Poverty-reduction strategy

The Indonesian delegation to the World Bank-sponsored international conference on poverty reduction in Shanghai last week should be able to bring home a great deal of knowledge and information to help improve the country's Poverty Reduction Strategy Paper (PRSP), which is currently in the final stage of preparation.

The two-day conference that ended last Thursday made the standard appeal to rich and poor countries to redouble their efforts to speed up poverty reduction and stimulate economic growth, in light of bringing peace and stability to the world. However, most important is the long list of recommendations the conference made on the basis of the extensive research of 100 case studies and exchanges of knowledge and experiences in poverty reduction programs in many countries.

Indonesia, which gained international acclaim for its success in significantly ameliorating absolute poverty until the 1997 economic crisis that again increased the incidence of its poverty, also shared its experiences with around 1,000 delegates attending the conference.

Like most other development strategies and policies, there is obviously no single model for scaling up poverty reduction that is suitable for all countries. The meeting, nevertheless, identified a number of key factors that are crucial for sustainable and effective poverty-reduction programs.

Not all the recommendations are completely new. Most of them, notably those vital to macroeconomic stability, have often been propagated by such multilateral institutions as the World Bank and International Monetary Fund (IMF). Such key factors as macroeconomic and political stability are critical for job creation and economic growth. This in turn requires strong economic fundamentals, a sound investment climate and good governance in the public and private sectors.

The Indonesian government has been pursuing these measures -- although progress in many areas is still deemed much slower than required to meet the pressing needs of the people -- notably with regard to the generation of jobs to absorb the huge pool of unemployment.

Economic growth of almost 4 percent a year over the past four years has certainly been the primary factor in reducing poverty in Indonesia, from 23.4 percent in 1999 to 18.2 percent in 2002 and 17.4 percent in 2003, or about 37.50 million. The poverty incidence had been cut down to 17.50 percent in 1996.

However, the experiences of many countries have shown that economic growth, even though quite vital, is not sufficient for improving the well-being of poor people. These people must share in the benefits of growth.

The conference, therefore, cited additional key factors for successful poverty-reduction efforts: the empowerment and involvement of poor people, the participatory process in conceiving programs, transparent rules in budget, processes and procedures, adequate sequencing of reforms and attention to their political economy, changing and adapting implementing institutions and adequate and assured long-term financing.

While economic growth helps poor people through the creation of jobs, additional efforts are still needed, specifically to address the needs of poor people. Hence, the role of empowerment through investments in the poor: in the adequate and effective delivery of education, health and other public services as well as social infrastructures.

The participatory process ensures that the programs selected for poverty reduction address the most pressing needs of large numbers of people, thereby making them quite effective and efficient, as well as politically sustainable. The rationale is that when people have more access to information about governmental activities, they are empowered to play an informed role in the development process.

Our poverty problem is still quite challenging because of the large number of people on the verge of absolute poverty, defined nationally as the daily spending of the equivalent of US$1.55. The 2004 World Bank report put the number of Indonesians on the brink of poverty, or people with daily expenditures of approximately $2, at 53.40 percent of the total population of around 215 million. This means that even the slightest deterioration of the economic condition could plunge almost 115 million people into dire poverty.

The government White Paper of September, 2003, confirms its commitment to the development of a comprehensive PRSP by this month. The International Monetary Fund also reminded the Indonesian government last month of the urgent need of early completion of its interim PRSP, which was launched in March, 2003, for deliberations with local administrations and civil society organizations throughout the country. Developing countries are entitled to debt relief and concessional lending only after their PRSPs are approved by the World Bank and the IMF.

It is, therefore, most imperative for the government to speed up the final preparation of the PRSP because it will require some time to integrate this poverty-reduction strategy with existing budgetary and planning procedures and sector development strategies.