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STRUCTURAL POLICY
COUNTRY NOTES
Indonesia
Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Indonesia
GDP growth rates (percentage change)
A. Medium-term economic outlook
(forecast, 2013-17 average):
10
GDP growth (percentage change):
Current account balance (% of GDP):
6.4
-3.7
Fiscal balance (% of GDP):
-1.2
2000-07 (average)
2013-17 (average)
8
6
4
B. Medium-term plan
Period:
Theme:
2010-14
Prosperous, democratic and just
2
0
Indonesia
ASEAN-10
Average
Emerging Asia
Average
Source: OECD Development Centre, MPF-2013.
C. Basic data (in 2011)
Total population:
Population of Jakarta:
GDP per capita at PPP:
241 million*
9.6 million (in 2010)
4 666 (current USD)
GDP per capita, 2011 (PPP, current USD)
Indonesia
ASEAN-10 Average
Note: *Total population data for 2011 are an estimate.
Sources: OECD Development Centre, MPF-2013,
national sources and IMF.
Emerging Asia
Average
OECD Average
0
10 000
20 000
30 000
Source: IMF and national sources.
Composition of exports in 2011
(percentage share of total exports)
Others
27%
Textiles
7%
Plastics / Rubber
8%
Machinery / Electrical
8%
Mineral Products
38%
Composition of imports in 2011
(percentage share of total imports)
Others
26%
Machinery / Electrical
24%
Transportation
7%
Vegetable Products
12%
Chemicals &
Allied Industries
9%
Mineral Products
24%
Metals
10%
Source: Trademap.
Indonesia faces a number of challenges all of which centre on the key question of
equality. It must build and upgrade its infrastructure primarily to close the development
gap between the urban and rural areas and the west and east of the country. As a vast
sprawl of scattered islands, connectivity is a key first step in its infrastructure policy. The
same gap – west-east, urban-rural – affects education and, by the same token, human
resource development. Generally, education enrolment and attainment levels are lower
than in other ASEAN-6 countries, but they are particularly stark when urban and rural
areas are compared. As part of its drive to achieve education for all, Indonesia has made
significant progress in improving enrolment, particularly at the lower level of education.
Decentralisation is key, but local government’s capacity, particularly in staffing and the
allocation of funds, is still too limited and there is little accountability.
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SOUTHEAST ASIAN ECONOMIC OUTLOOK 2013: WITH PERSPECTIVES ON CHINA AND INDIA © OECD 2013
structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Widely available health-care systems need to be established. Indonesia’s expenditure
on health care is among the lowest in ASEAN. Health-care provision and facilities are
limited and over one-third of the population has no health insurance. The government
has undertaken far-reaching social security reform, but much is still to be done to create
a sustainable, equitable system.
Indonesia’s medium-term policy challenges and responses
• Narrow the regional divide by enhancing connectivity and the capacity of local
government
• Strengthen the capacity of local government to provide education infrastructure
• Accelerate health-care reform, focusing on coverage and access to health-care
services
POLICY FOCUS
Narrow the regional divide by enhancing connectivity and the capacity of local
government
MP3EI focuses on urban-rural disparities and strengthening connectivity
One of the main pillars of the 2011-25 Master Plan for the Acceleration and Expansion
of Indonesia’s Economic Development (MP3EI) is strengthening national connectivity.
Under the terms of the plan, the provision of infrastructure will enable connectivity and,
by reducing transportation and logistics costs, improve product competitiveness and
accelerate economic growth. MP3EI aims to address regional disparities in infrastructure
and ensure connectivity among the six economic corridors (Sumatra, Kalimantan, Java,
Sulawesi, Bali and Nusa Tenggara, and Papua-Maluku) through an integrated system of
national logistics, transportation, and communication and information.
Regional disparities in infrastructure remain a big challenge for Indonesia
Insufficient in quantity and inadequate in quality, transport infrastructure is a
serious bottleneck in the economic development of Indonesia (OECD, 2011a). While the
total number of vehicles in Indonesia increased threefold between 2001 and 2010, the
national road network – which serves more than one-third of vehicle traffic (in vehiclekilometres) – grew by only a quarter. What is more worrisome is that most of the district
and city roads, which account for nearly 80% of the network, are in bad condition (World
Bank, 2012a), while the disparities between urban and rural infrastructure pose further
challenges.
As for the extent of transport infrastructure, the predominantly rural regions of
Kalimantan and Papua-Maluku have substantially less as a proportion of their land area
than other regions, especially Sumatra, Java and Sulawesi (Figure 2.2.1).
Disparities also exist between urban and rural regions in the quality of road
infrastructure. Over 20% of it is classified as damaged in the Kalimantan and Maluku,
while in Papua the proportion of roads classified as good is only 19% of the total.
SOUTHEAST ASIAN ECONOMIC OUTLOOK 2013: WITH PERSPECTIVES ON CHINA AND INDIA © OECD 2013
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Figure 2.2.1. Area, population, length of roads and number of vehicles
in Indonesia, by region, 2011
(percentage of total)
Area
%
Population
Length of roads
Number of vehicles
70
60
50
40
30
20
10
0
Sumatra
Java
Bali and Nusa Tenggara
Kalimantan
Sulawesi
Papua-Maluku
Source: Ministry of Transportation, Directorate of General Land Transportation, Land Transport in Figures 2011.
12 http://dx.doi.org/10.1787/888932774167
Disparities in the quality of infrastructure are corroborated by the results of the
2011 Report on Local Economic Governance (LEG).1 It found that over 55% of respondents
perceived the quality of road infrastructure as being “poor” or “very poor” in the provinces
of Southeast Sulawesi, Jambi, and North Maluku, while the figure was under 25% for
South Kalimantan, Babel and East Java (Figure 2.2.2). The report considered five kinds
of infrastructure – roads, street lighting, water supply, electricity, telecommunications.
The provinces of Southeast Sulawesi, Maluku and North Maluku came out worst on all
five counts.
Figure 2.2.2. Perceptions of the quality of local road infrastructure in Indonesia,
by province, 2011
(percentage of respondents stating “poor” and “very poor”)
%
80
70
60
50
40
30
20
10
e
ag
Av
er
ua
a
ap
pu
W
es
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Pa
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be
Ba
Ba
ra
La
m
pu
bi
at
m
um
tS
Ja
W
es
Be
ng
ku
lu
0
Source: Komite Pemantauan Pelaksanaan Otonomi Daerah (Regional Autonomy Watch [KPPOD]) (2011), Local Economic
Governance, A Survey of Business Operators in 245 Districts/Municipalities in Indonesia, www.kppod.org.
12 http://dx.doi.org/10.1787/888932774186
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SOUTHEAST ASIAN ECONOMIC OUTLOOK 2013: WITH PERSPECTIVES ON CHINA AND INDIA © OECD 2013
structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
In general, the report concluded that infrastructure in western Indonesia, the
municipalities and main islands is of higher quality than in eastern Indonesia, the
regencies, and smaller islands (KPPOD, 2011). It adds that the more densely populated
regions score higher on the local infrastructure sub-index – the five types of infrastructure
plus four variables: quality of local infrastructure, length of time needed to repair
damaged infrastructure, level of generator ownership and frequency of power cuts.
Another reason why developing and improving connectivity is one of the main
building blocks of the Master Plan is that the sheer distances between and within
Indonesia’s regions make transportation and logistics costs particularly high. Shipping
goods in and out as well as within Papua and West Papua is more costly than in other
regions of Indonesia.
Decentralisation needs to be reinforced through better co-ordination
In addition to its efforts to improve the funding of infrastructure development, the
government’s main policy for narrowing the urban-rural infrastructure gap has been
decentralisation. The decentralisation process, which started in 2001, transferred both
decision making and financial resources for the delivery of basic services, such as
the provision of transport infrastructure, to local governments.2 However, the lack of
co‑ordination between key stakeholders has dogged the process.
In 2005, as part of a further effort to accelerate the development of infrastructure, the
government established the National Committee for the Acceleration of Infrastructure
Provision (KKPPI) to better co-ordinate infrastructure development activities among the
ministries involved – the Ministry of Finance, the Co-ordinating Ministry for Economic
Affairs, and the Ministry of National Development and Planning (Bappenas, 2010).
However, KKPPI faces several challenges: it lacks concrete powers to shape policies,
make decisions and act independently of the line ministries. For the time being, there is
a sizeable gap between urban and rural areas in the number of infrastructure projects
that may expect funding through public-private partnership (PPP) schemes (Figure 2.2.3).
In May 2011, as part of MP3EI, the Indonesian government launched 17 new
infrastructure projects at numerous locations including Papua (OECD, 2011a), one of
the regions lagging behind in terms of transport infrastructure. As the master plan
identifies almost 400 infrastructure investment projects – in transport, energy, water and
ICT infrastructure – to be completed by 2025, local government capacity to implement
such projects needs to be bolstered. The aviation sector in Papua and West Papua,
for example, has been underfunded in recent years and there was an acute shortage
of high-level technical expertise in a variety of fields. Also in short supply is careful
co‑ordination between the various components that make up the aviation system and
streamlined arrangements for cost sharing between local and central government
(World Bank, 2009a).
In December 2011, the Indonesian Parliament passed the long-awaited Land
Acquisition Law, which is designed to ease the bottleneck in infrastructure development
by improving investment. It empowers the government to appropriate land in return for
monetary compensation, the resettlement of occupants, or an ownership share in public
projects. A further regulation setting out procedures for land acquisition was signed by
the President in August 2012.
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Figure 2.2.3. The number of PPP infrastructure projects in Indonesia, by province
2010
2011
2012
18
16
14
12
10
8
6
4
2
W
No
r th
S Ac
es um eh
t S at
um r a
at
r
Ri a
So
au
ut Ja
h
Su mb i
Ke
pu
Be mat
lau
ng r a
an
Ba L a ku
ng mp lu
ka un
Be g
litu
n
DK B a n g
I J ten
W ak a
Ce est r t a
DI n t r a J a v
Yo l J a
g y av
a a
W
E a k ar
es
st ta
tN
Ja
Ea u
va
st sa
Nu Te B
s a ng a li
Ke T g a
e r
W pul a n g g a
C e e s t uan ar a
nt K a R
r
l
S o a l K im a i au
u t a li n t
h m an
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s t lim t a n
No K a li a n t a
r t ma n
W h S nt a
C e e s t ul aw n
n t Su e
s
r
S al la i
S o ou Su w e s
l
u t t h aw i
h e Su e s
as la i
t S we
ul si
Go awe
r o si
n
No M t alo
r th al
u
W Ma ku
e s lu
t P ku
ap
u
Pa a
pu
a
0
Source: Ministry of National Development Planning and National Development Planning Agency, Republic of Indonesia.
12 http://dx.doi.org/10.1787/888932774205
Extra focus needs to be given to local government capacity building
Increasing resources both from public and private sources as well as improving
the regulatory environment are essential measures. They are not, however, enough to
complete all the infrastructure investment projects identified by the Master Plan. While
infrastructure development activities among ministries and across tiers of government
need to be better co-ordinated, there is also room for improvement in local government
capacity building.
Although decentralisation and multi-level governance mechanisms are necessary
parts of the effort to address urban-rural and regional disparities, the interests of
Indonesia’s sub-national divisions cannot be effectively represented without local
knowledge. Infrastructure development projects may fail or lead to significant waste or
corruption in the absence of adequate resources, knowledge and human capital (OECD,
2011b).
In Indonesia, local governments do not necessarily have the capacity to design
and implement their assigned infrastructure projects effectively. Central government
therefore needs to intervene to build local capacity, by increasing resources, training
local government staff, and improving e-government tools (Box 2.2.1).
One of the main challenges Indonesia faces is the quality of its human resources.
According to MP3EI 2011-25, around 50% of the workforce in Indonesia have only primary
school education, while a mere 8% hold a formal qualification. Moreover, as a result of
the apparent development gap between the western and eastern parts of Indonesia and
between the urban and rural parts of the country, there are considerable disparities in
access to high-quality education.
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SOUTHEAST ASIAN ECONOMIC OUTLOOK 2013: WITH PERSPECTIVES ON CHINA AND INDIA © OECD 2013
structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Box 2.2.1. Bridging the capacity gap: Examples from OECD countries
Capacity gaps arise when a local government lacks the human, knowledge-related
and/or infrastructural resources to carry out development projects. OECD examples of
capacity building include involving specialised non-profit organisations and improving
the use of e-government tools.
In Greece, as a response to the sovereign debt crisis, a special non-profit organisation
was set up to assist small municipalities (with populations of less than 10 000) which
lacked the necessary skills for preparing the four-year action plans required to access
EU structural funds.
In the United States, at the height of the recent financial crisis in 2009, distressed
areas and small towns were less able to apply for relevant programmes and secure
funding owing to the rigorous reporting requirements attached to the Recovery Act.
Most importantly, they lacked the trained manpower needed to carry out intensive
contracting and monitoring processes. The federal government website therefore
supplied e-government tools to help recipients of recovery funds meet their quarterly
reporting requirements by submitting their project updates online. Moreover, the use of
such technology also considerably enhanced the accountability, speed and transparency
of the Recovery Act.
Source: OECD (2011b).
POLICY FOCUS
Strengthen the capacity of local government to provide education infrastructure
The improvement of human resources is an important pillar of the implementation
strategy outlined in MP3EI. The master plan places a special emphasis on higher education,
arguing that in a country that is shifting towards a knowledge-based economy the role
of good quality education is paramount. MP3EI aims to tackle the issue of disparities
in higher education through supply-side interventions such as establishing community
colleges in every district and city. Furthermore, both vocational and academic education
programmes are to be aligned with the economic potential of the six economic corridors
so that graduates entering the labour market meet their particular needs.
The urban-rural education gap is still a vexed question
Although access to basic education has been steadily improving in Indonesia, as
its mounting enrolment rates show (OECD, 2011a), disparities in education are still
widespread.
The urban-rural education gap is apparent from literacy, enrolment rates and
attainment levels. For instance, while the illiteracy rate among 15-year-olds and over
was just 0.9% in the Capital Region of Jakarta in 2010, the comparable rate in Papua was
31.7% (Figure 2.2.4).
SOUTHEAST ASIAN ECONOMIC OUTLOOK 2013: WITH PERSPECTIVES ON CHINA AND INDIA © OECD 2013
7
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
%
35
%
8
Figure 2.2.4. Percentage of illiterate individuals aged 15 years or over
in Indonesia, by province, 2010
30
25
20
15
10
5
0
Source: BPS Statistics Indonesia.
12 http://dx.doi.org/10.1787/888932774224
Disparities in enrolment rates increase with the level of education. Nearly all
provinces boast elementary school enrolment rates of over 90%, the only straggler being
the predominantly rural province of Papua with an enrolment rate of 76%. Enrolment
gaps are wider at junior and senior high school level (Figure 2.2.5).
Figure 2.2.5. Net school enrolment rates in Indonesia, by province, 2010
Senior High School
Junior High School
Elementary School
100
90
80
60
70
50
40
30
20
10
0
Source: BPS Statistics Indonesia.
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structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Examination by age group of the percentage of the population attending school
reveals that the urban-rural gap is already apparent among 5 to 6 year-olds at pre-school
level. Indeed it is even wider than among elementary pupils. After elementary school
the disparity in enrolment rates increases again, reaching its peak at post-secondary
level between the ages of 19 and 24 years old.
The educational attainment gap among the population aged 5 years old and over
shows wide disparities along the urban-rural fault line. While the most widely attained
level in rural areas is primary school at 37%, among the urban population it is senior
high school at 24%. Furthermore, while only 1% of the rural population is educated to
university level, the figure is 5% among urban dwellers (Figure 2.2.6).
Figure 2.2.6. Educational attainment of population aged 5 years
and over in Indonesia, 2010
%
Rural
Urban
40
35
30
25
20
15
10
5
0
Postgraduate Diploma IV/ Diploma III Diploma I/II Vocational
Senior
Junior
University
High School High School
Source: BPS Statistics Indonesia, 2010 Population Census.
12 http://dx.doi.org/10.1787/888932774262
Primary Not completed/ Never
School Not yet completed attended
Primary School school
Observation of the disparities in educational attainment among the different
provinces shows that Jakarta has the best qualified human resources with 13% of the
population of 5 years of age and older reaching higher education. The picture is in stark
contrast to the mostly rural provinces of Papua, West and East Nusa Tenggara, West and
South Sulawesi, and West Kalimantan, where between 13% and 38% of 5-year-olds and
older have never attended school at all.
The nature of the disparities in enrolment rates and educational attainment in
the different age cohorts reflects the policy of compulsory, and therefore free, basic
education. Since compulsory education was extended from six to nine years in 2000,
disparities at elementary level have been considerable. Similarly, disparities at junior
high school level, though still wide, have narrowed since the extension of the length
of compulsory education. On the other hand, as upper secondary education is not
compulsory, regional gaps are not only wider than at lower levels, but have steadily
worsened (Moeliodihardjo, 2010).
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Regional disparity in Indonesia is mostly due to the paucity of social and economic
infrastructure in the less developed areas (ibid.). The most serious impediments, though,
in addition to the great differences in economic development among the provinces, are
the shortages of educational infrastructure and quality teachers in disadvantaged areas.
The 2005 Teacher Law has helped improve the standard of teaching by introducing
incentives and sanctions to ensure that teachers have a minimum level of competency.
The law has cut the numbers of teachers holding second jobs, but student learning
outcomes do not seem to have improved so far. Nor does the current process of
academic upgrading appear to have had anything but limited effects on student learning
(World Bank, 2012b).
Although most universities do provide scholarships for students from the less
developed provinces, the accumulated lag in education may well prove to be an
insurmountable challenge when disadvantaged students take their entry exams to
universities. The proportion of students admitted to the top five public universities – all
located in Java – and who completed their secondary education outside Java is less than
15% (Moeliodihardjo, 2010).
Local governments need more flexibility to allocate centrally provided education funds
The decentralisation of political and economic powers from central to local
governments has also devolved the delivery of education. Consequently, it is the regional
governments’ responsibility to maintain schools, pay teachers’ salaries and collect
students’ fees. One of the main objectives behind decentralisation was to improve access
to and the quality of education – yet it may actually have widened regional differences
in educational attainment (Arifin, 2011). Although local governments account for the
bulk of spending on education, they have limited autonomy in the allocation of funds
transferred to them by central government, as most investment programmes are
designed and financed by the central government through grants (OECD, 2010a).
In 2003, as a part of the decentralisation process, the Education Law set out four
major directions: i) basic education should be free of all charges; ii) schools should be
given the authority to manage their own programmes; iii) community participation in
education should be encouraged; and iv) the financing of education should be based on
the number of students rather than on the number of schools.
In 2005, the government implemented the School Operational Assistance
Programme (BOS) in order to increase enrolment rates. This generally successful
scheme (SMERU, 2006) has helped reduce school costs, so easing the burden on
Indonesian households, particularly disadvantaged rural ones. Moreover, as part of the
2010-14 Medium-Term Development Plan (RPJN) additional support from the regional
government budget (APBD) has extended free education to more and more regions.
In 2007 – and again as part of RPJN – the government started a conditional cash
transfer scheme, the Family Hope Programme (PKH), to encourage poor households to
send their children to school. The PKH was designed specifically to increase enrolment
rates by making the nine-year duration of compulsory basic education a reality.
In the same year, the government launched another conditional cash transfer
programme for rural communities, the PNPM Generasi. Under the terms of the
programme, community funds (BLM) are allotted to villages, with the amount depending
on the number of beneficiaries in a village – namely, pregnant women and children
10
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structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
under 5 years old or of primary school and junior high school age. How the funds are
used is decided by agreement among the villagers, but they must be spent on improving
the provision and use of maternal and child health care and basic education services
(SMERU, 2011)
Box 2.2.2. Grants for remote, rural and small schools reinforce inequality.
Over half of all provincial and district authorities have attempted to bridge the gap
between the School Operational Assistance (BOS) grant that schools receive and their
actual operating costs by introducing local school grants (BOSDA). However, BOSDA
allocation criteria reinforce patterns of inequality with bigger, better equipped urban
schools receiving higher grants than smaller, less well equipped rural schools. Its
per-student formula fails to account for differences in operating costs. A school in a
remote part of Papua can purchase fewer textbooks and other supplies than a school
in Jayapura, the provincial capital, even with the same amount of BOSDA. In addition,
electricity usage varies only according to the physical size of the school and the number
of classrooms, not the number of students. A per-student formula allocates more to
large schools with higher levels of enrolment than smaller schools. Ensuring that
smaller schools have enough resources to cover their overheads is a significant issue,
because nearly half of all primary schools in Indonesia have fewer than 150 students.
The BOS has recently been decentralised to improve it implementation.
Source: World Bank (2012c).
The 2010-2014 Medium-Term Development Plan also has provision for school
infrastructure. Central government has assisted the regional authorities in rehabilitating
school buildings built in the 1970s and 1980s and further increasing the total number of
classrooms and new schools.
A further measure – the open junior high school system – addresses the lack of
school infrastructure and the needs of students who either live in remote locations or
simply cannot attend school regularly for economic reasons. Children in poor areas tend
to drop out and start working once they have gained basic literacy and numeracy skills,
because their parents, who mostly work informally, see their children as workers and
place no value in further education (Mukherjee, 2006).
The open junior high school system was created to provide a teaching and learning
schedule that is as flexible as possible. Tutors assist in the “learning process” in their
neighbourhoods, while students meet every now and then to discuss what they learned
and eventually take exams in a “learning place” that may be further away from where
they live. No tuition fees are charged in open junior high schools and, although the general
curriculum is similar to that of their peers in regular junior high schools, there is more
emphasis on life skills as most students do not continue formal education afterwards.
Target funding where needs lie
In addition to increasing public spending on education3 to improve the development of
rural school infrastructure, it is also important to balance local autonomy with efficiency
and make school funding strategies more responsive to the needs of disadvantaged
regions, schools and students. A balance should also be struck between the autonomy
delegated to local governments and their accountability. Decentralising the governance
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
of education is not necessarily a way to respond to local needs or address disparities, as
local authorities may lack the required capacity. The experience of OECD countries shows
that, while the central government should exert control over levels of school funding and
performance standards (OECD, 2012a), schools should enjoy autonomy in areas where
their knowledge and know-how are relevant – e.g. managing their personnel. Currently
personnel management is the responsibility of regional and sub-regional authorities
(OECD, 2012b).
As disadvantaged regions and schools may need additional resources (to attract
more experienced, better qualified teachers, for example), it is paramount that the right
amounts are allocated if disparities are to be effectively addressed. Formula funding –
which relies on a mathematical equation incorporating parameters like students’ socioeconomic backgrounds and parents’ educational levels – is considered to be a more
efficient strategy for ensuring equity (Box 2.2.3) than the current practice of historical
budgeting.
Box 2.2.3. Formula funding for equitable and effective resource allocation:
Examples from OECD countries
Disadvantaged schools may need additional resources as the challenging socioeconomic profiles and varying needs of the students tend to push up teaching costs. The
OECD experience is that disadvantaged schools have less experienced, less qualified
teachers, even though quality teaching is particularly vital to meeting the learning
needs of their students. It is therefore essential that resource allocation should be
optimised through an adequate funding scheme in order to improve equity.
Formula funding uses mathematical formulae comprising meaningful parameters to
determine school budgets. Formulae contain four main groups of variables used across
OECD countries. The variables are based on: i) student numbers and grade levels;
ii) needs; iii) curricula or educational programmes; iv) school characteristics. In general,
formula funding is considered to be the most efficient, transparent method of school
funding that incorporates needs criteria.
In the Netherlands, formula funding that is weighted to meet the needs of disadvantaged
students has been in place in all primary schools since 1985. The “weight” of each student
is determined by their parents’ educational level, while schools have the freedom to
spend the extra resources as efficiently as they can. Formula funding arrangements
have apparently succeeded in distributing differentiated resources to schools according
to their different needs: primary schools with high proportions of “weighted” students
have on average 58% more teachers per student as well as more support staff.
Chile introduced a weighted voucher scheme in 2008 to favour students from low
socio-economic backgrounds and schools with high concentrations of disadvantaged
students. It replaced a system where all students were weighted equally. Although
acceptance of supplementary funds is voluntary, the schools who do accept them are
subject to mandatory technical support and a quality assurance system that includes
improvement plans and objectives to ensure value for money. Evidence points to the
weighted voucher system achieving results and mitigating disparities in education.
Source: OECD (2012a).
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structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Formula funding weighted to account for disadvantaged students and schools would
be a step in the right direction of mitigating educational disparities in Indonesia.
POLICY FOCUS
Accelerate health-care reform, focusing on coverage and access to health-care services
Both the RPJN 2010-2014 and the MP3EI 2011-2025 stress the importance of health
care. The RPJN seeks to widen access to health services and sets ambitious numerical
targets for increasing life expectancy and reducing infant and maternal mortality
rates. Other objectives, it states, are improving the quality of internationally accredited
hospitals, standardising pharmaceutical procurement, controlling the prices of branded
generic medicines, and gradually expanding the health insurance system to universal
coverage by 2014.
The MP3EI reaffirms the importance of improved access to health-care services and
proposes to do so through targeted economic assistance to the poor and social insurance
for all.
Indonesia’s health-care system remains underdeveloped
Indonesia does not spend enough on health care. Although government health
expenditure has increased in recent years, total health expenditure has remained under
3% of GDP (Figure 2.2.7). Among ASEAN countries, only Myanmar spends less on health
than Indonesia (Figure 2.2.8).
Figure 2.2.7. Expenditure on health in Indonesia, 2000-10
General government expenditure on health (RHS)
General government health expenditure as % of General government expenditure
Private expenditure on health (RHS)
Total expenditure on health as % of GDP
%
9
IDR trillion
180
8
160
7
140
6
120
5
100
4
80
3
60
2
40
1
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
Source: WHO Global Health Expenditure Database, http://apps.who.int/nha/database/DataExplorerRegime.aspx.
12 http://dx.doi.org/10.1787/888932774281
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Figure 2.2.8. Expenditure on health in Southeast Asia
(percentage of GDP)
2005
%
2010
8
7
6
5
4
3
2
1
0
Brunei
Cambodia Indonesia Lao PDR
Malaysia Myanmar Philippines Singapore Thailand
Viet Nam
ASEAN
average
Source: WHO Global Health Expenditure Database, http://apps.who.int/nha/database/DataExplorerRegime.aspx.
12 http://dx.doi.org/10.1787/888932774300
An additional issue of health-care spending is its inefficiency. Although local
authorities are responsible for a substantial part of health service delivery, there is a lack
of administrative and managerial capacity, while local governments have no incentive
to contain costs or increase cost-effectiveness (OECD, 2010a).
The insufficiency and inefficiency of Indonesia’s health expenditure has produced
sub-par service provision, as measured by the number of hospitals and the density of
medical staff. And even though they have increased slightly (Figure 2.2.9), Indonesia
still lags behind its regional peers (Figure 2.2.10). The number of hospital beds per
1 000 people is only 0.6, lower than in Cambodia or Lao PDR. Similarly, there are only 0.3
doctors for every 1 000 inhabitants, while the figure is 0.5 in Myanmar (Figure 2.2.10). The
low effective density of medical personnel is due mainly to protective regulations that
bar entry into the medical profession as well as to the limited powers of local authorities
to sanction absenteeism (OECD, 2010a).
There is room to improve the quality of services on account of the lack of medical
appliances and supplies (OECD, 2010a). The result is low confidence in health-care
services, with relatively high percentages of the population treating themselves (70%) or
using traditional medicine (30%) (Figure 2.2.11).
As a consequence of insufficient, inefficient expenditure and shortages of equipment
and medicine, the health status of the population is poor. Figure 2.2.11 shows that when
Indonesians are questioned about their health, 31% report they have had complaints in
the last month. Furthermore, life expectancy is lower than in any other ASEAN countries
except for Cambodia, Lao PDR and Myanmar.
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structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Figure 2.2.9. Supply of health services in Indonesia
Hospital
Nurse (RHS)
Midwives (RHS)
Doctor (RHS)
Personnel per 1 000 people
1.2
Number of hospitals
1 750
1 700
1.0
1 650
0.8
1 600
0.6
1 550
0.4
1 500
0.2
1 450
0.0
1 400
2009
Source: Ministry of Health.
12 http://dx.doi.org/10.1787/888932774319
2010
2011
Figure 2.2.10. Supply of health services in Southeast Asia,
2010 or latest year available
Hospital beds
Physicians
Nurses and midwives
Per 1 000 people
7
6
5
4
3
2
1
0
Brunei
Cambodia Indonesia
Lao PDR
Malaysia
Myanmar Philippines Singapore
Source: World Bank.
12 http://dx.doi.org/10.1787/888932774338
Thailand
Viet Nam
ASEAN
average
Much of the Indonesian society does not have any type of health insurance, either
although the share of the population covered by any health insurance programme
increased from 43% in 2007 (ILO, 2008) to 65% in 2011 (Figure 2.2.12).
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Figure 2.2.11. Health status and alternative treatment in Indonesia
Percentage of population
with self treatment
%
80
Percentage of population
with traditional medicine
Percentage of population with health
complaint during the last month
70
60
50
40
30
20
10
0
2005
2007
2006
2008
2009
2010
Source: BPS Statistics Indonesia.
12 http://dx.doi.org/10.1787/888932774357
Figure 2.2.12. Health insurance coverage in Indonesia, by programme, 2011
Jamkesmas
Jamkesda
Jamsostek
Askes
Private insurance and others
Not insured
33%
35%
9%
14%
2%
7%
Source: Ministry of Health.
12 http://dx.doi.org/10.1787/888932774376
Despite government efforts to provide coverage for all, the extent of the informal
economy – which accounts for about two-thirds of total employment (OECD, 2011a) – and
the fragmented nature of the different health insurance schemes leave a considerable
proportion of the population without insurance. There is empirical evidence that illness
leads to financial risk as people pay for treatment out of their own pockets. This is
especially true of the rural population and the poorest quartile of the population where
consumption smoothing is imperfect as non-food expenditure is affected by ill health
(Sparrow and Van de Poel, 2012).
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structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
The existing publicly managed health insurance programmes differ as to their
beneficiaries, benefits, premiums and in the efficiency of their health-care provision and
management. The government-financed programmes, Jamkesmas and Jamkesda, for the
poor and near-poor cover over 100 million people, or almost 50% of the population. The
benefits of Jamkesmas include comprehensive out-patient and in-patient care in public
health clinics and third-class hospitals, while those of Jamkesda are provided only in
certain provinces and districts and vary in nature from one to the other.
Table 2.2.1. Health insurance programmes in Indonesia
Beneficiaries
Jamkesmas
Jamkesda
Askes
Jamsostek
- Poor and nearpoor population
(target population
is 93 million
people)
- People who are
identified by the
local authorities as
poor and near-poor
but are not covered
by Jamkesmas
- Civil servants and
their dependants
- Formal sector
workers and their
families who
work in private
enterprises with at
least ten workers
and a turnover of at
least IDR 1 million
Premium
- Financed by the
government
- Financed by local
government
Benefits
- Comprehensive
out- and in-patient
care in public health
clinics and third-class
hospitals
- Benefits are
provided only in
certain provinces and
districts and vary
from one to the other.
Coverage
Performance
76 million people
- Lack of
co‑ordination
between planning
and implementation
(33% of the
population)
- Beneficiaries
poorly informed
about the benefits
they are entitled to.
33 million people
- Lack of detailed
information about
beneficiaries and
how they use health
care
(14% of the
population)
- Beneficiaries of
Jamkesda may
overlap with those of
Jamkesmas
- 2% of basic salary
that is matched by
the government
- Comprehensive outand in-patient care,
no additional payment
needed for prescribed
medicine
17 million people
- There is no official
information either
on the exact number
of beneficiaries
covered or on the
amount of benefits
paid out
- Mandatory scheme
- There is only
one state-owned
hospital that provides
services for Askes
card holders in each
municipality
(7% of the
population)
- The quality of
service received
varies considerably
according to the
rank of the civil
servant treated
- Either 3% of the
salary for single
employees and
6% for married
employees
- Not mandatory
(companies can
opt out if they
offer comparable
or better health
insurance)
- Generous health
care package that
includes a wide range
of medical services,
drugs, and treatment
for out‑patients and
in‑patients
6 million people
(2% of the
population)
- Governance and
management are
of better quality
than in other
publicly managed
programmes
(e.g. Askes), and
it is consequently
more efficient and
transparent
Source: OECD Development Centre’s compilation based on ILO Social Security Department, www.ilo.org/dyn/
ilossi/ssimain.schemes?p_lang=en&p_geoaid=360; Widjaja and Simanjuntak (2010); OECD, 2010a.
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Although Jamkesmas and Jamkesda reach much of their target population, there are
serious deficiencies. The poor co-ordination between planning and implementation
leads to overlaps, with some people covered by both schemes. Another issue is the lack
of detailed information about beneficiaries and how they use health care. There are
some, for instance, who are covered but were not originally so – and vice versa – while
most people do not know to what services they are entitled.
The two publicly managed but privately financed programmes, Askes and Jamsostek,
insure civil servants and their dependents and formal sector workers (and their
families). While Askes is a mandatory scheme, employers can opt out of Jamsostek if
they offer comparable or better health insurance policies. Although Askes insurance
premiums (2% of the salary matched by the government) are more attractive, the benefit
package offered by Jamsostek is more generous. The programmes also differ with respect
to their performance. Askes provides official information neither on its exact number of
beneficiaries nor the amount of benefits it pays out, while its quality of service varies
widely according to beneficiaries’ rank in the civil service. Jamsostek, however, is more
efficient and transparent in its governance and management practices.
Recent policies address health care and other social security reforms
Since Indonesia began its decentralisation process in 2001, local authorities have had
the power to manage public health-care facilities and medical personnel by setting fees
and user charges for public health services and allocating the transfers received from
central government to finance provision. However, control over medical personnel’s
employment and pay conditions and over the health insurance scheme for the poor has
remained in the hands of the central government (OECD, 2010a).
In 2004, the National Social Security System (SJSN) Law provided a blueprint
for the future shape of the social security system and envisaged a comprehensive
system of social protection with universal coverage. In addition to health insurance,
the framework included pensions, old-age savings, workers’ compensation, and death
benefits – all financed by workers’ contributions, with the exception of provisions for
the poor, which are funded by the state. As for informal workers’ contributions, the SJSN
Law states that nominal amounts instead of a percentage of wages should be collected.
With respect to implementation, it specifies that the health-care programme should be
put in place first. The sustainability of the future system was also taken into account, as
the law stated explicitly that the programmes had to be affordable for the state budget.
In terms of governance, social security administrative bodies (BPJS) would manage the
social security funds attached to each programme. A monitoring and research body,
the National Social Security Council (DJSN), would be created to formulate policies,
synchronise the SJSN system, conduct research into social security, and monitor the
social security administrative bodies. However, the law did not address such issues
as the amount of benefits, contribution rates, or the exact governance structure of the
system (Rachmatarwata and Ginting, 2010).
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structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
In 2011, in a major step towards the actual implementation of the National Social
Security System Law, a regulation spelled out the status of the BPJS, BPJS Health and
BPJS Employment administering health as well as work accident, old-age, pension and
death related programmes. The BPJS are to be managed as trust funds on a non-profit,
compulsory-participation basis and are to be externally monitored by the DJSN. When
the BPJS’s health programme becomes operational on 1 January 2014, current health
insurance schemes will be dissolved and managed by the new administrative body, BPJS
Health.
Health-system reforms need to look further ahead
While public spending on health care needs to be increased, the medium- and longterm fiscal sustainability of the reformed health-care system also deserves consideration.
Another challenge, in addition to the objective of universal coverage, is that the ageing
of Indonesian society will further increase the strain on the system in the long term
(Box 2.2.4).
Although the final benefit and contribution levels are still pending, the 2004 BPJS
Law was an important step towards creating a financially viable system that is based on
compulsory participation and so ensures adequate risk pooling. Nevertheless, further
efforts are needed to achieve fiscal sustainability. Cost-effectiveness in treatment
procedures as well as the administrative and managerial capacities of local governments
need to be enhanced in order to increase spending efficiency.
The issue of fiscal sustainability is closely linked to the balance between the benefit
package offered and the level of contribution required. As the different health-care
schemes will be dissolved under BPJS Health, it is important to define an adequate
but fiscally sustainable basic benefit package that can be supplemented with further
private health insurance providing extra services. As regards contributions, there
is a need to define the different premiums of employees working in different sectors
(i.e. civil servants covered by Askes and private-sector employees by Jamsostek), while the
government should continue to fund health insurance for the poor and near-poor. For
the informal sector, a tax-based financing scheme or a government-funded one similar
to the arrangement for the poor and near-poor could be considered as the administrative
and enforcement costs of collecting contributions may be high.
The capacity of the new administrative body, BPJS Health – its funding, its personnel’s
technical skills (e.g. actuarial and modelling abilities) and data collection and electronic
registration system – needs to be enhanced. On the supply side, physical infrastructure
and service provision could be improved to cope with growing demand prompted by
coverage for all and – simply – to improve the general quality of services. To ease supplyside constraints, more investment is required in physical infrastructure such as hospitals
and medical appliances, especially in rural areas. In terms of service provision, local
authorities should be granted greater powers to monitor and sanction staff, e.g. medical
personnel for absenteeism (OECD, 2010a).
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Box 2.2.4. Improving health care under a budget constraint:
Examples from OECD countries
In OECD countries, total health-care spending as percentage of GDP has risen significantly
from 5% in 1970 to 9.5% in 2007. Total health-care expenditure per capita also increased
more than 70% in real terms between 1990 and 2007. In the meantime, public spending
on health care, which accounts for 15% of general government expenditure on average
in 2007, is projected to increase by 3.5 to 6 percentage points of GDP between 2005 and
2050.
Across OECD countries, but also in Southeast Asian countries, population ageing,
rapidly rising health-care prices and costly developments in medical technology are
major contributors to upward pressure on health-care budgets.
In order to achieve two competing goals – enhancing the health-care system and
maintaining fiscal sustainability – OECD countries use various policy instruments to
govern the behaviour of users, providers and payers of health care.
As regards users, many OECD countries try to steer patient demand by restricting their
choice (e.g. the requirement to register with a general practitioner and/or limitations on
choosing a primary care physician, a specialist and a hospital).
Belgium, Canada, France, Germany, Japan and Switzerland have introduced powerful
incentives to encourage them to adjust to demand by relying on fee-for-services and
payment per procedure. There is a risk, however, that such provider payment schemes
may lead to supply-induced demand owing to information asymmetry between patients
and doctors.
As for payers, competition across insurers has been introduced in some countries.
In Switzerland, free choice among insurers for basic health-care coverage and open
enrolment were introduced in 1996. Overall, OECD countries have relied both on market
mechanisms and on regulations, which often play a complementary role.
OECD countries have more specific and practical examples of programmes that can be
lessons for Southeast Asian countries. The United Kingdom is implementing a programme
of health checks for everyone aged between 40 and 74 to prevent heart disease, stroke,
diabetes and kidney disease. According to estimates from the Department of Health, the
health check programme will cost GBP 332 million (British pounds) a year, but generate
an annual benefit of GBP 3 678 million, save around 650 lives, and prevent 1 600 strokes
and heart attacks.
Japan introduced mandatory long-term care insurance system in 2000. It is reviewed or
revised every five years, to improve health-care services to elderly people and reduce
costs. After the first review in 2005, “hotel costs” (i.e. room and board fees for longterm care residents) were introduced to give people incentives to stay at home and
receive community-based services rather than go into more costly long-term care
facilities. Japan also expanded the preventative service provision to prevent people
from becoming dependent.
Sources: OECD (2010b) and OECD (2011c).
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structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
Notes
1. The LEG study, prepared by KPPOD (Komite Pemantauan Pelaksanaan Otonomi Daerah, or Regional
Autonomy Watch) and The Asia Foundation, aims to measure the quality of local economic governance
in 245 regencies/municipalities in 19 provinces in Indonesia by surveying business community`s
perceptions. Local infrastructure is one of the nine indicators included in- the report. The final LEG
Index is the weighted average of the nine sub-indices.
2. See Asia-Pacific page on the World Bank website, http://web.worldbank.org/WBSITE/EXTERNAL/
COUNTRIES/EASTASIAPACIFICEXT/0,,contentMDK:23186158~pagePK:146736~piPK:146830~theSite
PK:226301,00.html#5.
3. In 2010, public spending on education in Indonesia was only 3% of total GDP.
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Structural Policy Challenges FOR SOUTHEAST ASIAN COUNTRIES
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