Subsidy vs welfare<\/p>\n
The government's social safety net programs are not all that
\ndifferent from the welfare payments which many governments in
\ndeveloped countries give their needy citizens. The objective is
\ncertainly the same -- to provide financial assistance to the poor
\n-- although the way they are administered are different.<\/p>\n
Social safety net programs, or JPS as the fund is called by
\nits Indonesian acronym, are a recent phenomenon in this country.
\nThey were introduced in late 1997 when the nation was struck by a
\nsevere economic crisis, the worst in over three decades. They
\nhave been quite successful in shielding the growing ranks of poor
\npeople from the ravages of the economic crisis.<\/p>\n
As Indonesia slowly emerges from the economic crisis, the
\ngovernment has stated that the social safety net programs will be
\nretained. If in the past most of the JPS money came from foreign
\naid, particularly the World Bank, in the future all of the money
\nmust be raised locally, that is through the taxation system. It
\nappears that, with little public debate, we are witnessing a
\nrudimentary form of a welfare state evolving in Indonesia.<\/p>\n
The JPS programs differ significantly from earlier government
\nsubsidy programs in that they are more target-specific. Since
\nthey are essentially direct cash assistance, they are proving to
\nbe far more effective in helping the poor. Earlier subsidy
\nprograms in contrast were aimed at making selected goods
\naffordable, such as rice and fuel, to all the people. While they
\nwere well intended, the rice and fuel subsidies have many
\nshortcomings that raise questions about their effectiveness, and
\ntheir fairness.<\/p>\n
The fuel subsidy, for example, has severely distorted the
\ndomestic markets to the point that unknown quantities of cheap
\nIndonesian fuel have been smuggled abroad. This across-the-board
\nsubsidy also means that most of the benefits have been enjoyed by
\nthe wealthy, who use far more fuel than the poor. Since taxpayers
\nwill eventually have to pay the subsidy bill, Indonesia's poor
\nhave actually been subsidizing the wealthy and the eventual
\nbuyers of the smuggled fuels. To argue that subsidizing fuel
\nhelps Indonesian exporters compete abroad is tantamount to saying
\nthat we should be subsidizing foreign buyers. Viewed from any
\nangle, the current fuel subsidy program is indefensible.<\/p>\n
Yet, in spite of a compelling argument to phase out the fuel
\nsubsidy, which is costing at least US$3 billion in the 2000
\nfiscal year, the government has always found it politically
\ndifficult to raise domestic fuel prices because of powerful
\nopposition. Last month, the government was forced to abort its
\nplan to hike fuel prices at the eleventh hour when it became
\napparent that it was not ready to administer either the coupon or
\ncash subsidy system to shield the poor from the impacts of the
\nincrease.<\/p>\n
The plan to increase fuel prices is still in the pipeline,
\nsupposedly waiting for a more opportune time. But the switch to
\nsubsidizing the people who are in need from subsidizing the
\ncommodity is a major departure from traditional subsidy schemes.<\/p>\n
No government can ever be free from its obligation to assist
\nthe poor. The increasingly competitive nature of the global
\neconomy is bound to put even more strain on the government to aid
\nsegments of society. The only question that remains is what is
\nthe most effective and efficient way of extending the subsidy.<\/p>\n
The welfare systems in Europe and the United States may have
\nearned a bad reputation because they have been widely abused, but
\nthey still offer the best, and probably most efficient method in
\nassisting the poor, especially when compared to the alternatives.<\/p>\n
Indonesia may be a long way away from becoming a welfare
\nstate, but the JPS programs and the new form of fuel subsidy both
\nsignify a move in that direction. It even makes economical sense
\nto administer one single subsidy program, rather than run
\nseparate programs to help the poor people buy rice, fuel,
\neducation for their children and other commodities and services.<\/p>\n
There is only one big catch with implementing a modern welfare
\nsystem in Indonesia. To be fully effective, it requires an
\nefficient and clean bureaucracy to administer the programs and to
\ncollect the taxes. A public debate on turning Indonesia into a
\nfull-fledged welfare state could well give the extra reason and
\npressure to reform the bureaucracy quickly.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/subsidy-vs-welfare-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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