Empower poor to trust and use gov't bodies

Mark Baird, Country Director, World Bank, Jakarta Office

For over 30 years Indonesia produced the fastest rate of poverty reduction the world has ever seen. But, with weak governance and rising corruption, the story didn't have a happy ending. Of all countries of the Association of Southeast Asians, Indonesia suffered the most from the East Asia crisis: The economy contracted sharply, unemployment doubled, poverty rates soared, and Indonesia's incipient middle class was devastated.

Today the country is settling down again. But the problem of poverty remains. Today there are at least 30 million people in Indonesia who live below the poverty line, and many more who are only slightly better off. Indeed, the majority of Indonesians are poor or vulnerable to becoming poor if they lose their job, suffer a family illness, or have to pay more for basic goods. So how can we best think about tackling this widespread and multidimensional problem?

One strategy, the conservative strategy, yearns for the good old days of strong central government and big development programs. But even if this were a desirable strategy -- and very few Indonesians think that it is -- it's not a realistic one. Democracy, regional autonomy and press freedom are hopefully here to stay. And any return to the old patterns of growth -- based narrowly on conglomerates rather than broadly on small and medium enterprises -- is unlikely to succeed.

So what alternative strategies are on offer? We know, or at least think we know, the main ingredients of a comprehensive poverty strategy for Indonesia.

First, growth must accelerate again. Indonesia adds 2 million people to the labor force every single year. Ask a poor person here what they want most, and nine times out of ten they will tell you that they want a job. But jobs require investment in firms and farms -- which will only happen if the policy environment is welcoming for investors. Indonesia has done well in maintaining macroeconomic stability, which is essential to attract investment. But investors are also looking for more fundamental reforms to strengthen the rule of law, protect property rights, provide an effective judicial system, and reduce corruption.

Second, the poor need access to a broad range of public services: Clean water, education, and health services. The challenges here are to provide adequate resources for these essential services, and then to ensure they are used wisely and efficiently. In Indonesia, where the state budget has been under considerable stress as a result of the crisis, the government has made serious efforts to protect expenditures on basic services for the poor.

Even so, per capita funding for basic education and primary health care remains below pre-crisis levels -- and, in many areas, the quality of public services is low. Furthermore, the responsibility for implementing social programs is being transferred to local governments. It remains to be seen whether they will have the motivation or capacity to giver priority to the poor in their spending decisions.

Third, the poor need to be empowered to trust and use government institutions, rather than avoid them. This is perhaps the area where social development has the most to offer. In Indonesia, we could eliminate most of the corruption that weakens development here if people could use the police and courts to put an end to it. Giving poor people the power to make decisions lies at the heart of successful poverty reduction.

Plus, we know that demand-driven services are more efficient and effective. Here in Indonesia, we are finding that infrastructure which communities choose and build costs as much as 30 percent less than the usual way of having contractors build it. Empowered people have a stake in national development -- it matters to them whether the country succeeds or fails.

Indonesia is making some important steps forward to regain momentum on poverty. The government has recently formed a high- level committee whose sole purpose is to formulate a national poverty strategy that promotes dialogue over the poverty implications of national economic policy decisions and also promotes pro-poor public investments.

In this process, it's essential that the recent progress on providing more space for local government, civil society groups, the media and communities to influence public policies and programs in sustained. It's also important that the policy agenda is extended over time to include a more thorough reform of Indonesia's institutions of public administration and justice.

Social development has much to offer both the community of development practitioners and to developing countries such as Indonesia that are trying to articulate strategies that will let them help their poorest members without sacrificing growth. Social scientists have a lot to contribute to the substance of the development agenda -- and the "how" of good policy work.

As an economist, I've come to respect your attachment to solid fieldwork, your understanding of why different groups respond differently to economic incentives, and your appreciation of the importance of local institutions. These perspectives are vital to ensuring that policies and programs really benefit the poor.

The above is based on the writer's address at the ASEAN-World Bank High Level Conference on Social Development held in Jakarta, Jan. 16.