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Indonesia’s social protection system needs to reach the “missing middle” says, new OECD Development Centre report

 

Bangkok, 11 April 2019 - Since 2000, Indonesia has made great progress towards establishing a social protection system that covers a wide range of risks. Yet it is not operating at its full potential, according to the Social Protection System Review (SPSR) of Indonesia. The report, launched today at an expert meeting on Inclusive Social Protection Systems in Asia and the Pacific held in Bangkok, assesses the current state of Indonesia’s social protection system, highlights current and future challenges, and suggests a number of policy options for addressing them.

 

According to the report, which is published as part of the European Union Social Protection Systems Programme (EU-SPS), Indonesia is realising its commitment to establish a social protection system. Important progress has been made in strengthening coherence and coordination across a number of dimensions, including legislation, policies and institutions. However, financing for social protection is low by international standards, reflecting the country’s weak domestic resource mobilisation.

 

Indonesia has been scaling up key social assistance programmes since 2014. Coverage of the Family Hope Programme (PKH) conditional cash transfer has grown from 3.5 million families in 2015 to 10 million families in 2018; this flagship programme aims not only to reduce poverty but also to improve health and education outcomes for beneficiaries. Households eligible for PKH are also entitled to complementary initiatives to promote their sustainable exit from poverty, including scholarships, free health insurance and subsidised rice. However, it is rare that poor individuals benefit from all these programmes, due to institutional fragmentation and uneven use of the Unified Database (UDB), which has been developed since 2005 as a common targeting mechanism for social assistance.

 

Meanwhile, the government is taking steps towards reducing coverage gaps in Indonesia’s social insurance programmes. The national health insurance system, JKN, is making extraordinary progress towards universal coverage, covering three quarters of the population in October 2018, although there are concerns regarding its long-term sustainability. At the same time, a new pension system is struggling to increase coverage amongst Indonesia’s large informal sector, which employed 57% of the country’s workforce in 2016. Consequently, informal workers and their families often find themselves in the “missing middle” of social protection coverage, whereby they are ineligible for poverty-targeted social assistance but excluded from employment-based contributory arrangements.

 

The SPSR of Indonesia’s analysis shows that active labour-market policies must operate at a larger scale to enhance the skills and productivity of poor, vulnerable and marginalised workers. Meanwhile, compliance with passive labour policies, such as minimum wages and severance pay for workers who lose their jobs, is low and these risk distorting the labour market. The report anticipates that Indonesia’s elderly population will grow rapidly over the coming decades, resulting in the current focus on alleviating child poverty shifting over time to programmes for older people. Increasing coverage of contributory pensions is a policy priority of Indonesia but will be difficult to achieve, especially for individuals closer to retirement today. Demand for alternative approaches to ensuring welfare in old age is likely to intensify.

 

The SPSR of Indonesia offers policy recommendations to improve the country’s social protection system and contribute to its economic and social development:

  • Expand social insurance coverage among the “missing middle” by including employees and own-account workers in the informal sector, and by covering the cost of employment injury arrangements for the informal sector.
  • Update and verify the UDB regularly, use it as a basis for disaster response and improve the reach of civil registration services to increase the proportion of individuals, especially in poor remote areas, with identification documents.
  • Implement the legislative framework for the provision of social services according to a guaranteed minimum level of services for specified vulnerable groups. Prioritise provision of early childhood development infrastructure and services, including family visits to PKH recipients.
  • Leverage social protection to offset gender disparities by designing specific active labour market policies for women not in education, employment or training; incorporating care credits in the pension system; and considering earlier eligibility age for elderly social assistance for women.
  • Reconfigure labour market interventions by revising severance pay while enforcing pension contributions, especially among SMEs; by considering the establishment of an unemployment insurance fund; and by investing in active labour-market policies to promote productivity among vulnerable workers.

 

For more information on the OECD Development Centre’s work on social protection, visit: http://www.oecd.org/dev/inclusivesocietiesanddevelopment/social-protection.htm The EU-SPS is a project lasting from 2015 to 2019 and operating in ten countries.

 

 To request an interview or a copy of the report, journalists are invited to contact Bochra Kriout (Bochra.Kriout@oecd.org ; Telephone: +33 01 45 24 82 96).

 

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