REVIEW ESSAY POVERTY REDUCTION THROUGH
Analyst at Ministry of Finance The Republic of Indonesia
1. INTRODUCTION
1. 1. Issue on Poverty Reduction
Even in advance country, poverty is still a major issue to deal with. Then, when we reach to less developed and developing countries we found that poverty is the most major issue and takes huge efforts and attempts of government and of involvement of non government organization to be solved in. Many techniques have already introduced to reduce poverty. From the ideal one which is the idea for empowering the poor through economic channel or education. This idea looks seem the best strategy. Or the most conservative one is just giving money to poor and that`s it STOP. There is no multiplier effect of giving money to poor instantly. We easily justify that this kind of strategy is not even giving small impact in the long run because the poor can easily use the money for only short term needs for example for only buying basic needs especially food.
In political ground, poverty is fuel for opposition to distract concentration of ruling party. Poverty is the best ammunition for party to gain ballot by attacking the fail of ruling party program and offering new strategy to reducing poverty. At this point, poverty is the sexiest issue that can be raised to win the game at political ground. However, the effectiveness of poverty reduction which is conducted in political platform is doubted. Non government organization that is not affiliated to party is much better known about how to reduce poverty. Why? Because they observe day by day how poorer people become poorer and how to excluding poorer people from poor.
A country effort is not quite enough to reduce poverty. A global effort is [was] taking in 1980s and in new millennium. Recent effort in new millennium is called Millennium Development Goals. Ultimate time of MDGs is 2015 which must be achieved all goals by all developing countries and less developed countries. Unfortunately, United Nations as leading agency should revise target year in 2015 because many of developing countries and less developed countries still grapple with poverty problem.
1. 2. Poverty in Indonesia
Fact about poverty in Indonesia is [was] depending on downturn of its economy. Moreover, Indonesia economic condition depends on world economy especially western. In 1997, when major Asian countries including Indonesia were hit by tsunami of monetary crisis, number of people that were becoming poor was increasing. Economic downturn caused poverty is just one cause. Access to social facility such hospital and education are [were] added the cause of poverty in Indonesia. Moreover, geographical obstacle is also challenge in attempting to reduce poverty in Indonesia.
Devolution of power is another effort in delivering public service in local community has not ended successful. Theoretical view has shown that devolution of power and follows by fiscal power to local government are needed more concise effort and commitment.
Figure 1 Number of Poor People between 2007 to 2010
However, when we look at the data at Badan Pusat Statistik (Central Statistic Agency) there is a decreasing number of poor people. In 2010, 14% of Indonesia citizen is still accounted as poor. Economist (even me strongly argued) argued that strengthening of economy is contributing on reducing poor people. Once again this argument is built on simply causality relation that needed to be proof.
1. 3. Poverty Reduction Program in Indonesia
I like the quote that says “there is no single cause for each event” and if we make relation to poverty issue, the quote has meaning that every poverty has own cause and needs different techniques to deal with and to solve. This essay is trying to review new strategy and new technique that have already implemented in Indonesia using fiscal instrument. The main discussion is based on devolution of power which has been implemented in Indonesia since 2001. As each of province, municipal and city in Indonesia in decentralization regime have their own power in managing their own budget and following the power, province, municipal and city must manage their own affairs so that fiscal power is now at local hands.
Started form this condition, coordinator ministry of welfare in first term and in second term of President Susilo Bambang Yudhoyono has been launching poverty reducing program under Program Nasional Pemberdayaan Masyarakat (National Program on Empowering Society). And ministry of finance as institution that has capability in mapping fiscal power of local government to be involved to formulate cost sharing between central government and local government in empowering society program using fiscal capacity and poverty depth index.
2. FISCAL CAPACITY AND POVERTY RATE
2. 1. Technique in Accelerating Poverty Reduction
New government administration means new policy. Or even to make different from previous government policy, new government makes new name for the same policy even though the essential of policy is quietly the same. The point is new administration needs to be characterized in their program. In New Order regime, poverty reduction program also introduced. What makes different? First, local government in decentralization regime has power in fiscal. Second, poverty is not only central government obligation but also local government obligation. Third, using local government fiscal power, central government especially ministry of finance makes regulation in sharing “the pain” on reducing poverty.
In decentralization regime, ministry of finance knows capacity of fiscal of local government. Together with Badan Pusat Statistik (Statistic Agency), local government fiscal capacity index is to be related to Poverty Depth Index. Province/municipal/city should provide amount of fund from their budget exclusively for poverty reduction.
2. 2. Fiscal Power Shifting
Devolution of power has shifted every single power holders in central government hands to local government hands. The map of fiscal power has been changed massively. Now local government holds fiscal power. Nevertheless, not all local government holds big fiscal power. Fiscal power depends on economic factor such tax revenue sharing, natural resources revenue sharing and original revenue of local government.
The idea is started from this point fiscal power shifting. Together with local government, ministry of finance as central government calculates formula for allocation for the poor. How much pain is to be shared between central government and local government? The detail of the concept as follows. This concept relates fiscal capacity of local government to amount of poor people. Then it is divided into four cluster or group. The cluster/group is classified by the obligation to allocate fund for reducing poverty.
2. 3. Fiscal Capacity
First step is to calculate fiscal capacity of local government. Local government fiscal capacity is sum of transfer fund and original local revenue excluding of personnel expenditure and special allocation fund divide by sum of amount citizen and construction cost index. As follows is the detail formula.
Secondly is to calculate Index of Local Poor Citizen Percentage. The index is human poor index of city / municipal divided by national average of human poor index. Human poor index is calculated annually by BPS (statistical agency). The detail of calculation as follows.
2. 5. Sharing the Problem and Sharing the CostThe calculation Local Fiscal Space Index makes the map of fiscal capacity. And then Index of Local Poor Citizen Percentage portraits the condition of each city and municipal in Indonesia. Both indexes are benchmark for sharing the problem and the cost. The indexes are divided into four cluster or group and here is the division.
1. Group 1 is for local government who has fiscal capacity above national average of fiscal capacity and who has percentage of poor people above national average. This group should allocate 15% of their budget for poverty reduction fund or should allocate very high allocation for poverty reduction.
2. Group 2 is for local government who has fiscal capacity below national average and who has percentage of human poor above national average. This group should allocate 5% of their budget for poverty reduction fund or should allocate low allocation for poverty reduction.
3. Group 3 is for local government who has fiscal capacity below national average and who has percentage of human poor below national average. This group should allocate 8% of their budget for poverty reduction fund or should allocate middle allocation for poverty reduction.
4. Group 4 is for local government who has fiscal capacity above national average and who has percentage of human poor below national average. This group should allocate 10% of their budget for poverty reduction fund or should allocate high allocation for poverty reduction.
3. REVIEWING THE CONCEPT
3.1. Economic Development versus Poverty Reduction
Does economic development accord with poverty reduction? In New Order regime which was using trickledown effect concept, many poorer people has left behind in other word they are still poor. Trickledown effect itself is not clear concept and fertilizing cronyism and corruption at the end. New order regime was duplicating success story of economic development in East Asia countries such as Singapore, South Korea and Taiwan known as Asian Tiger. Key of success of Asian Tiger is government intervention through subsidize. Who`s got subsidize? Targeting industry who got subsidize. What criterion to subsidize an industry? There is no clear answer.
Moreover, China that assumes as the most phenomenon economic growth among developing countries has been leaving behind hinter land at poverty compares with coastal area. Economic development of China is focusing on some area in coastal area. It is logic regulation because since ship is the cheapest and automatically efficient transportation so that China economic development started from coastal area. No guarantee that hinter area will taste the trickledown effect of economic development of coastal area.
It is important to explain the economic development into relation of fiscal management. Fiscal power creates from economic development. When there is significant development of economic, fiscal power is starting into creation. That`s why I argue no guarantee of better economic development so that better poverty reduction.
3.2. Local Leader Commitment
Commitment from political leader in poverty reduction is one condition to be presence. Without political commitment, poverty reduction is becoming totally left behind. In democratic regime, the national issue is steered by politic which represent of people. So when local leader is perfidious from its mandate especially when its people is still in poor condition but the leader is focusing only for economic development the agenda for poverty reduction is totally left behind. This phenomenon is happened in Indonesia.
3.3. Social Factor
Resource allocation is important for the poor. But poverty reduction is sustainable effort. So social factor contribute as one factor to poverty reduction in not instant way. Education is to be believe as sustain effort for human to survive. Solomon is asked by God which one he prefers to receive from God: a kingdom, treasure or knowledge. Solomon replies he would like receive knowledge because knowledge is lasting forever. With knowledge he can get kingdom and treasure. Most of us also believe on education is capital. To be graduated from the poor, many countries do invest on education. Indonesia in its constitution has obligated to central government and local government to allocate 20% of budget for education.
4. SUMMARY
Poverty reduction is not all about allocating more money to the poor. Poverty reduction is comprehensive effort including economic factor, political factor and social factor. Economic factor refers to resource allocation. Political factor refers to how power leads the way for marginal people to be overcome form being poor. Social factor related to education which is capital for human being to be survived.
Fiscal instrument instead is one part of poverty reduction efforts that is part of economic factor. Precisely, fiscal instrument is the function of resource allocation. Indonesia as implemented decentralization needs to share the pain of poverty by mapping fiscal capacity and human poor percentage of city and municipal.
I argue that comprehensive implementation of three factors for poverty reduction is promising solution rather than focusing only on economic development. Because poverty is not simple matter. Poverty needs complex solution with comprehensive factors.
