Expansion of Social Protection to Lower Middle Class

HUMAS PEMDA/ZULFAN TRIADJI

Banyuwangi Regent Abdullah Azwar Anas shared a social safety net  in the form of food supplies for daily income residents affected by  Covid-19 pandemic in Banyuwangi, on Friday (18/3/2020).

If someone had described today’s media headlines to me a few months ago, I would have thought they were talking about the plot of a film.

How come? Within only a few weeks, most countries in the world have closed their economic activities, hoping to prevent death from Covid-19. Factories have stopped, restaurants and shopping outlets are closed, and unemployment rates are skyrocketing throughout the world. Not only that, the impact of the global recession is also felt in countries that have not implemented regional quarantine. A global recession is expected due to a drastic decline in global trade and demand. The International Monetary Fund (IMF) has estimated that the gross domestic product (GDP) of the world will contract by 3 percent in 2020, the worse contraction since the Great Depression of 1930.

Indonesia faces the same challenges. Jakarta, Bogor, Depok, Tangerang and Bekasi have implemented large-scale social restrictions with the aim of trying to reduce the spread of the virus. Meanwhile, in many other places in Indonesia, people continue to debate how to overcome the problems that will arise, in line with the increasingly widespread transmission of the virus and the epidemic that occurs.

Also read: Cash Aid Disbursement Still Uncertain

Day after day, the challenges continue to increase rapidly. Decisions need to be made about the best way to improve access to health and to protect the welfare of the community, including health workers who are at the forefront of the battle against covid-19. Not only that, the capacity of hospital beds must be increased and protective equipment for medical personnel is urgently needed. However, it has to be remembered that Covid-19 is not only a health crisis, but also a matter of the economy. We also must not forget the economic needs of society, because disrupted economic problems can lead to a decrease in food security.

If you cannot work, the logical implication is that you will not be able to meet your basic needs.

In a crisis like this, it is very important to expand the social assistance provided by the government. When people are "locked up", or there are social restrictions, even without official orders, they cannot make a living. If you cannot work, the logical implication is that you will not be able to meet your basic needs. Even without full regional quarantine, economic shocks occur and threaten the livelihoods of many people.

Social protection programs

The Indonesian government has reacted well and quickly to this crisis through the provision of a series of stimulus programs. We need to appreciate that. For example, the government is rapidly increasing aid distributed to very poor households through the Family Hope Program (PKH) and the Sembako (Nine Basic Needs) Program. The government also provides free electricity to households that use 450 VA and 900 VA electricity connections.

Most existing social protection programs, such as PKH and the Sembako Program, systematically provide cash or food assistance to those who are poor. As a requirement of being eligible for assistance, the government uses information about household assets — the type of houses they live in, whether they have a motorcycle or not, and so on.

Those who have few assets are entitled to receive the assistance. This makes sense for antipoverty programs in a normal situation. Assets can be used as an indicator of long-term poverty and can therefore help in the process of systematically targeting the poor. These programs have shown success in helping poor families.

Moreover, this type of program is a good investment for the future of Indonesia. Our analysis (Cahyadi, Hanna, Olken, Prima, Satriawan, and Syamsulhakim, 2019), for example, found that PKH reduced stunting in children under 5 and increased the level of educational attainment. Improved health and education at an early age are proven to have long-term effects on income and well-being.

Also read: Cash Aid Would Be Transferred Every Month through Banks

However, these programs are aimed at those who are poor, not the lower middle class. These programs are designed not for those who have lost their jobs due to economic shocks, such as the effect of Covid-19, or lost wages due to unemployment, or lost income from businesses that are slowing down or have closed down. The social aid programs are designed by selecting targets based on past income status and assets owned in addition to the current conditions.

KOMPAS/SEKAR GANDHAWANGI

People maintain physical distance in a queue to apply for the Jakarta Smart Card (KJP), on Tuesday (7/4/2020) at Jatinegara Market, Jakarta.

In this crisis, there is a new group in society that is affected. Many workers who were still working last month are now losing income, both because of social restrictions and because of the economic slowdown. Many of them do not have enough savings to meet basic needs if they lose income.

This is a challenge for a group of people who live on a daily wage. They are not included in the existing programs. To put it simply: Just because you do not live in dirt-floor houses does not mean you have enough savings to feed your family when you lose income.

There is also the risk of social unrest. This can all have a long-term impact on the welfare of every Indonesian citizen, even after the Covid-19 crisis is over.

Without financial assistance from the government to manage these difficult times, many of these families will fall back into poverty. Indonesia will lose the achievement it has reached in the past 20 years in poverty reduction. There is also the risk of social unrest. This can all have a long-term impact on the welfare of every Indonesian citizen, even after the Covid-19 crisis is over.

Expand the social assistance

Therefore, Indonesia needs to increase social assistance even further to help those who are currently losing their wages and business income due to the crisis. In order to do this, the government needs to expand the social protection to the lower middle class affected by the Covid-19 shock. As mentioned above, many of them have not received social assistance because they are not included in the category of beneficiaries under the normal conditions. A new approach needs to be tried to reach groups of households that need help but so far have not been included as recipients of social protection.

In three written pieces, I with my colleagues -- Benjamin Olken from the MIT and M. Chatib Basri from the University of Indonesia -- try to discuss the policies needed to meet this challenge. Benjamin Olken will discuss how to identify new households that are vulnerable because of social restrictions, which previously might not have been included in the system. Chatib Basri will review the fiscal implications and their impact on the economy: how the government can still provide assistance to vulnerable groups amid so many other budgetary needs and the existence of financial constraints.

Kompas/Wisnu Widiantoro

Minister of Social Affairs Juliari P Batubara (right) during a visit to the Kompas Daily office, Jakarta, on Thursday (13/2/2020).

All over the world, people work together for the sake of health and well-being. Everyone is asked to sacrifice for the common good. However, in that sacrifice, we need to make sure that the greatest burden is not borne by the most vulnerable, or we will leave people in starvation.

Rema Hanna, Professor of Southeast Asian Studies, Harvard Kennedy School, Harvard University; Director of Harvard’s Evidence for Policy Design; Scientific Director of J-PAL Southeast Asia