IO – The government has officially announced the nation’s economic performance of 2020. As projected, economic growth last year came in at -2.07 percent. One of the reasons why the economy was still in the negative territory was the struggle for economic recovery, as can be seen in second to fourth quarter results.
Following a deep contraction in Q2, GDP growth bounced back in the following quarters. However, the pace was slower than expected. As an illustration, Q3 GDP was recorded at -3.49 percent, but when compared to -5.32 percent in Q2, this was only up by 1.83 percent. The same can also be said about Q4 results, which only showed 1.3 percent improvement. Such a hesitant pace of economic recovery can potentially lead to worse socio-economic problems, such as more poverty and higher unemployment. The two indicators are projected to remain
at an unhealthy level, unless the Indonesian economy promptly starts to show meaningful recovery. In fact, as previously reported, poverty and unemployment increased significantly last year. The number of people living under the poverty line in Indonesia was recorded at 26.42 million in March 2020. Compared to September 2019, there were 1.63 million more poor people. When compared to March 2019, the figure increased by 1.28 million. The percentage of poor people in March 2020 was 9.78 percent, an increase of 0.56 percent compared to September 2019 and 0.37 percent higher when compared to March 2019.
Meanwhile, the unemployment rate reached 7.07 percent in August 2020, up by 1.8 percent compared to August 2019. According to Statistics Indonesia (BPS), 29.12 million (14.28 percent) of the working-age population have been affected by the Covid-19 pandemic, with 24 million people working shorter hours, 1.7 million furloughed, 2.56 million laid off and 760,000 no longer considered in the workforce.
To address this issue, the government has pushed for more community-based projects in the form of manpower-intensive, financed-in-cash (cash-for-work) projects. The program is hoped to create more jobs for the poor, boost their purchasing power, keep the economy in rural regions humming and ultimately reduce poverty and inequality. One scheme is to involve the community in infrastructure construction and maintenance.
While it was introduced by the government in 2018, the cashfor-work program is actually not something new in Indonesia. It originated from the government policy that encourages the import substitution industrialization by restricting imported goods and replacing them with products produced domestically in the 1990s. Unfortunately, the oil price correction at the time resulted in a policy change which leaned toward exports. With this change, the need for a broader workforce increased because the government was trying to minimize the use of machines as part of efficiency. This was the beginning of the various cash-for-work programs at that time.
In the following 20 years, the cash-for-work programs have changed for ms many times. In 2018, the Public Works and Housing (PUPR) Ministry alone allocated a budget of Rp11.24 trillion for the manpower-intensive program with a target to absorb 263,646 workers. Of the total budget, Rp2.4 trillion was allocated for wages. The cash-for-work programs currently being carried out include the Program for Accelerated Irrigation Water Use Improvement (P3-TGAI), Cities Without Slums (KOTAKU), Irrigation Maintenance Operations (OP), Regional Social and Economic Infrastructure Development (PISEW), Community-based Drinking Water Provision Program (Pamsimas), Community-based Sanitation (Sanimas), Construction of Self-help Housing for Low-Income Communities (MBR), special houses and road maintenance.
Benefits of the cash-for-work program
In the same year (2018) the Center of Reform on Economic (CORE) research institute had the opportunity to conduct a survey on the impact of this program on society at large. The survey was carried out in two provinces – Yogyakarta and South Sumatra – to assess the benefit of the cash-for-work programs in the form of infrastructure development. The survey concluded that the surrounding community where this program was implemented enjoyed the benefits. There are at least three major benefits that the CORE survey found.
In the village of Rejosari and Bangunsari, South Sumatra, for example, the community saw the benefits of the P3-TGAI program. Before, irrigation in the two villages were frequently interrupted but since the program was implemented, the irrigation for 25-hectare of rice fields in each village significantly improved. Previously, farmers were only able to harvest twice at most in a year but thanks to improved irrigation, they could harvest up to three times a year. Since 2017, rice production in Purwodadi district has grown very rapidly. As can be seen in Table 1, the harvested area increased from 3,991 Ha in 2015 to 4,365 Ha in 2017 with actual production ranging from 25,331 tons to 29,337 tons. (TABLE-1)
In just two years, the irrigation canal rehabilitation project yielded significant results. In 2017, rice productivity was 6.72 tons per hectare, 0.37 tons more per hectare than in 2015.
The manpower-intensive program also benefitted the community on the social front as their participation has fostered a sense of mutual ownership within the farming community. In growing rice, farmers tend to pool the various forms of capital they have – physical, financial, social, and human. They even established the Water-using Farmers Association (P3A) where they can meet to discuss a wide range of issues and problems they face. The frequency of the meeting eventually forged a sense of togetherness among them. Economically, the same program in Yogyakarta managed to create job opportunities for local communities. Local residents could earn additional income. Assuming that the total working days are 25 to 50 days and the daily wage was around Rp50,000, the total wage a worker could earn was between Rp1,250,000 to Rp2,500,000 per project.
Improvement of residential infrastructure also contributes to higher value of residents’ assets. A clean and beautiful environment connected by roads and bridges makes it easier to access the area and thereby increased the property value. By applying the willingness to accept (WTA) method, the increase in asset value was estimated to be between 2.5 and 5 times. This means that the accumulated wealth of the residents in the form of property assets has increased significantly after the improvement of residential infrastructure which made the area more habitable.
Meanwhile, the economic benefit of the cash-for-work program was also felt in South Sumatra, where the P3-TGAI program was implemented. The wage received by each worker was Rp90,000 per day. If they worked 6 days a week for the full duration of the project (45 days), it means they would earn an additional income of Rp4,050,000.
The benefits were also enjoyed by farmworkers. The increase in rice productivity led to wage increase. The average income of farmworkers (and smallholder farmers) increased from between Rp1,500,000 and Rp 2,000,000 to Rp2,500,000 per month. For them, this is quite significant. Improved income equality could also be seen from the rural worker’s wage, which grew by 16.5%, faster than their urban counterparts who only saw a 11.9% rise in the period between 2015 and 2018 in South Sumatra.
Furthermore, the increase in rice production also spurred each local economy. More harvests and better yields had boosted sales of agricultural inputs, such as pesticides and fertilizers. Based on the survey, their sales jumped in the years after the program started. In the same period, debt-fueled transactions also declined. These indicated that the purchasing power of the farmers has increased, in line with higher productivity of their rice fields. This subsequently increased local consumption.
The abovementioned benefits were also found in various studies conducted by other institutions or individuals, such as by the National Team for Accelerated Poverty Reduction (TNP2K) and also in research by Ujang Endi Kurnia, et al (2021) and Irvan Sofi (2020). Thus, we can conclude that the village-based programs can serve as a basis for the government to carry out more cash-for-work programs in boosting the economic recovery.
Cash-for-work fund for village and agriculture
Moreover, cash-for-work aid to rural communities and the farming sector is an important aspect of the recovery effort. As we know, the Covid-19 pandemic has increased the number of poor people in villages which totaled around 15 million in March 2020, far higher than that of the cities’ 11 million. As a matter of fact, the unemployment rate in rural areas tends to be lower than urban areas, at 4.71 percent and 8.98 percent, respectively, in August 2020. The problem was the average wage of rural workers tends to be lower than their counterparts in the cities, at R1.9 million versus Rp2.9 million, respectively, in February 2019.
Let’s not forget that the Covid-19 pandemic has resulted in reverse migration, because many could no longer make money in the city. This can be seen from the increase in the number of workers in the agricultural and informal sector in August last year. With the cash-for-work programs to begin again this year, certain improvements are surely needed.
The distribution of cash-forwork funds in villages especially needs to be complemented by building the capacity of village institutions and communities. The Village, Disadvantaged Regions and Transmigration Ministry needs to keep expanding the capacity of rural communities. Moreover, data shows that about 95% of the workforce in the village has only achieved a junior high school education. The government needs to assist them through the community self-dependent learning centers in each village.
The government also needs to build the capacity of village-based institutions, such as village-owned businesses (BUMDes) while providing guidance with a number of village economic development policies. This is necessary because one of the economic problems in the village is the lack of economic resource ownership by villagers as control of resources in the village is in the hands of only a tiny number of people. This means that the distribution of cash-for-work funds could potentially be misappropriated.
Other than strengthening the capacity of village institutions, funding for manpower-intensive programs can also target non-economic aspects, such as the stunting problem. This can begin from surveying the villagers who need help with stunting by village empowerment cadres in a participatory manner. Furthermore, through the Village Stunting forum, all stakeholders in the village can devise the plan needed in dealing with stunting, including working with relevant agencies.
Sector-wise, agriculture is the most suitable for manpower-intensive programs in villages. Moreover, the agricultural sector has become a ‘savior’ in propping the economic performance last year. Unfortunately, this year the challenges in the agricultural sector are more complex. With regard to climate, for example, the La Niña climactic effect is projected to continue until the beginning of this year. Some regions, such as Kalimantan, Sulawesi, Maluku, and Eastern Papua, are expected to bear the brunt, with increased risks of flooding and landslides.
Above-average levels of rainfall are also likely to adversely impact rice and corn planting season for the year, while less sunlight and lower temperatures could suppress yields. The aquaculture sector, which supports the livelihoods of many vulnerable rural populations, may also be affected by extreme weather condition and flooding in inland areas. Therefore, it is very important that there are concerted efforts to support the community in mitigating the adverse impact of the above-average level of rainfall on crops (FAO, 2020).
FAO recommends several solutions, including distributing waterproof silos for seed storage, providing farming and fishing equipment, as well as building food stock for people who are at risk from the abnormally wet season and those living in floodprone areas. Additionally, building or repairing storm surge barriers, gabions, and river banks to protect farms, aquaculture ponds, livestock, and freshwater sources. These programs can be carried out through cash-for-work programs being planned by the government.
Suggested improvements to manpower-intensive programs
On a broader scope, the government also needs to encourage more comprehensive supervision of manpower-intensive programs. According to the BPKP study, the critical point in monitoring the appropriateness of its implementation lies at the community level. The program targets people with varying levels of education. In other words, there is a likelihood of mismatch between the implementation on the ground with applicable rules and regulations, due to the public’s lack of understanding. Therefore, supervision at the implementation stage should also be focused on fostering the human resources involved in it (the community), either through familiarization, training, technical guidance, or others. Supervision is intended to ensure that the targeting has been accurate and the implementation of the programs has yielded the expected benefits, not only in terms of the infrastructure built, but also contribution to local economy through a reduction in unemployment and the villagers’ increased productivity and purchasing power.
The coordination between relevant ministries and agencies is also an important aspect of the cash-for-work aid scheme. In the 2021 National Economic Recovery (PEN) budget, manpower-intensive programs received an allocation of Rp64.74 trillion. To prevent overlap, interministerial synergy needs to be improved. Moreover, Table 2 below shows that the irrigation water management program of the Agriculture Ministry will coincide with the irrigation maintenance operation of the Public Works and Housing Ministry. To ensure optimal and fair distribution of the aid, it is imperative that the two ministries work together. (TABLE-2)
This coordination problem is crucial because, as past experience has shown, lack of coordination often hinders the implementation of government policy. For instance, in the past five years, the government has issued various policies to target economic problems in Indonesia, but the complexity of coordination has delayed their implementation.
Interministerial lack of coordination was also the subject of the Presidential Working Unit for Supervision and Management of Development (UKP4) finding in 2011. This problem is especially magnified when coordination is needed between ministries from different coordinating ministries. Furthermore, linear coordination between central and local governments remains elusive.
The finding by UKP4 affirmed the results of CORE discussion with business players who stated that they often face difficulty when investing in the regions due to weak coordination between the central and regional governments. Furthermore, it needs to be acknowledged that manpower-intensive programs cannot stand alone in boosting economic recovery this year. The government needs to undertake a faster and more comprehensive economic recovery effort, by learning from the experiences of other countries that have successfully posted positive economic growth despite the pandemic.
One of these success stories came from Indonesia’s neighbor, Vietnam. In 2020, when many countries in Asia recorded negative growth, Vietnam managed to post 2.9 percent GDP growth, a respectable figure considering that country’s economy also contracted at the beginning of the pandemic. One of the keys to Vietnam’s success is its successful handling of the Covid-19 pandemic.
Soon after China officially alerted the World Health Organization (WHO) of several unusual cases of pneumonia on December 31, 2019, Vietnam immediately carried out its health risk assessment. On January 21, 2020, the Vietnamese Health Ministry issued guidelines on the prevention and detection of possible outbreak. Before the end of January, Vietnam had issued a National Response Plan and established a National Steering Committee for Epidemic Prevention. This played a key role in improving coordination and communication among agencies at various levels of government.
Vietnam focused on high-risk and suspected cases and carried out 350,000 tests, a relatively small number in proportion to its population. However, testing up to about 1,000 people per confirmed case was the highest ratio in the world.
Simultaneously, Vietnam carried out extensive contact tracing, isolation and quarantine, to third-degree contact. People living near the location of confirmed cases, sometimes the entire stretch of roads or villages, are promptly tested and isolated, which proved effective in containing community transmission. Nearly 450,000 people were quarantined (either in hospitals, state-run facilities or in self-isolation). Treatment and hospital quarantine are provided free of charge to all Vietnamese.
It is true that Vietnam’s population is significantly less than that of Indonesia, but this should not be the reason, because India, whose population is larger than Indonesia’s, is also able to handle the pandemic better. Total tests conducted in India as of January 30, 2021 numbered 198 million, compared to only 9 million tests in Indonesia, so it’s no wonder that the positivity rate in India is 5.9%, far below Indonesia’s 15.78%.
The government’s vaccination drive will not be optimal if it is not accompanied by increased test capacity, as well as more aggressive tracing and isolation and the role of the community in abiding by health protocols. It should be remembered that without proper handling of the pandemic, all government policies, including the manpower-intensive programs, cannot work optimally. Now the choice is in the hands of the government, as we are racing against time to deal with the devastating impact of this pandemic. (Yusuf Rendy Manilet)
Yusuf Rendy Manilet is an economic researcher at the Center of Reform on Economics (CORE). He obtained his Bachelor’s degree in Economics from the Syarif Hidayatullah Islamic State University, Jakarta. His research areas range from macroeconomics, fiscal policy and sovereign debt to poverty alleviation. Before joining CORE, Yusuf worked with several major banks in Jakarta.