Academic journal article Journal of Southeast Asian Economies

Social Safety Net Policies in Indonesia: Objectives and Shortcomings

Academic journal article Journal of Southeast Asian Economies

Social Safety Net Policies in Indonesia: Objectives and Shortcomings

Article excerpt

When the economic crisis hit Indonesia in 1998, concerns over its social impacts were high. As a response, the government within a relatively brief period formulated its social safety net policies. This article evaluates the policies from several key broad aspects such as targets and objectives, implementation, and sustainability. The findings suggest that weak economic indicators to measure the social impacts of the crisis had seriously undermined the effectiveness of the policies. In addition, poor implementation of the programmes often reflected weak administrative capabilities of the government. Unless the impediments are addressed, the programmes will remain marginalized.

I. Introduction

"The crisis came at the peaceful time. It had resulted in unrivaled suffering, which had exceptional social and political consequences. It toppled the government and revolutionized the role of government in many nations. The legitimacy of existing government was widely questioned. The banking situation was catastrophic. Morale was shattered and fear was nation-wide".

The above paragraph is taken from Hill & Quaile (1998) and Enzler (1939), describing conditions found in various countries during the Great Depression in 1930s. Ironically, when the economic crisis took a turn for the worst in early 1998, similar descriptions were often used to illustrate conditions in Indonesia. Decades of impressive records of economic indicators were no longer things to be taken for granted. Instead, unpredictable swings in the value of local currency and in the index of the capital market were regularly reported, reflecting degrees of uncertainties in the economic fronts. As in Thailand and South Korea, a series of IMF bailout programmes were considered in Indonesia. Initiatives for structural reforms were followed and supposed to provide much-needed remedies. Unlike South Korea and Thailand, however, the economic crisis in Indonesia was a triggering point for an unprecedented socio-political crisis, the worst since 1965.1

By the second quarter of 1998, marked by the May 1998 riots in Jakarta and a few other cities in Indonesia, it was clear that the country had to address both social and economic crises simultaneously. In addition to a number of structural reforms in banking and the corporate sector, socio-economic policy measures in various sectors were announced and implemented. Starting in the 1998/99 fiscal year, the government of Indonesia had launched what is presently known as Jaringan Pengaman Sosial - the Social Safety Net (SSN) programme (hereafter referred to as JPS/SSN). In that first year alone, the JPS/ SSN constituted around 30% of total government expenditure. As in other crisis-effected countries, the programmes were, however, meant to be only temporary, not replacing the long-run programmes on poverty alleviation.

Even though it may still be too early to estimate and assess the actual contribution of the JPS/SSN in general, a number of analyses can be drawn from the programme. In this paper we attempt to evaluate the design and the implementation of the programme. Section II briefly reports recent macroeconomic developments in Indonesia. Basic concepts of the social safety programme and an outline of its primary objectives are discussed in Section III. In Section IV, we elaborate on several aspects of the social safety net programmes implemented during the crisis in Indonesia. We provide our evaluation on the programmes in Section V and concluding remarks in Section VI.

II. Overview of Recent Macroeconomic Indicators

Based on a quarter-to-quarter change, the country's gross domestic product (GDP) showed its first positive growth in the third quarter of 1998 (Table 1). However, a positive year-to-year change in GDP was only reported by the end of the second quarter of 1999. In general, the quarterly GDP values in both 1998 and 1999 were still significantly lowered than its 1997 numbers. …

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