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publication May 20, 2020

Investing in People: Social Protection for Indonesia’s 2045 Vision

MULTIMEDIA

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Multiple social assistance and social insurance programs in Indonesia provide security for those in the formal sector and assistance to poor households. These programs illustrate the solid foundation that Indonesia has managed to build for a comprehensive social protection system.

 
 
Key findings
 
  • Indonesia and the world are changing, and new challenges and opportunities are emerging. These include:
    • technological advancements and changes in how and where people work
    • persistent informality in the labor market
    • vulnerability to climate change, disaster risks, and pandemics
    • changing demographics, with the elderly population expected to rise sharply by 2040.
  • Indonesia has built a solid foundation of social protection, which includes social assistance programs in the form of a conditional cash transfer (Program Keluarga Harapan), education cash transfer (Program Indonesia Pintar), food assistance (Sembako) and more; labor market programs and worker protection schemes (Kartu Pra Kerja), and social insurance programs (Jaminan Kesehatan Nasional, Jaminan Kecelekaan Kerja, Jaminan Kematian, and more).
  • However, to manage the new challenges and opportunities of tomorrow, .  This package should also support Indonesia’s important investments in human capital.
  • To do this, Indonesia should consider:
    • Providing Indonesians with a “guaranteed minimum” protection across a person’s lifecycle through a package of programs
    • Complement the guaranteed minimum with a coherent set of social insurance programs for families to maintain their levels of consumption over time.       
  • Three options to establish a guaranteed minimum level of protection include:
    • Consolidate cash transfer delivery by integrating the conditional cash transfer (PKH) and education cash transfer (PIP) programs.
    • Increase the coverage of PKH and food assistance (Sembako) and provide a more adequate package of protection, with tapered benefit levels.
    • Improve the protection for the elderly and disabled by providing cash transfers.
  • And several options to achieve a coherent set of social insurance programs include:
    • Gradually increase the retirement age.
    • Increase contribution rates in the national social insurance system (SJSN) for those who can afford it, while financing coverage for those who cannot.
    • Ensure adequacy of pensions under current civil service rules.
    • Introduce unemployment benefits to help workers manage risks.
    • Provide unemployed workers access to active labor market programs, including job counseling, job search, and skills training.
  • To pay for these programs, Indonesia can consider reallocating budget away from regressive subsidies, reduce VAT exemptions, increase excise taxes on tobacco, and increase collection from personal income tax.
  • By undertaking these reforms, Indonesia could realize a future-ready social protection system that protects and promotes all; this will be key in helping the country to achieve its 2045 vision of high-income status and near-zero poverty.