Social protection in Indonesia has evolved as fast as the country itself over the past two decades. Today, the Government of Indonesia (GoI) recognises social protection as being central to its economic, political and social development as well as its ambition of becoming one of the world’s ten largest economies by 2030. Social protection is at the core of the 2015-19 Medium Term Development Plan (RPJMN), which articulates a vision for inclusive economic growth that promotes equality of income and opportunity as a precondition for escaping the middle-income trap and fulfilling the country’s potential.

The Asian Financial Crisis of 1997-98 caused massive economic, political and social upheaval in Indonesia. Two decades later, the country has set its sights on becoming one of the ten largest economies in the world. Social protection has proven a key component of Indonesia’s economic recovery, its transition to democracy and progress towards a more cohesive society. The Government of Indonesia (GoI) considers social protection as a critical means of reducing inequalities of wealth and opportunity that represent a critical constraint to the country’s economic and social ambitions.

Indonesia’s recovery from the Asian Financial Crisis and the economic, political and social upheaval it caused has led to an impressive reduction in poverty and a significant improvement in living standards. However, the growing prosperity has not been shared by the entire population; inequality has risen strongly over the past two decades. The Government of Indonesia (GoI) has recognised this uneven development as a key constraint on its ambition to become one of the world’s ten largest economies and it has placed social protection at the centre of its inclusive growth strategy.

Thanks to a prolonged period of robust economic growth, combined with political and social stability, Indonesia has achieved a dramatic reduction in poverty and major improvements in living standards for the majority of its population over the past two decades. However, there remain structural barriers to the inclusive growth that the government has identified as key to its economic ambitions and sustained social cohesion – barriers that social protection can overcome. This chapter examines the context for social protection, assessing the trajectories of poverty and inequality and analysing the risks individuals face along the life cycle, including pervasive informality. Finally, it maps the threats and opportunities that lie in store for Indonesia, its population and its economy in the future.

Social protection in Indonesia has evolved rapidly since the Asian Financial Crisis, through both a major scale-up of social assistance and “big bang” reforms to social insurance. This chapter charts this trajectory over the past two decades, outlining the main economic, political and legislative drivers of social protection before examining in greater detail the main programmes that have been established during this period. It provides an inventory of existing schemes, analyses their key design features and scale of operation, and discusses how well they meet the present and future needs identified in Chapter 1, as well identifying major gaps in this regard.

A selection of the programmes identified in Chapter 2 have emerged as central to Indonesia’s strategies for reducing poverty and inequality and promoting inclusive growth. This chapter examines the effectiveness of these key programmes: Rastra (formerly Raskin; Rice for the Poor), Programme Indonesia Pintar (PIP; Assistance for Poor Students), Penerima Bayaran Iuran (PBI; Social Health Insurance for the Poor and Near Poor) and Program Keluarga Harapan (PKH; Family of Hope Programme). It analyses their impact across four dimensions: coverage, adequacy, equity and efficiency. This analysis is intended to inform the evolution of these programmes and support appropriate allocation of resources across the social protection system. The chapter concludes with a gender-based analysis of the pension system.

Indonesia’s spending on social protection is low for a country at its income level but it has risen significantly in recent years and is emerging as a budgetary priority. This chapter locates social protection spending within broader Government of Indonesia expenditure and identifies how it fits into the intergovernmental budgetary system. It analyses spending on key social protection programmes as well as the spending dynamics of various programmes. It assesses the potential to scale up social protection, particularly the scope for higher levels of tax financing, and concludes by examining the fiscal incidence of taxes and transfers to understand their combined impact on poverty and inequality.

Indonesia has made great strides towards establishing a social protection system, supported by sustained political backing across administrations, the scaling up of key programmes and the emergence of a strong information architecture. This chapter charts the progress that Indonesia has made towards establishing a social protection system and identifies the key levers for strengthening this system in the future. It also recognises the constraints to systematisation and proposes reforms to the institutions, policies and information systems that underpin social protection as a means of enhancing its capacity to address the challenges identified in the report and underpin inclusive economic growth.