Oil Palm Oil Rubber

A comparative perspective

Indonesia is doing better than most of the other “fragile-5”, but worse than other relevant comparators despite the urgent need to catch-up.

7.20

6.32

5.55

4.95

4.67

2.50

1.16

-1.56

-2.00 0.00 2.00 4.00 6.00 8.00

India

Vietnam

Philippines

Malaysia

Indonesia

Turkey*

South Africa

Brazil*

Economic Growth 2015q2 (YoY)

4.23

4.43

4.87

5.02

5.54

- 1.00 2.00 3.00 4.00 5.00 6.00

Indonesia

Lower middle income

Low & middle income

Middle income

Upper middle income

GDP per capita growth 2004-2014 (%)

Note: Fragile-5 is emerging countries that are dependent on natural resource exports.

Sectoral growth in quarter 2Extractives growth was a record low. Trade sector, the biggest non-tradable slowed down significantly.

Quarterly Sectoral Growth YoY (%)

Q1 Q2 Q3 Q4 Q1 Q2 Share

Agriculture, Forestry and Fisheries 5.3 5.0 3.6 2.8 4.0 6.6 11.4

Mining & Quarrying -2.0 1.1 0.8 2.2 -1.2 -5.9 9.5

Manufacturing Industry 4.5 4.8 5.0 4.2 4.0 4.4 21.8

Electricity & Gas Supply 3.3 6.5 6.0 6.5 1.7 0.8 1.1

Water Supply, Sewerage, Waste & Recycling Mgt. 3.6 3.2 2.8 2.7 2.3 2.2 0.1

Construction 7.2 6.5 6.5 7.7 6.0 5.4 10.2

Wholesales & Retail Trade, Vehicle Repair 6.1 5.1 4.8 3.5 4.0 1.7 13.5

Transportation & Storage 8.4 8.5 8.0 7.1 6.3 6.6 4.0

Accommodation & Food Beverages Activity 6.5 6.4 5.9 4.9 3.6 3.9 3.0

Information & Communication 9.8 10.5 9.8 10.0 10.1 9.6 4.6

Financial & Insurance Activity 3.2 4.9 1.5 10.2 7.6 2.5 3.8

Real Estate 4.7 4.9 5.1 5.3 5.3 5.0 3.0

Business Services 10.3 10.0 9.3 9.7 7.4 7.6 1.6

Public Adm., Defense & Compulsory Social Security 2.9 -2.5 2.6 6.9 4.7 6.5 3.7

Education Services 5.2 5.4 7.3 7.1 5.9 12.2 3.5

Human Health & Social Work Activity 7.7 8.5 9.9 6.1 7.3 8.2 1.1

Other Services 8.4 9.5 9.5 8.4 8.0 8.1 1.6

Gross Domestic Product 5.1 5.0 4.9 5.0 4.7 4.7

Source: BPS

Sector2014 2015

PapuaProv, 12.88

KalTim, -0.25

KalBar, 4.01

KalTeng, 6.98

SumSel, 4.87

PapuaBar, 7.39

SumUt, 5.11

RiauProv, -2.64

NAD, -1.76

Jambi, 5.04 SulTeng, 15.72

JaTim, 5.23

SulaSel, 7.07

JaBar, 4.97

KalSel, 3.20

JaTeng, 4.84

SumBar, 5.27

Lampung, 5.07

SulTra, 7.45

MalUt, 6.54

NTT, 5.03

Bengkulu, 5.33Maluku, 5.59

SulBar, 8.40

NTB, 17.75

SulUt, 6.27

BaBel, 3.93

Gorontalo, 6.37

Banten, 5.26

DIY, 4.76

KepRi, 5.57

Bali, 6.02

DKI, 5.15

gPDRB minus

gPDRB <4

4.01 < gPDRB < 5.00

5.01 < gPDRB < 6.00

6.01 < gPDRB < 7.00

gPDRB > 7.01

Region and Provinces Economic Growth 2015 Quarter 2

A regional perspectiveThe end of commodity boom is reflected in regional growth.

5.2 4.8 4.0 3.6

- 2 4 6 8

10

III IV I II

2014 2015

SUMATERA

5.4 5.9 5.0 5.0

- 2 4 6 8

10

III IV I II

2014 2015

JAWA

4.4 4.3 4.0 3.5

- 2 4 6 8

10

III IV I II

2014 2015

KALIMANTAN6.0 5.7

6.78.7

- 2 4 6 8

10

III IV I II

2014 2015

KTI

Source: Bank Indonesia

Growth by expenditureExports still contracting. Investment and government consumption were the dominant factors. Private consumption is at a record low. Big import contraction.

4.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Q1 Q2 Q3Q4 Q1 Q2 Q3Q4Q1Q2 Q3 Q4Q1Q2

2012 2013 2014 2015

GDP

4.97

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015

Private Consumption

2.28

-5.0

0.0

5.0

10.0

15.0

20.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015

Government

3.55

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015

Investment

-0.13

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015

Export

-6.85

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015

Imports

Weaker consumption signalsThe consumer confidence index, vehicle sales and farmer’s real wage indicate weaker consumption throughout the year in 2015 and the trend is likely to continue.

0

20000

40000

60000

80000

100000

120000

140000

Jan

-12

Ap

r-1

2

Jul-

12

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-12

Jan

-13

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r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Vehicle sales

37000

37500

38000

38500

39000

39500

40000

Jan

-14

Ma

r-14

Ma

y-1

4

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Ma

r-15

Ma

y-1

5

Jul-

15

Farmer's real wage

90

95

100

105

110

115

120

125

Jan

, 2

01

0

Mar

, 201

0

May

, 201

0

Jul,

2010

Sep

, 20

10

Nov

, 201

0

Jan,

201

1

Mar

, 201

1

Ma

y, 2

01

1

Jul,

2011

Sep

, 20

11

Nov

, 201

1

Jan,

201

2

Mar

, 201

2

Ma

y, 2

01

2

Jul,

2012

Sep

, 201

2

Nov

, 201

2

Jan

, 2

01

3

Mar

, 201

3

Ma

y, 2

01

3

Jul,

2013

Sep

, 201

3

Nov

, 201

3

Jan

, 2

01

4

Mar

, 201

4

May

, 201

4

Jul,

2014

Sep

, 20

14

Nov

, 201

4

Jan

, 2

01

5

Mar

, 201

5

May

, 201

5

Jul,

2015

Sep

, 20

15

Consumers Confidence Index

InflationInflation is quite high in 2015.

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

-2

3

8

13

18

Jan,2014

Feb,2014

Mar,2014

Apr,2014

May,2014

Jun,2014

Jul,2014

Aug,2014

Sep,2014

Oct,2014

Nov,2014

Dec,2014

Jan,2015

Feb,2015

Mar,2015

Apr,2015

May,2015

Jun,2015

Jul,2015

Aug,2015

Sep,2015

Ru

pia

hs

per

cen

t

Inflation and fuel price Jan'14 - Sep'15

Fasting Month YTD Headline Core Administered Volatile Inflation target BBM

Jokowi's inauguration Fuel price

Volatile

Headline

Core

Administered

Inflation target

Fasting month

Food price inflationEscalation of staple prices in early 2015. Import restriction may have contributed to the price volatility.

Beef traders’ strike

Baso sellers’s strike

80

85

90

95

100

105

110

115

120

125

130

1-J

an-1

4

1-Fe

b-1

4

1-M

ar-1

4

1-A

pr-

14

1-M

ay-

14

1-Ju

n-14

1-J

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4

1-A

ug-

14

1-S

ep-1

4

1-O

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4

1-N

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4

1-D

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4

1-Ja

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5

1-F

eb-1

5

1-M

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1-A

pr-

15

1-M

ay-

15

1-Ju

n-15

1-Ju

l-15

1-A

ug-

15

1-Se

p-1

5

Index of the price of selected staples 15-Sept-14=100

Rice Sugar Chicken Egg Beef

Jokowi's inauguration

Mid Sept = 100 Mid March

Fasting month

Chicken pouridge sellers’ “strike”

Government responsesGovernment blamed the volatility on rent-seekers. Police attempted to criminalise speculations.

Mafia beras

Mafia sapi

Mafia garam

Mafia dwelling time

Man of the Year

Mafia BBM

El NinoEl Nino is coming. Government is confident with food stock. Experts less sure.

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan

-Ap

rM

ay-

Au

gSe

p-D

ec

Jan

-Ap

rM

ay-

Au

gSe

p-D

ec

Jan

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Jan

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ec

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

ON

I

Oceanic Nino Index (ONI)

19

97

dro

ugh

t

Impact on poverty(1) Large increase in rice price, 17% in 6 months (2) economic slowdown (3) delayed disbursement of fuel subsidy compensation increase poverty.

10.96

11.22

5

7

9

11

13

15

17

19

Mar

-09

Ma

y-0

9

Jul-

09

Sep

-09

Nov

-09

Jan-

10

Mar

-10

Ma

y-1

0

Jul-

10

Sep

-10

Nov

-10

Jan-

11

Mar

-11

Ma

y-1

1

Jul-

11

Sep

-11

Nov

-11

Jan-

12

Mar

-12

Ma

y-1

2

Jul-

12

Sep

-12

Nov

-12

Jan-

13

Mar

-13

Ma

y-1

3

Jul-

13

Sep

-13

Nov

-13

Jan-

14

Mar

-14

Ma

y-1

4

Jul-

14

Sep

-14

Nov

-14

Jan-

15

Mar

-15

0

2000

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6000

8000

10000

12000

14000

16000

Pove

rty

inci

den

ce (

%)

Rea

l pri

ce o

f ri

ce (

Rp)

Poverty incidence and r ice pr ice

Real Rice Price Urban poverty Rural poverty Total overty

Rice price

Rural poverty

National poverty

Urban poverty

Sept'14 to March '15

Poverty increase and fuel subsidy reformFuel price become the culprit again. After the government backsliding, it can be another setback on the political economy of the fuel pricing reform.

Exhange rateThe Rupiahs depreciation was not the worst among the ‘fragile-5’. Yuan devaluation had a big impact. REER started to depreciate in 2015.

60

65

70

75

80

85

90

95

100

105

110

1/6/

201

5

1/2

0/2

01

5

2/3/

201

5

2/17

/201

5

3/3/

201

5

3/1

7/2

01

5

3/31

/201

5

4/14

/201

5

4/2

8/2

01

5

5/12

/201

5

5/26

/201

5

6/9/

201

5

6/2

3/2

01

5

7/7/

201

5

7/21

/201

5

8/4

/20

15

8/18

/201

5

9/1/

201

5

9/15

/201

5

9/2

9/2

01

5

BrazilChinaIndiaIndonesian rupiah (IDR)MalaysiaPhilippineSingaporeSouth Africa

China devaluation

70

75

80

85

90

95

100

105

Jan-

13

Ap

r-1

3

Jul-

13

Oct

-13

Jan-

14

Ap

r-1

4

Jul-

14

Oct

-14

Jan-

15

Ap

r-1

5

Jul-

15

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

REE

R I

nd

ex

Rp

/US$

Exchange rate

REER

Q1* Q2* Q3* Q4* Q1* Q2**

I. Current Account -29,109 -4,911 -9,588 -7,035 -5,952 -4,097 -4,477

A. Goods 5,833 3,350 -375 1,560 2,448 3,063 4,118

- Exports, fob 182,089 43,937 44,505 43,606 43,245 37,827 39,674

- Imports, fob -176,256 -40,588 -44,880 -42,046 -40,797 -34,764 -35,556

B. Services -12,070 -2,131 -2,831 -2,485 -2,561 -1,857 -2,645

C. Primary Income -27,050 -7,214 -7,916 -7,314 -7,235 -6,724 -7,369

D. Secondary Income 4,178 1,085 1,534 1,204 1,397 1,422 1,420

II. Capital Account 45.3 1.2 7.2 3.3 14.9 0.9 0.3

III. Financial Account ² 21,926 7,063 13,915 14,723 8,922 6,313 2,484

1. Direct Investment 12,170 3,229 3,710 5,994 3,030 2,307 3,626

2. Portfolio Investment 10,873 8,730 8,045 7,409 1,873 8,796 5,774

3. Financial Derivatives -334 -140 45 -57 -61 93 21

4. Other Investment -783 -4,755 2,115 1,378 4,081 -4,883 -6,936

a. Assets -3,427 -4,066 375 -2,886 2,283 -4,900 -4,478

b. Liabilities 2,645 -689 1,740 4,264 1,798 18 -2,458

- Public Sector -1,376 -1,534 -295 -613 -1,766 -1,144 -1,366

- Private Sector 4,020 846 2,035 4,877 3,564 1,162 -1,091

IV. Total (I + II + III) -7,139 2,154 4,334 7,691 2,986 2,217 -1,992

V. Net Error and Omissions -186 -88 -38 -1,216 -575 -914 -933

VI. Overall Balance (IV + V) -7,325 2,066 4,297 6,475 2,410 1,303 -2,925

- Reserve Assets Position 99,387 102,592 107,678 111,164 111,862 111,554 108,030

In Months of Imports* 5.5 5.7 6.1 6.3 6.5 6.6 6.8

- Current Account (% GDP) -3.2 -2.3 -4.3 -3.0 -2.7 -1.9 -2.1

2013 2014 2015ITEMS

Balance of payment in quarter 2Trade surplus increased, current account deficit is declining. Capital inflows were at the lowest level since 2013. Reserve slighlty declined. Tight monetary policy.

Government revenue (to August 2015)Gov’t set an ambitious tax revenue target. It is most likely not met. Yet, nominal growth is prospective.

2013

APBN APBNGrowth

(%)

To

August% APBN

Growth

(%)

To

August%

REVENUES & GRANTS 1,529.7 1,635.4 6.9 931.4 57.0 1,761.6 7.7 867.2 49.2

Domestic Revenues 1,525.2 1,633.1 7.1 930.2 57.0 1,758.3 7.7 867.1 49.3

Tax 1,193.0 1,246.1 4.5 692.8 55.6 1,489.3 19.5 698.9 46.9

Domestic 1,134.3 1,189.8 4.9 663.0 55.7 1,440.0 21.0 676.3 47.0

Income Tax 584.9 569.9 -2.6 341.6 59.9 679.4 19.2 357.0 52.5

Oil and Gas 71.4 83.9 17.5 51.8 61.7 49.5 -41.0 36.0 72.8

Non-Oil and Gas 513.5 486.0 -5.4 289.8 59.6 629.8 29.6 321.0 51.0

Value Added Tax 423.7 475.6 12.2 242.3 51.0 576.5 21.2 237.2 41.1

Other 125.7 144.4 14.9 79.1 54.8 184.1 27.5 82.0 44.6

International trade tax 58.7 56.3 -4.1 29.8 52.9 49.3 -12.4 22.7 46.0

Non-Tax 332.2 386.9 16.5 237.4 61.4 269.1 -30.4 168.2 62.5

Natural Resource Revenue 197.2 241.1 22.3 144.6 60.0 118.9 -50.7 75.2 63.3

Profit transfer from SOE's 33.5 40.0 19.4 33.5 83.6 37.0 -7.5 32.1 86.9

Other 101.5 105.9 4.3 59.3 56.0 113.2 6.9 60.8 53.7

Grants 4.5 2.3 -48.7 1.2 54.3 3.3 43.5 0.2 4.8

2014 2015

Government expenditure (to August 2015)Massive increase in capital expenditure but low realisation. It can be pro-cyclical.

2013

APBN APBNGrowth

(%)

To

August% APBN

Growth

(%)

To

August%

EXPENDITURE 1,683.0 1,876.9 11.5 1,050.4 56.0 1,984.1 5.7 1,054.2 53.1

Personnel 241.6 258.4 7.0 165.9 64.2 293.1 13.4 191.5 65.3

Material 200.7 195.2 -2.8 82.6 42.3 238.8 22.3 86.5 36.2

Capital Expenditures 184.4 160.8 -12.8 48.6 30.2 275.8 71.5 56.9 20.6

Interest Payment 113.2 135.5 19.7 86.2 63.6 155.7 14.9 97.4 62.6

Interest of Domestic Debt 80.7 120.6 49.4 77.3 64.1 141.2 17.1 89.2 63.1

Interest of Foreign Debt 32.5 14.9 -54.2 9.0 60.1 14.5 -2.7 8.2 56.9

Subsidy 317.2 403.0 27.0 248.5 61.7 212.1 -47.4 129.1 60.9

Energy 274.7 350.3 27.5 220.7 63.0 137.8 -60.7 87.0 63.1

Fuel 0.0 246.5 162.4 65.9 64.7 -73.8 49.9 77.1

Electricity 0.0 103.8 58.3 56.1 73.1 -29.6 37.2 50.8

Non Energy 42.5 52.7 24.1 27.8 52.8 74.3 41.0 42.1 56.6

Grant 3.6 2.9 -19.9 0.2 5.8 4.6 58.6 0.3 5.8

Social Assistance 73.6 96.7 31.4 51.4 53.1 107.7 11.4 58.1 54.0

Other 20.0 27.9 39.6 1.7 6.1 31.7 13.6 1.6 5.1

Transfers to regions 528.6 596.5 12.8 365.3 61.2 664.6 11.4 432.9 65.1

Village Fund 0.0 20.8 16.5 79.4

BALANCE -153.3 -241.5 -119.0 -222.5 -187.0

2014 2015

Fuel subsidy reform

• Remove premium subsidy. Introduce fixed subsidy for solar

• Created Rp 175T of fiscal space

• Backsliding?

August Reshuffle

• Three coordinating minister

• Trade Ministers

• Head of Bappenas

September Package I

• Deregulation

• Accelerating strategic projects

• Boosting property

• Village fund, Raskin, interest subsidy.

• BI maintaining financial stability

September Package II

• Simplify investment permits

• Relax import regulation

• Cut income tax for exporters (interest)

Four important government policies/responses

Recent economic development:

Main messages

Challenges

1. China’s slowdown and commodity prices constrained growth

2. Risk of sluggish domestic demand

3. Price volatility undermining poverty reduction efforts.

4. Capital spending delay has created sub-optimal economic stimulus

5. Rising economic nationalism, interventionism and policy flip flops giving mixed signals on reform credibility

Optimism

1. Fiscal space is not constrained by large fuel subsidy

2. Improved medium term growth prospect thanks to infrastructure boost

3. Trade balance is improving

4. Despite questions on its effectiveness, gov't took some positive actions (Reshuffle & September package)

Room for improvements

Need to plan a transformative policy package to improve openess and competitiveness.

Stop sending mixed policy signals on economic reforms (e.g., fuel subsidy)

Swim “with” not “against” the tide when market need intervention.

Politically a “strong” Jokowi is necessary for better economic prospects

Inclusive growth under JokowiDirection and current status

BackgroundInequality has been rising.

0.32

0.41

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

1993

1994

19

95

1996

1997

1998

1999

2000

2001

2002

2003

20

04

2005

2006

2007

2008

2009

2010

2011

2012

2013

Gini coefficient

7.4

12.0

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

19

93

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

20

08

20

09

2010

2011

2012

2013

Decile dispersion ratio

Expenditureratio of the 10% richest to the 10% poorest

Jokowi campaignA new hope for the poor?

Jokowi’s Medium Term Development Plan (RPJMN)Poverty 7-8%, Gini 0.36 in 2019 through employment creation, social protection and basic service provision.

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Gin

i Ind

ex &

Pov

erty

Inc

iden

ce (

%)

Eco

no

mic

Gro

wth

(%

) & U

ne

mp

loym

en

t R

ate

(%)

Economic Growth, Gini Index & Poverty Incidence

GDP Growth (%) GDP growth*

GDP growth** Gini Index

Poverty Incidence (%) Poverty*

Poverty* Gini Index*

RPJMN

IMF

RPJMN

Gini

Growth

Poverty

Note that Gini coefficient now become one of the explicit target in RAPBN. 2015 = 0.40

Impact on poverty(1) Large increase in rice price, 17% in 6 months (2) economic slowdown (3) delayed disbursement of fuel subsidy compensation increase poverty.

10.96

11.22

5

7

9

11

13

15

17

19

Mar

-09

Ma

y-0

9

Jul-

09

Sep

-09

Nov

-09

Jan-

10

Mar

-10

Ma

y-1

0

Jul-

10

Sep

-10

Nov

-10

Jan-

11

Mar

-11

Ma

y-1

1

Jul-

11

Sep

-11

Nov

-11

Jan-

12

Mar

-12

Ma

y-1

2

Jul-

12

Sep

-12

Nov

-12

Jan-

13

Mar

-13

Ma

y-1

3

Jul-

13

Sep

-13

Nov

-13

Jan-

14

Mar

-14

Ma

y-1

4

Jul-

14

Sep

-14

Nov

-14

Jan-

15

Mar

-15

0

2000

4000

6000

8000

10000

12000

14000

16000

Pove

rty

inci

den

ce (

%)

Rea

l pri

ce o

f ri

ce (

Rp)

Poverty incidence and r ice pr ice

Real Rice Price Urban poverty Rural poverty Total overty

Rice price

Rural poverty

National poverty

Urban poverty

Sept'14 to March '15

16.9

24.5

112.4

37.3

-175.3

-28.7

-200 -150 -100 -50 0 50 100 150

Health

Education

Infrastructure

Targeted social spending

Fuel subsidy

Electricity subsidy

Change in spending 2014-2015 (Rp Trilion)

Budget reform under Jokowi

High speed Train?

Regressive fuel subsidies have been abolished.

Infrastructure dominates the fiscal space created. Trickle down effect?

High inequality may weaken the the poverty-reducing effect of growth.

More recent literature suggests that inequality is not good for economic growth.

Targeted social spending

0

20

40

60

80

100

120

140

160

180

2014 2015

Targetted social spending programs (Rp Trilion)

Rice for the poor(Raskin)

Direct transfers(BLSM/PSKS)

Family Hope Program(PKH)

PNPM/Village Fund

Health Insurances

Poor StudentsAssistance (BSM)/KIP

School AssistanceProgram (BOS)

Despite several adjustment, Jokowi’s government generally continue the programs that have been implemented during SBY era. Some under different names

(like Bantuan Siswa Miskin/BSM become Kartu Indonesia Pintar/KIP)

These spending is dominated by the education sector. Including non-targeted spending, the total budget spent is Rp 462T (US$38 Billion), 24% of total government budget.

Targeted social spending: SBY and JokowiDon’t change the winning team?

Nomenclature Note on the change Target/beneficiaries Nominal

assistance/target

Total budget

(Rp T)

SBY Jokowi SBY Jokowi SBY Jokowi SBY Jokowi

School Operational

Assistance (BOS)

Same. All Elementary

& junior

secondary

schools

Same. 580,000/st

udents/yy

ear (SD),

710,000

(SMP)

Same. 47.4 65.7

Poor Students

Assistance (BSM)

Kartu

Indonesia

Pintar (KIP)

Target is extended to school-

aged children not attending

school and non-formal school

Poor enrolled

school children

(11.2M)

Poor school-

aged children

(20.3M)

225,000 –

1M/studen

ts/semeste

r

225,000 –

500,000/stu

dents/seme

ster

9.1 15.5

Direct Cash

Assistance, People’s

Temporary Direct

Assistance

(BLT/BLSM)

Program

Simpanan

Keluarga

Sejahtera

(PSKS)

Using saving account, instead

of cash.

15.5M

households

Same. 150,000/

month/

household

Temporary

200,000/m

onth/

household

Temporary

6.4 10.1

Rice for the poor

(Raskin)

Beras

sejahtera?

Talk about changing into

coupon-based (e-money). Now

is extended 2 months as part of

2015 economic stimulus.

15.5M Same. Rp

1,600/kg

Same. 18.2 18.9

Conditional cash

transfer (PKH)

Same. Coverage extension 2x.

Involvement of regional gov’t.

3.2M very

poor

households

6.4M very

poor

households

1.3-

2.8M/famil

y/year,

2013

Same. 4.4 6.4

Health Insurance

Assitance (JKN)

Kartu

Indonesia

Sehat

15.5M Same. 20,000/per

son/month

Same. 23.3 20.4

PNPM Same. Some are retained. 14.6 3.5

None. Village fund

(Dana Desa)

Village fund program has been

legalised since 2014

74,000 villages 280M/

village

20.8

Problems with education spendingDespite its sizable funding allocation, in contrast to other countries, Indonesian spending on secondary education is not pro-poor and on tertiary education is regressive (Lustig, 2015)

Source: Lustig (2015)

The poor’s access to university is more of an exception than the norms

PRIMARY SECONDARY TERTIARY

Pro-poor CC is negative

Same per capita for all; CC=0

Progressive CC positive but lower than market income Gini

Pro-poor CC is negative

Same per capita for all; CC=0

Progressive CC positive but lower than market income Gini

Pro-poor CC is negative

Same per capita for all; CC=0

Progressive CC positive but lower than market income Gini

Regressive CC positive AND higher than market income Gini

Brazil (2009) + + +

Chile (2009) + + +

Colombia (2010) + + +

Indonesia (2012) + + +

Mexico (2010) + + +

Peru (2009) + + +

South Africa (2010) + + +

During the campaign Jokowi promised to give Indonesia KIP (Kartu Indonesia Pintar)

KIP was assumed to be the nationalisation of Kartu Jakarta Pintar (KJP), the initiative he introduced as Jakarta’s governor. KJP is given to children of poor families who are at

school. The assistance is quite substantial Rp 180,000 to Rp 240,000 per students per month.

Yet, KIP is the continuation of the SBY’s program of BSM (Bantuan Siswa Miskin). The coverage of its beneficiaries are expanded, but

the nominal amount of assistance per student is the same as BSM. It is Rp 37,500 to 83,000 per student per month.

Simulation suggest that Jokowi could have reduced the Gini coefficient into 0.40 (2015 target) and reduced poverty significantly if applying KJP nation-wide and still within the new fiscal space.

KIP SimulationFour scenario of students assistance is simulated using SUSENAS data and its impact on Gini coefficient, poverty incidence and its budget is calculated.

Through its direct impact on the poor’s purchasing power (expenditure), If KIP adopt KJP (not BSM) it has a potential of substantially reduce inequality and poverty incidence. Reduce Gini coefficient to less than 0.4 Reduce poverty incidence to less than

10%

It hasn’t taken into account its indirect inequality impact through human capital accumulation.

It is within the new fiscal space relaxed through the abolishment of fuel subsidy.

Gini coefficient Poverty (%) Budget (Rp T)

Scenario 0 No program 0.4094 11.66 0.00

Scenario 1 BSM no extension 0.4051 10.36 7.36

Scenario 2 KIP (BSM with extension) 0.4042 10.06 8.96

Scenario 3 KIP (KJP-like, no extension) 0.3977 8.21 20.90

Scenario 4 KIP (KJP-like, with extension) 0.3953 7.58 26.00

Existing

0.2

.4.6

.81

Cu

mm

ula

tive

dis

trib

ution

11 12.4 13.8 15.2 16.6 18

ly0 lybsm

lykip lykjp1

lykjp2

Prospect of inclusive growth under Jokowi

1. Depend on to what extent the “masive” infrastructure development will create an inequality-reducing economic growth. This is uncertain. There are theoretical and empirical challenges on how this may not be the case.

Extra direction and measures are needed.

2. Depend on to what extent the budget allocation support the equality of opportunity in human capital accumulation (education and health). This remains to be seen.

The GoJek economy: A new “model” for

inclusive growth?

What is Go-Jek?

• Gojek is a referral service (similar to Uber) for motorcycle taxis that works with smartphones. – GPS allows both drivers and passengers to know each

other’s location. It facilitates supply and demand.

• Traditional motorcycle taxi (Ojek)– Bargaining (asymmetric), inefficent (long-wait for

customers), barrier-to-entry (permit can be very expensive), bad services

– But in big cities where heavy traffic jams (often grid-lock) are the norm, motorcycle taxis in high demand

The Go-Jek business model• Partnership

– Anyone with a motorcycle can join, Go-Jek gets 20% of a fee

– The Drivers get uniform, helmet, a smartphone.

• Rate customer pays is transparent, by distance traveled.

• Rating systems• Go-Jek services can be used for

food, even grocery shopping. It increases further.

• GoJek improved financial inclusion and reduced informality

Progress of GoJek GoJek operates in Greater Jakarta, Bandung, Denpasar and Surabaya. The GoJek application has been downloaded 2 million times. GoJek drivers has reached 30 thousand people, and this is rising.

Approximately 7% of existing (2014) employment in the land transportation sector, combined with Grabbike is 10%.

Spectacular for a single company that was only recently established.

It is easy for a gojek driver to attain a decent minimum wage. Some drivers can earn 4-5 times minimum wage.

As motorcycle is affordable and credit is easy, GoJek is very labor-intensive. A GoJek driver can earn $200/month, paying only $30/month for motorcycle credit.

Antri melamar GoJek di Bandung

Ribuan Sarjana melamar GoJek

GoJek is not the only player

The relevance of GoJek: Demand

Jakarta is the world’s worst trafic city, Surabaya is ranked 4 (Castrol’s Stop-Start Index)

Motorcycle is the most common mode of transport

Slow progress in the development of public transports in Indonesian cities

Most Indonesian cities are not pedestrian-friendly

0

10

20

30

40

50

60

70

80

90

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Mil

lio

n

Number of vehicles in Indonesia

cars Bus Trucks Motor cycles

The relevance of GoJek: SupplyPoverty has increased in 2 out of 5 cities with positive economic growth. Causes? inequality & urbanisation. Indonesia is now 50% urbanised.

-4-2

02

4

ch

an

ge

in

po

ve

rty 2

00

6-'1

1 p

ct

pe

rye

ar

-10 0 10 20economic growth 2006-'11 pct peryear

regency city

nat

ion

al g

row

th

The relevance of GoJek: SupplyIn 1990s migration to cities improved livelihoods, now it does not any more (Manning & Pratomo, 2010) . Decent jobs are getting harder to find in Indonesian cities. Informality, youth unemployment, and under-employment are significant.

1,001.0

256.2

350.3

100.0120.945.2 43.1 8.7

259.8

66.6 65.59.1

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

Jakarta Bandung Surabaya Denpasar

Tho

usa

nd

pe

op

le (2

014)

Informal labor Involuntary under-employed Youth unemployment

Informal labor

Involuntary under-employed

Youthunemployment

Source: SAKERNAS 2014

GoJek driver application

Lessons learned GoJek bring together economic

efficiency, technology adoption, in the midst of economic dualism and address government failure in providing public goods.

Gojek could be a new “model” of inclusive growth. A real example of a “creative

economy”.

Most importantly, Gojek shows solutions can arise from community-driven innovation.

Thank You!