Health, Nutrition and Population

After five years in Indonesia, my family and I have left this wonderful country and moved to Kenya. The last five years have been excellent years for Indonesia. The economy stabilized, growth resumed and services started to improve, although modestly and not in all areas. Indonesia still remains an underrated country, but this may change. Indonesia has only mildly been affected by the global crisis. After holding its second direct presidential election, where more than 100 million Indonesians cast their votes, the country can expect another five years of political and economic stability, and possibly some improvements in the business climate.

In my last blog on Indonesia, I’d like to focus on Indonesia’s decentralization experiment, which was put in place ten years ago and made effective on January 1, 2001. Indonesia’s decentralization was a by-product of its democratization after the dismantling of Suharto’s “new order” regime.  Indonesia then implemented one of the most ambitious decentralization programs of modern times, radically transferring responsibility and financial resources to lower levels of government. My colleagues Bert Hofman and Kai Kaiser coined the phrase “big bang decentralization” (pdf). Even though decentralization makes sense in a country covering three time zones and more than 17,000 islands, many were skeptical about this experiment, particularly in the central government.

Imagine how the new Indonesia would prosper if everyone had affordable health insurance, every child completed secondary education and highways were in place connecting Indonesia’s three biggest cities: Jakarta, Surabaya and Medan.

The good news is that today Indonesia’s main challenge is not to save resources but to spend them wisely. This still remains the case, even in the face of the global financial crisis. Despite its position of relative strength, Indonesia has two main weaknesses: the allocation of funds and the implementation of its budget. Despite some impressive steps to rein in subsidies, significant resources are still being spent on subsidies that benefit the well-off, mainly on fuel, electricity and fertilizers. In 2008, subsidies consumed an estimated 23 percent of total government spending. Indonesia also spends a disproportionately large share on “government apparatus,” at 13 percent of the total budget (see chart 1). Interestingly, this is not due to a bloated central government civil service. Instead, it is driven by regional governments, who spend a staggering 32 percent on themselves.

This somewhat provocative question was the title of a conference hosted by Oxford and Standard Charter this week in London.  My answer was: "No, not tomorrow; but yes, eventually – especially if China continues to vigorously pursue economic reform."
 
The reason that China cannot be the engine of global growth tomorrow is straight-forward.  For the last decade an awful lot of the final demand in the world has come from the U.S.  That era is over for the time being as U.S. households now concentrate on rebuilding their savings.  No one country can fill the gap left by the slowdown in U.S. consumption: Japan, Germany, and China together have less consumption than the U.S., so no one of them can replace the U.S. as the major source of demand in the world.  It's not realistic to expect China to play that role.  But we are probably moving into a more multi-polar period in which there is more balanced growth in all of the major economies. 

In the last decade, conditional cash transfer (CCT) programs are probably the key social policy innovation around the world and in the East Asia and Pacific region. The targeted programs offer money to poor households on the condition they make pre-specified investments in the human capital of children. Typically, this involves school enrollment and attendance, and basic preventive health activities such as periodic checkups, growth monitoring, and vaccinations for young children. Often, programs also involve some information campaigns targeting mothers.

Driven in great part by the fact that CCT programs have been rigorously evaluated and shown to have positive impacts, they have become extremely popular in the developing world. Ten years ago, CCTs were being implemented as pilots in a handful of countries. Today close to three dozen developing countries have either a well-established CCT or are in the process of starting one. In some countries, CCTs have become the largest social assistance program, covering millions of households, as is the case in Brazil and Mexico. Interest in CCT programs is also growing in East Asian countries, including Indonesia, Cambodia and the Philippines.