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
6
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
9
10
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
11
12
Mean Baseline Characteristics
13
EMPIRICAL METHODS
AND MAIN RESULTS14
ESTIMATION PROBLEM
15
DIFFERENCE-IN-DIFFERENCE WITH
MATCHING/REWEIGHTING
16
DIFFERENCE-IN-DIFFERENCE WITH
MATCHING/REWEIGHTING
17
FLEXIBLE PROPENSITY SCORE MODEL
18
FLEXIBLE PROPENSITY SCORE MODEL
19
SLIGHT IMBALANCE ON BASELINE
EXPENDITURES
20
BINARY TREATMENT (NON-?)EFFECTS
21
BINARY TREATMENT (NON-?)EFFECTS
22
BINARY TREATMENT (NON-?)EFFECTS
23
RESULTS ARE ROBUST TO …..
24
EXPLOITING STAGGERING OF DISBURSEMENT
2
25
EXPLOITING STAGGERING OF DISBURSEMENT
2
26
EMPIRICAL STRATEGY: STAGGERING
27
MULTI-VALUED TREATMENT EFFECTS:
EXPENDITURES
28
MULTI-VALUED TREATMENT EFFECTS:
EXPENDITURES
29
MULTI-VALUED TREATMENT EFFECTS:
EXPENDITURES
30
MULTI-VALUED TREATMENT EFFECTS:
EXPENDITURES
31
EXPLORING VARIATION IN TREATMENT
INTENSITY
32
EXPLORING VARIATION IN TREATMENT
INTENSITY
33
EXPLORING VARIATION IN TREATMENT
INTENSITY
34
INTENSITY OF TREATMENT EFFECTS:
EXPENDITURES
35
INTENSITY OF TREATMENT EFFECTS:
EXPENDITURES
36
UCT RECEIPT AND POVERTY TRANSITIONS
37
MULTI-VALUED TREATMENT EFFECTS: HOURS
WORKED
38
MULTI-VALUED TREATMENT EFFECTS: HOURS
WORKED
39
INTENSITY OF TREATMENT EFFECTS: HOURS
WORKED
40
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.
46
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?
47
THE FUTURE UCT?
48
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
50
51
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
52