Social safety net

Social safety net

World Bank president James Wolfensohn was not exaggerating
when he told analysts and leaders of non-governmental
organizations here on Wednesday that the economic crisis now
facing Indonesia has reached the point of life or death.

But he also put his money where his mouth is by announcing a
World Bank funded crash program, worth US$100 million, to create
75 million work-days of low wage jobs this year, through labor
intensive projects. The bank is also reallocating $1.2 billion in
commitments to Indonesia, as yet unspent, for the procurement of
basic food staples, medicines and job-creation projects.

Wolfensohn rightly saw the urgency of placing a social safety
net below the most vulnerable elements of society. The blunt fact
is that current reforms aimed at setting the economy on a path to
recovery, cannot run smoothly without adequate, short-term
programs aimed at easing poverty induced by the crisis.

Sharply rising prices have eroded purchasing power at
precisely the same time as millions of newly redundant workers
are joining ranks of the unemployed. The 6.88 percent inflation
in January alone, when most basic food commodities, fuel oils and
public utilities were still subsidized, portends more devastating
inflationary pressures over coming weeks.

The government, as part of the reform measures, must slash
subsidies on all food staples (excluding rice), fuel oils and
electricity by April. This in turn will trigger a chain of price
rises across the economy, at great risk of social and political
unrest. Sporadic rioting in several towns in Java and Sulawesi,
in protest at rising prices, may be a foretaste of what is to
come.

The Indonesian government is aware of the potential for a
social backlash in protest at painful reform measures, and has
acted to head this off by creating temporary labor intensive
works programs in Jakarta. This, however, falls far short of a
remedy for the unemployment problem.

Wolfensohn's visit was timely, and brought with it
considerable World Bank experience of poverty alleviation in the
developing world. His announcement that World Bank funding for
labor intensive employment projects will be accelerated should
help to create more than 75 million work-days of low wage jobs. A
shrewd move, this step will help bolster public support for the
IMF-assisted reform package, which is expected to cause further
hardship over the next two years.

Reallocation of over $1 billion in funds committed to, but not
yet disbursed, in Indonesia, for the procurement of food,
medicines, farm inputs and job-creation works will further curb
the social impact of the adjustments that have to be made.

However, the temporary nature of the job-creation and social-
security schemes must not be overlooked. These programs, though
necessary, are not a sustainable way to alleviate poverty. That
can only be achieved with the restoration of sound economic
growth. Thoughts of this cannot be entertained until the
confidence of domestic and foreign investors is restored.

Restoring confidence in the economy requires structural
reforms, a strengthening of the financial sector and good
governance in the private and public sectors. This can be
achieved through just enforcement of the law, and greater
accountability and transparency. Programs focused on these
problems are designed to place the economy on a sound footing,
and will absorb the bulk of the $4.5 billion pledged by the World
Bank and $10.5 billion pledged by the IMF, under the $43 billion
rescue package arranged to assist our economy over the next three
years.