EVALUATING INDONESIA’S

UNCONDITIONAL CASH

TRANSFER (BLT)

PROGRAM, 2005-6

*Department of Economics, University of California, San

Diego

#SMERU Research Institute & TNP2K

@SMERU Research Institute

For presentation at Forum Kajian Pembangunan seminar,

SMERU Research Institute, 30 May 2012

SAMUEL BAZZI*, SUDARNO SUMARTO# and ASEP SURYAHADI@

OUTLINE

Introduction

Program Background, Context, and Data

Empirical Methods and Main Results

Conclusion: Policy implications and a

way forward

2

Escalating global oil price in 2005 → the Government of

Indonesia (GoI) slashed fuel subsidies, raising regulated

prices by a weighted average of 114% in September

Over USD 10 billion in budgetary savings → around USD

2 billion was used for a large-scale unconditional cash

transfer (UCT) program, providing a quarterly transfer of

around USD 30 per recipient household

The UCT program was designed to prevent poor

households from having to reduce expenditures on

essential commodities, health, and education in the midst

of strong inflationary pressure

This paper assesses the impact of the UCT on household

expenditures, work hour, health, and education outcomes3

INTRODUCTION

PROGRAM

BACKGROUND,

CONTEXT, AND DATA4

SUBSIDY REMOVAL AND PRICE

SHOCKS

The GoI dramatically slashed fuel subsidies on October 1st 2005:

effectively raising prices of kerosene by 186%, gasoline by 88%,

and diesel by105%

Over 95% of households consume at least one of the three main

fuel products, and over 90% consume kerosene

Automotive diesel and gasoline subsidies are regressive,

kerosene consumption tends to be relatively flat across the

distribution of income (next slide)

Fuel products comprise a small share of household

expenditures. In 2004, the poorest decile of households allocate

3.7% of monthly expenditures to kerosene while the richest

spend only 1.9%

The indirect effect of the subsidy removals depends on general

equilibrium channels through which fuel prices affect not only

transportation services but also production of goods5

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PROGRAM IMPLEMENTATION

The UCT program targeted beneficiaries through a poverty

census (PSE05) involving local officials

The program was intended to reach all poor and near-poor

households (below 1.2 times the poverty line), but in reality

many non-poor households received program benefits while

numerous poor and near-poor households were excluded

The eligibility certificates were distributed through village

officials, then the recipients retrieved the quarterly

disbursements through the post office

The full transfer amounted to approximately half of baseline

median monthly household expenditures among recipients

Local officials in some regions succeeded in extracting a portion

of the benefit, most were intended for redistribution to non-

recipients 7

8

1 2

3 4

DATA: SUSENAS PANEL 2005-2007 The data used in this paper come from Susenas (national

socioeconomic) surveys in February 2005, 2006 and 2007

The February 2005 Susenas provides a good baseline for impact

evaluation (next slide)

A balanced panel for 2005 and 2006 containing 9,050

households, 2,444 of which received UCT. With the 2007 data, a

balanced three-year panel of 7,016 households, 1,715 received

UCT

Among the 2,444 recipient, 639 had only received a single

disbursement at the time of enumeration in 2006, while the

remaining 1,805 households had received two disbursements

Only eight of the 14 eligibility indicators are available in the

2005 baseline data

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TARGETING OUTCOMES Recipient households were indeed poorer on average than non-

recipients in early 2005 prior to the UCT rollout

Yet there was evidence of potential (i) leakage of benefits as

37% of recipients were in the top six per-capita expenditure

deciles, and (ii) undercoverage as half of the lowest two deciles

did not receive any benefits

The distributional overlap across groups, which is correlated

with observable covariates Xh, should facilitate credible

identification of control households for the group of recipients

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12

Mean Baseline Characteristics

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EMPIRICAL METHODS

AND MAIN RESULTS14

ESTIMATION PROBLEM

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DIFFERENCE-IN-DIFFERENCE WITH

MATCHING/REWEIGHTING

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DIFFERENCE-IN-DIFFERENCE WITH

MATCHING/REWEIGHTING

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FLEXIBLE PROPENSITY SCORE MODEL

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FLEXIBLE PROPENSITY SCORE MODEL

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SLIGHT IMBALANCE ON BASELINE

EXPENDITURES

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BINARY TREATMENT (NON-?)EFFECTS

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BINARY TREATMENT (NON-?)EFFECTS

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BINARY TREATMENT (NON-?)EFFECTS

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RESULTS ARE ROBUST TO …..

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EXPLOITING STAGGERING OF DISBURSEMENT

2

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EXPLOITING STAGGERING OF DISBURSEMENT

2

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EMPIRICAL STRATEGY: STAGGERING

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MULTI-VALUED TREATMENT EFFECTS:

EXPENDITURES

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MULTI-VALUED TREATMENT EFFECTS:

EXPENDITURES

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MULTI-VALUED TREATMENT EFFECTS:

EXPENDITURES

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MULTI-VALUED TREATMENT EFFECTS:

EXPENDITURES

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EXPLORING VARIATION IN TREATMENT

INTENSITY

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EXPLORING VARIATION IN TREATMENT

INTENSITY

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EXPLORING VARIATION IN TREATMENT

INTENSITY

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INTENSITY OF TREATMENT EFFECTS:

EXPENDITURES

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INTENSITY OF TREATMENT EFFECTS:

EXPENDITURES

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UCT RECEIPT AND POVERTY TRANSITIONS

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MULTI-VALUED TREATMENT EFFECTS: HOURS

WORKED

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MULTI-VALUED TREATMENT EFFECTS: HOURS

WORKED

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INTENSITY OF TREATMENT EFFECTS: HOURS

WORKED

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HEALTH OUTCOMES

At baseline, households look quite similar across the two

treatment and control groups with roughly 14 percent of

household reporting negative changes in reported illness, 22

percent reporting an improvement and 64 percent reporting no

changes

UCT recipients increased utilization of outpatient services

relatively faster than non-recipients in 2006 by around 0.05-

0.06 vppm

By 2007, these differential treatment effects dissipate and it

seems that non-recipient inpatient utilization rose relatively

faster

The gains in healthcare utilization extend to both private and

public facilities

In conclusion, the UCT led to modest increases in utilization of

healthcare services 41

EDUCATION OUTCOMES In early 2006, the sample contains 18,243 children of schooling

age, only 29 reported leaving school since the onset of the UCT

program in October 2005, and 14 of the 29 children resided in

UCT recipient households

Despite the extremely small share of dropouts as of early 2006,

students residing in UCT recipient households are slightly more

likely to have dropped out since October 2005

Meanwhile, the intensity of treatment effect is negative,

suggesting that the magnitude of transfer resource relative to

household size had an important moderating effect on the

decision to withdraw children from school

By 2007, the binary treatment effect now becomes positive and

is associated with a lower probability of dropout

The UCT slightly decreased the share of students reporting

having worked in the last week. UCT recipients further reduced

the number of hours worked per student by roughly 0.2-0.5 and

the number of days worked by 0.05-0.242

CONCLUSION: POLICY

IMPLICATIONS AND A

WAY FORWARD43

SUMMARY OF FINDINGS ON UCT

IMPACT

Household expenditures:

Binary treatment effects:

Short-term: Recipients has 3-4% lower expenditure growth than

comparable non-recipients

Medium-term: No statistical difference in expenditure growth

Multi-valued treatment effects:

Short-term: 2 tranches recipients have 7% higher expenditure

growth than 1 tranche recipients

Medium-term: No statistical difference in expenditure growth

Treatment intensity effects:

Every Rp 100,000 higher per capita transfer leads to 4-7% higher

per capita growth

Poverty transition:

Higher per capita transfer leads to reduce probability of

households to become chronic poor and to fall into poverty,

higher probability to become never poor, but no significant

impact for poor households to move out of poverty44

SUMMARY OF FINDINGS ON UCT

IMPACT

Hours worked:

Multi-valued treatment effects:

Short-term: No statistical difference in worked hours

Medium-term : 2 tranches recipients worked 2 hours more per

week than 1 tranche recipients

Treatment intensity effects:

No impact from higher per capita transfer on worked hours

Health:

The UCT enabled households to increase their utilization of

outpatient health services

Education:

UCT is mildly associated with higher school dropout rates

Currently enrolled children residing in recipient households

experience sharper declines in labor supply than children in non-

recipient households45

Fuel price subsidies are regressive, costly, and inefficient, but

they are pervasive in developing countries.

Comparatively the subsidy level in Indonesia is much higher,

making the potential gain even from partial reform is very high.

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THE POTENTIAL FOR REFORM

If reform is implemented and UCT is reinstituted, the findings

of this study points to some features that need to be

reconsidered:

Targeting improvement → Unified database for targeting?

Size of transfer → Per capita?

Frequency of distribution → Monthly?

Specific transfer for students from poor families?

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THE FUTURE UCT?

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APPENDIX49

BPS

Step 1: BPS interviewed the village leader and gathered information on the poorest households in that particular community

Community leaders

Initial list of poor households

Step 2: Cross-checked with other sources of poverty information, such as Family Planning Office data, previous poverty census (in certain provinces)

Step 3: BPS surveyed the economic and social characteristics of the selected households. BPS used a Proxy Means Test (PMT) using 14 indicators to decide eligibility (next slide)

Final list of poor households

Targeting mechanism

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TARGETING CRITERIA

THE 14 INDICATORS (WITH DISTRICT-SPECIFIC WEIGHTS):

• Floor area per capita less than 8 square meters

• Broadest floor is made of dirt/bamboo/low quality wood

• Broadest wall is made of bamboo/low quality wood/non-cemented bricks

• Have no toilet facility

• Have no electricity facility

• Source of drinking water: non-protected well/river/rain water

• Type of cooking fuel: wood/charcoal/kerosene

• Consume meat/chicken/milk only once per week

• Meal frequency of family members: once or twice per day

• Be able to purchase new clothes only once a year

• Have no access to medical services at public health center (puskesmas) for sick family members

• Main field of work of household head: agricultural worker, fishery, casual worker, or similar (income less than Rp 600,000 per month)

• The highest level of education of household head: elementary school or lower

• Have no savings, gold, color television, livestock, or motorcycle (at the minimum value of Rp 500,000).

Cash transfer mechanism

BPS

Step 1: BPS produced & distributed the payment list to the Post Office

Post Office

(PT Pos)

Step 2: PT Pos printed the beneficiary cards and receipt coupons and gave them back to BPS for a second visit distribution

Bank Rakyat Indonesia

Households

Step 3: BPS distributed these cards to beneficiary households and do final verification then informed them when and where payments will be made

Step 4: the local Post Office has an account at the local BRI, where the fund will be transferred

Step 5: Beneficiaries were asked to come to the indicated Post Office on a certain date

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