T

he government has arranged some compensation programs to provide relief to the poor and near poor affected by the fuel price hike following the House of Representatives' approval of the revised state budget on Monday.  This compensation is designed to anticipate an increase in the  poverty rate.

National Development Planning Minister Armida Alisjahbana said at the House recently, that the fuel price hike would increase the poverty rate to between 11.85 and 12.10 percent of the population, exceeding the national target to reduce the level to 10.5 percent in the 2013 fiscal year, if no measures were taken to mitigate the impact of the fuel policy.

The potential increase in the poverty rate mainly stems from inflation that weakens the purchasing power of the poor. It is estimated that the fuel price hike could push  inflation to the level of 7.2 percent, higher than the target of 4.9 percent set in the 2013 state budget.

For those reasons, the government has prepared five types of compensation program, with some of them having been implemented.

First is temporary direct cash assistance amounting to Rp 150,000 (US$15.15) per household per month for 15.5 million families for five months.

Second is rural infrastructure development in 2.450 villages. To be eligible for the program, a village must have a poverty rate of more than 50 percent.

Third is cheap rice distribution to 15.5 million poor households across the country, which has been extended from 15 months to 18 months.

Fourth is family-based poverty alleviation program called Program Keluarga Harapan, which targets 2.4 million households across the country. The amount of compensation will be raised from Rp 1.5 million to Rp 1.8 million per household.  

Fifth is scholarships for poor students, which will be increased from Rp 7.5 trillion to Rp 12 trillion.  

However, it is believed that the impact of these five programs in relieving the weakening purchasing power of the poor will not last long. In fact, the real impact of the fuel price hike on the poor will be felt  when the compensation programs are terminated.  The reason is, the price of goods and services have gone up even before the fuel price increase, without any chance of going down.

Therefore, the government should have taken other measures, together with the compensation programs, to help the poor withstand the difficult period when the compensation programs are lifted so that their life does not worsen and the poverty rate does not climb.

However, based on past experience, it is not easy to empower the poor. The government implemented policies to empower the poor for many years, but the outcome did not live up to expectations, as manifested by the rise of Indonesian Gini Index from 0.35 in 2008 to 0.41 in 2012, which revealed a widening income gap.

The government needs to offer more productive activities to the poor so as to help them increase their income. Low productivity among the poor mainly relates to less power, participation, capability, autonomy, choice and freedom (Rowlands, 1997).

In fact, it is second to impossible to empower the poor if they do not have enough power and autonomy to participate in economic activities. One possible measure that may lead the poor to  bigger opportunities to increase their income is to develop  the informal sector. About two-thirds of the country's work force are employed in this sector, with the majority of them considered poor.  

Informal sector mostly lacks opportunity to take part in economic activities, due  to many reasons such as difficulties in securing soft loans, too many restrictive regulations at the regional government level and illegal levies.  

Red-tape and illegal levies at regional government level have worked in tandem to create a high cost economy that cuts the added value of the informal sector down to size. As a result, people who work in the informal sector earn a small portion of income.

The government bears the responsibility for providing easy access to credit, encouraging local governments to clear regulatory barriers and eliminating illegal levies to help the informal sector flourish.

The period of compensation programs to help the poor survive the impact of the fuel price hike is considered too short.

The real challenge facing the government is to prepare measures to prevent the poverty rate from ballooning when the programs have to end.

The writer is the director of population and labor force statistics at the Central Statistics Agency (BPS). The opinions
expressed are his own.