Capacity Development and Aid Effectiveness

Introduction

International development began after the World War II. Its main intention is reducing inequality through improving the prosperity of nations around the globe. Debates on the effectiveness of international development led to the concept formulation of capacity development (CD). This literature review will discuss the origin of CD from various sources, the CD definition, CD and aid effectiveness, CD framework, and the incremental change of CD. Those five topics are shaping the current understanding of CD and its relation to aid effectiveness.

The origin of capacity development

Capacity development aims to increase the effectiveness of international development on enhancing life quality of people around the globe. Industrial revolution and economic development has improved the average income of people globally. However, at the same time, the disparity of the average income per capita among nations has been rising and has expanded most during the last 100 years (Helpman 2004, p. 2). In 1990, mortality rate of under-five year old children per 1000 live birth was 11 in developed countries, yet in Sub Saharan Africa the number was more than 16 folds (United Nations 2008, p. 14).

The awareness of global welfare in reducing inequality through international development and development cooperation is not new. The public in U.S. and Britain were concerned about the devastated impact of World War II right after the war was over. They wondered how to bring development to the developing countries. That led to the establishment of international trustees, such as Food and Agriculture Organization (FAO), United Nations (UN), World Bank (WB), and International Monetary Fund (IMF) (Arndt 1987, pp. 43-45). Following the success of the Marshal Plan in the reconstruction of Europe which was in 1951, some developed countries established particular departments to administrate their development assistance. For example, the U.S. department was started since 1953 which later on established the United States Agency for International Development (USAID) in 1961 (USAID n.d.).

The international trustees and development assistance's organizations, hereafter called 'international development organizations' (IDOs), started their operations through technical assistance (TA) approach. They supplied foreign experts and provide some training to the 'recipient' countries. As the TA was being practised, the IDOs recognized that the TA did not help improve human and institutional capacity. That led WB to conduct 'a radical reappraisal' of TA in Africa and came up with the idea of 'capacity building' (CB) in 1991 (Edoho 1998, p. 233). The concern of CB emerged since the mid-1980s which evolved from 'institutional building' in the 1950s and the 1960s, 'institutional strengthening' in the 1960s and 1970s, and 'development management' and 'institutional development' in the 1980s (Trostle et al. 1997, p. 63).

The term ‘capacity building’ was slowly changed to ‘capacity development’ in the late 1990s and the early 2000s. The term ‘capacity development’ has been officially used since the 2005 Paris Declaration which mentions the term 14 times in its 21 page document (OECD 2005). There are several explanations of how to distinguish CB and CD. For example, CB means the capacity does not exist at all and therefore needs to be built. Capacity development, on the other hand, means strengthening the existing capacity (Grindle 1997, p. 6). ‘Capacity development’ connotes long term process and ensuring national ownership and sustainability (Brown 2002, p. 1).

Capacity development becomes a mainstream of many IDOs' business particularly after the 2005 'Paris Declaration on Aid Effectiveness'. The German technical cooperation (GTZ) declares that CD is their 'core competence' and 'the key to sustainable development' (GTZ n.d.). Asian Development Bank (ADB) adopts CD as 'a key development priority' to be integrated into its own operations and its partners' strategies (ADB 2009). UNDP positions CD as 'the organization's core contribution to development' (UNDP n.d.). Finally, the WB also admits the importance of CD to achieve the MDGs (Constantinou 2007, p. 1).

Definition of capacity development

After the 2005 Paris Declaration on Aid Effectiveness, some IDOs adopt CD definition from the Organization for Economic Co-operation and Development (OECD); that is 'the process whereby people, organisations and society as a whole unleash, strengthen, create, adapt and maintain capacity over time (OECD 2006, p. 12)'. 'Capacity' is understood as 'the ability of people, organisations and society as a whole to manage their affairs successfully' (OECD 2006, p. 12). IDOs that adopt these definitions include German Federal Ministry on Economic Cooperation and Development (BMZ) (BMZ 2008, p. 2) and ADB (Bolger 2008, p. 9). For others, such as CIDA and UNDP, CD definition has a similar meaning (CIDA 2000, p. 2; UNDP 2009, p. 5). The World Bank's definition emphasizes the importance of 'change agent' to manage the changes in CD process (Otoo et al. 2009, p. 3). Although UNDP has a similar definition with OECD, it asserts the importance of beneficiaries' empowerment. UNDP affirms that without change in the beneficiaries, any effort could not be said to have enhanced capacity, even if it has achieved the objectives (UNDP 2009, p. 5).

Concern about the importance of the change agent's role is central to CD. IDOs could push the development objective achievement without the role of the beneficiary, but this will not create ownership. Without ownership, beneficiaries will be dependent on aid (Riddell 2010, p. 224). This will not sustain the impact of the development achievement.

Aid effectiveness

Concern about aid effectiveness occurs because of some failure facts and concerns about scarce resources. It is hard to find evidence of where country with large inflow of aid and technical assistance succeeded in development. Many successful countries in East Asia and Africa received little aid as a percentage of GDP (Easterly 2007, p. 329). The series of global financial crisis, especially the Asian and the latest U.S. mortgage crisis, has been raising a concern about the future sustainability of aid resources. Development aid decreased during Asian crisis (Shanta 2008). In addition, some donor countries, particularly the U.S., have been devoting development aid far from their ability (Sachs 2005, p. 85). These call for a concern that aid resources are limited which led to the global commitment on aid effectiveness. There were 91 countries participating on the 2005 Paris Declaration on Aid Effectiveness (OECD 2005, p. 12).

The signatory countries of the Paris Declaration conceptualize aid effectiveness through five commitments, which are measured by 12 indicators. The commitments are ownership, alignment, harmonization, managing for results, and mutual accountability. The main idea of all the commitments is to have stronger roles of partner (beneficiary) countries and to emphasize the result based management. Ownership is about the partner's leadership over their development policies, and strategies and co-ordinate development actions. Alignment encourages donors to base their support on partners' strategies and procedures. Harmonization promotes harmonization, transparency and effective cooperation between partner and donor as well as among donors. Managing for results urges partners and donors to be results oriented on managing resources and doing decision making. Mutual accountability advocates accountability for both donors and partners (OECD 2005, pp. 3-8).

The signatory countries believe that aid effectiveness will be improved if the five commitments are implemented. While there is no doubt about the importance of the result based concern, the intention to rely more on partner's countries could hamper the development achievement if the partner is a corrupt country with ineffective government. However, ignoring the role of the partner will endanger the impact sustainability. Therefore, these commitments are the most plausible strategy, although the implementation will be not easy in partner with high corruption rate and the achievement process could be very slow in partner with ineffective government.

Capacity development is the key to aid effectiveness. As discussed earlier, CD is about changes at the individual, organization, society, and institutional level. There are cases where economic growth can be achieved mainly because of institutional change without development aid. History tells us that the change in political and economic institution is central to economic development (North 1991, p. 98). In Vietnam, for example, the significant increase of rice production was mainly because of institutional change (Kompas et al. 2009 p. 2).

Capacity development framework

In order to understand the CD concept, it is important to clarify the capacity framework. The framework elaborates the capacity dimensions, components, or elements. It is important to structure the CD need assessment and action plan appropriately. Without an appropriate need assessment, projects will not achieve their objectives (World Bank 2005, p. xv). Indeed, need assessment is the most challenging step in CD process (Kay & Renault 2004, p. 42). A proper CD action plan will guide CD measures effectively and efficiently.

UNDP's CD framework is covered by three dimensions. They are: (a) the three levels at which capacity is nurtured (enabling environment, organizations, and individuals), (b) the five functional capacities (capacity to engage stakeholders; capacity to assess a situation and define a vision; capacity to formulate policies and strategies; capacity to budget, manage and implement; and capacity to evaluate), and (c) the four core issues (institutional arrangements, leadership, knowledge, accountability) (UNDP 2009, pp. 11-45). This framework is the most comprehensive one compared to other IDOs. The level explains where the change should be targeted. The functional capacities concern on what capacity must be developed. The issues describe CD's topics that appeared in any CD measures.

Compared to UNDP, ADB's framework covers only the level of CD. That is organization, network, and institutional context (Bolger 2008, pp. 11-12)[1]. The individual level is not specifically mentioned although it is understood as a part of the organizational level (Bolger 2008, p. 96). ADB identifies 'network' as a particular dimension which is positioned between the organization and institutional context. While individuals alone will not change the functional performance, the individuals play important roles in CD process. The individual within the organization will change the organization. Individuals in the society play important roles in the change of institutional context. Therefore, it is important to specify individual in CD level. Specifying 'network' as a particular level in CD framework makes sense. Capacity development on a certain function of government's department will always need support from other departments (for example, from the finance department for a financial support improvement) and relevant stakeholders (for example, from financial institutions to support business development). Without an effective network support, CD measures will never succeed.

The World Bank conceptualizes its CD framework through three factors which contribute on the resource use effectiveness and efficiency. They are: conduciveness of the socio-political environment, efficiency of policy instruments, and effectiveness of organizational arrangements. For WB, CD means a process to change the three factors to enable the change agent's organization to use the resources effectively and efficiently (Otoo et al. 2009, pp. 4-10). The three factors are similar to the 'level' in UNDP's concept. In UNDP's perspective, the 'socio-political' could be included in the 'enabling environment'. The ‘policy instrument’ could be a part of the 'enabling environment' or the 'organization' depends on the basis of the CD measure.

GTZ's framework covers the three levels of CD. That is individual, organization, and system (GTZ 2003, p. 14). GTZ defines 'system' similar to UNDP's ‘enabling environment’. While UNDP elaborates the four core issues, GTZ mentions four pillars as the core topic of CD in public sectors. That is participatory governance, planning and budgeting, human resources management, and public finance management.

Incremental change

Capacity development is about the change process from individual up to institutional level. Scholars suggest that change must be set as an incremental rather than fundamental change. The scope and intensity of institutional change is not something totally free to define, 'yesterday institutional framework provides the opportunity set to today's organization and individual entrepreneurs' (North 1991, p. 109). This is even more relevant in public sector because public institutions embody important social ideals which lead the public sector leaders to conserve those institutions (Denhardt, pp. 198-199). The awareness to have a realistic objective (change target) is important for the success of CD measures.

Summary

"Capacity development" is the latest invention of the international development's approach which has been evolving after the World War II. It is now believed that CD will improve the development's effectiveness. Many IDOs adopt CD as the main approach of their service delivery. Definitions of CD do not differ from one IDO to another due to the common commitment on aid effectiveness through 2005 Paris Declaration. Aid effectiveness is conceptualized as more roles for partner countries and managing development by the result oriented way. Understanding the CD framework is important for CD need assessment and action planning. It is crucial to have an effective and efficient CD measure. UNDP's CD framework is the most comprehensive one. It seems that UNDP's model has influenced some IDOs (such as ADB, GTZ and WB). Scholars have found that institutional change, particularly in the public sector, must be expected as an incremental process rather than fundamental change. This awareness is important so as to have a realistic objective in CD measures.

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[1] The model is very similar to a concept introduced by Hilderbrand & Grindle (1997, p. 36)

Two Ways to Understand the Logic of Carbon Trading

Current debate among the pros and the cons on carbon trading spread out in wide range from the pessimistic to optimistic views, from the full of prejudice to the full of trust opinions. Carbon trading (as part of climate change discussion) supposes not to be a talk among certain groups of people, rather it must be discussed by every single person on earth because we are all contributing to the emission and (potentially) affected by the global warming. Therefore it is important to provide idea about the logical basis of carbon trading so then we can always back to the origin of the idea when we have different views. I would offer two logical bases to understand the carbon trading. All of them based on three assumptions; these are: we agreed that climate change is real and bad, trees or forests are able to remove carbon and other green house gases, and most importantly is that emission reduction is our common objective.
The first logic is the externality. That is the external cost or benefit of any human activity. This is not new for economists but very important to understand by people who had not chance to study economics. Externality can be positive or negative from demand or supply side; it depends on the gap between the private marginal cost/benefit with the social marginal cost/benefit. If the social marginal cost is higher than private marginal cost, we call it negative externality. Positive externality occurs when private marginal benefit is greater than social marginal benefit. For example, when we ride a car for certain distance which make us burn one litre of gasoline, the private marginal cost is exactly the cost of one litre of gasoline (market price), say IDR5,000. The social marginal cost of burning additional one litre of gasoline, however, is the air pollution that contributes to the climate change. The exact cost of the pollution made by one litre of burned gasoline is most likely much more than IDR5,000. Meanwhile, for positive externality, we can take tree growing as an example. If someone grows a tree, his or her marginal benefit is the tree itself, which can be the wood, the fruit or other parts of the tree. The social benefit of having another tree, however, is more than that because the tree removes the carbon emission in the air which contributes on climate change mitigation.
The gap between the private and social marginal benefit/cost is the reason of carbon trading. Those who create negative externality must pay more than his or her private cost (market price of the product i.e. one litre of gasoline). The additional payment must be transferred to the tree growers who create positive externality; this will close the private and social gap. Furthermore, this is an effective market instrument because it provides disincentive to the polluters and, in the same time, offers incentive to the carbon removers.
The second logic is incentive and disincentive on achieving the carbon quota. To make it simple, let say total global emission is 1000 tonnes per year in 2009. All countries agreed to decrease the emission down to 800 tonnes per year by 2010. Let say we agreed to oblige all countries decrease their emission by 20 per cent of their 2009 baseline by the end of 2010, and we only have two countries in the world. For example, County A produced 800 tonnes, while Country B produced 200 tonnes in 2009. This means Country A must lower their emission to 640 tonnes, while Country B is 160 tonnes by 2010. If Country A believes that it cannot lower that much and only commit to 720 tonnes, while Country B plans to decrease more to only produce 80 tonnes by 2010, then total world emission will be 800 tonnes, which means meet the target. However, Country A must pay the additional opportunity cost of Country B for the extra 80 tonnes. At the end, the world creates more social surplus in the short run and, in the same time, invests more for the long run global welfare.
The implementation, however, is not as simple as it is. It needs standards (e.g. of how to measure the emission of different human activities, and how to define the price of carbon), strong willingness to pay for the long run benefit, clear and transparent organization and procedures including who and how to use the money gained from carbon trading, and so on and so forth. It is possible to find the evil when it comes into the detail, however, this should not make us oppose the idea of carbon trading because the idea itself is fair and promising to make our earth better in the future. What we have to do is to move on working in the details and make it transparent to public so then there is no space for the evil to hide its face.

Kita Perlu Pagu Anggaran Wilayah, Bukan Dana Aspirasi

Mencermati debat terkait usulan Golkar tentang dana aspirasi, kita perlu mendukung pendapat Presiden yang disampaikan di Istana Cipanas untuk tidak menciptakan jalur baru dalam proses perencanaan dan penganggaran.

Praktek Saat Ini
Usulan Golkar ini bukan hal baru di daerah-daerah, anggota DRPD di beberapa daerah secara tidak resmi memiliki 'hak veto' dalam penganggaran sampai dengan jumlah tertentu. Saat ini ada dua jalur konsultasi perencanaan dan penganggaran, yaitu musyawarah perencanaan pembangunan (Musrenbang) dan penjaringan aspirasi pada masa reses. Jalur pertama cenderung digunakan oleh eksekutif, sedangkan jalur kedua mutlak milik legislatif. Keduanya memiliki tim anggaran atau panitia anggaran yang pada akhir masa perencanaan saling bertemu untuk menyepakati rencana anggaran terakhir yang kemudian disahkan oleh kepala daerah dan DPRD di daerah, atau Presiden dan DPR di pusat.
Dua jalur perencanaan dan penganggaran itu merupakan penyakit berbahaya. Dengan adanya dua jalur itu, yang paling dilemahkan adalah Musrenbang yang justru paling legitimate dari sisi proses karena basisinya adalah kewilayahan bukan kepartaian seperti halnya masa reses. Memang harus diakui bahwa lemahnya Musrenbang bukan hanya karena jalur aspirasi, tetapi juga karena eksekutif tidak memiliki format diskusi yang memadai dalam Musrenbang sehingga usulan-usulan yang keluar dari Musrenbang dipandang tidak berkualitas.

Pagu Anggaran Wilayah
Jika tujuan Golkar adalah keadilan penganggaran dalam kewilayahan, maka yang kita perlukan adalah pagu anggaran wilayah, bukan dana aspirasi. Dalam sistem penganggaran kita saat ini yang kita kenal adalah pagu anggaran sektoral baik itu untuk departemen atau lembaga teknis di pusat maupun Satuan Kerja Pemerintah Daerah (SKPD) di daerah. Kita tidak mengenal pagu anggaran wilayah. Artinya sistem perencanaan dan penganggaran saat ini tidak menyeimbangkan antara pertimbangan sektoral dengan pertimbangan kewilayahan.
Pertimbangan sektoral tanpa kewilayahan akan dapat menciptakan ketimpangan wilayah. Pertimbangan sektoral membantu menjawab pertanyaan 'apa yang harus dilakukan?', tetapi tidak dapat menjawab 'di mana harus dilakukan?'. Pertanyaan kedua hanya dapat dijawah lewat pertimbabngan kewilayahan. Jika sistem kita menyeimbangkan keduanya maka kita dapat menjawab kedua pertanyaan tersebut yang sangat penting dalam perencanaan. Hal itu kemudian dilanjutkan dengan pertanyaan penganggaran 'berapa besar anggaran yang diperlukan?'. Dengan demikian, setelah menjawab pertanyaan ketiga maka kita dapat mensortir kebutuhan anggaran baik per sektor maupun per wilayah, dimana jika kita jumlahkan hasilnya sama yaitu total anggaran pembangunan.
Pagu anggaran wilayah dapat dibuat dengan cara mempertimbangkan variable-variabel penting yang mempengaruhi tinggi rendahnya kebutuhan kegiatan pembangunan. Sebagai contoh, kita bisa mempertimbangkan jumlah penduduk, jumlah penduduk miskin, luas wilayah, indeks ketimpangan infrastruktur dan lain-lain. Pagu juga dapat digunakan sebagai instrument insentif bagi daerah yang efekftif dan efisien menggunakan anggarannya dengan cara membadingkannya dengan capaian-capaian pembangunan misalnya PDRB, jumlah pekerjaan yang diciptakan, jumlah orang miskin yang dientaskan dan lain-lain.

Musrenbang Sebagai Jalur Satu Pintu Untuk Semua Pihak
Pagu anggaran wilayah akan membantu Musrenbang, sebagai mekanisme resmi perencanaan dan penganggaran, dihormati oleh semua pihak. Akan jauh lebih baik lagi jika jalur penjaringan aspirasi digabung dengan Musrenbang dengan cara mengkoordinasikan jadwal Musrenbang dengan jadwal reses. Musrenbang seharusnya menjadi pintu bagi semua pihak untuk bermusyawarah dalam menentukan prioritas pembangunan. Prioritas pembangunan adalah kegitan-kegiatan yang kita percaya memiliki efek multiplier yang paling tinggi dalam peningkatan kesejahteraan masyarakat.
Dengan adanya pagu anggaran wilayah, forum Musrenbang dapat langsung menentukan prioritas karena mereka memiliki tiga informasi penting dalam perencanaan, yaitu: bagaimana keadaan saat ini, apa yang harus dicapai, dan berapa anggaran atau sumberdaa yang dimiliki. Dalam proses Musrenbang saat ini, informasi ketiga tidak diketahui sehingga peserta musyawarah membuat daftar panjang untuk diserahkan kepada pemerintah. Daftar panjang ini sering memusingkan pihak pemerintah sehingga akhirnya pihak pemerintah, lewat Tim Anggaran, membuat daftar sendiri. Ini yang membuat Musrenbang menjadi tidak dihormati lagi.
Penggunaan dana pembangunan akan lebih efektif jika rencananya dihasilkan lewat diskusi yang transparan dalam forum Musrenbang. Dengan semua pihak mengandalkan forum Musrenbang, maka forum ini dapat menjadi media untuk saling beragumentasi dan saling belajar untuk mengetahui intervensi pembangunan yang paling efisien. Yang dimaksud semua pihak di sini termasuk politisi di DPR atau DPRD, birokrat dari departemen, lembaga teknis atau SKPD, wakil-wakil masyarakat terpinggirkan, para pengusaha, organisasi-organisasi sosial masyarakat dan lain-lain. Untuk membuat forum Musrenbang efektif tentu diperlukan pengorganisasian forum yang lebih baik dari yang ada saat ini.
Dana aspirasi hanya akan membuat elit-elit politik menjadi lebih berkuasa tanpa harus berkonsultasi dengan masyarakat di wilayahnya, terutama yang bukan pemilih partainya. Sedangkan pagu anggaran wilayah dan penguatan Musrenbang akan membuat pengambilan keputusan dalam proses perencanaan dan penganggaran lebih transparan dan objektif sehingga akan lebih memperhatikan pertimbangan teknokratis dan sekaligus lebih adil dari sisi kewilayahan. Mau pilih yang mana?.

Unconditional Cash Transfer Policy in Indonesia

Policy Description

This paper discusses the unconditional cash transfer (UCT) policy which was implemented in Indonesia in 2005, 2008 and 2009 as a package with the fuel subsidy reduction policy. This is an example of targeted social policy with income transfer where economists and scholars, as will be explained later, believe as an effective and efficient way both for economic development as well as social welfare.

Together with debt payment, fuel subsidy takes the most significant proportion of government spending in Indonesia. From 1999 to 2004, the energy subsidy was 8 to 28 per cent of total government expenditures (Yusuf & Resosudarmo 2008, p. 3).

Apart from fiscal concerns, fuel subsidy may also lead to justice issue. More than 70 per cent of the subsidy was enjoyed by the top 40 per cent of citizens, the bottom 40 gets less than 14 per cent (Departemen Sosial 2008b, p. 15). This is because most of the fuel is used for private vehicles.

The approach of the policy was providing cash directly to households without any conditions. Direct cash transfer means that government provides cash rather than service such as free health care. No conditionality means that recipient households can spend the money as they like without any obligation such as to bring their children to school (Cueto 2009, P. 1952).

The Policy Purpose

The main purpose of the policy was to mitigate the impact of fuel price increase, caused by the fuel subsidy reduction, on poverty. This is a case where social policy is to correct the 'diswelfares' that created by economic policy (Hill 2006, p. 7).

The implication at process level is that government must ensure that the poor use the money for purchasing basic necessities or investing in any other productive activities. The poor should not merely save the money. Economic growth and job creation need the increase of aggregate demand which can be achieved through the increase of consumption and investment (Keynes 1936, p. 325).

The implementation implication is a need to ensure that the cash go to right hand, and only the poor get the cash. Cash transfer has been practiced by developed countries where reliable household income data is available, however, in Indonesia, particularly during UCT implementation, this is not the case. Poor households determined by National Bureau of Statistics (BPS), field checked by post office officers and village officers (Departemen Sosial 2008a, pp. 10-31). Without reliable household income data, the BPS officers rely only on physical assessments such as quality of house, or merely on the judgement of village officers. This creates potential for under coverage where some poor households are not identified, and leakage where some ineligible households are included on the recipient list (SMERU 2006, p. 37). If the number of under coverage and leakage is high, the purpose of poverty mitigation will not be achieved.

It is important for the government to classify the 'victims' of the increased fuel price. Those who suffer the most must be prioritized than the rest, and probably receive more cash. In the case of 2005, urban poor had suffered the most because the kerosene price increase 185.7 per cent, which make it the highest compare to gasoline and diesel (Yusuf & Resosudarmo 2008, p. 33). Urban poor rely on kerosene to fuel their stoves for cooking.

The Policy's Synchronisation to Indonesian Social Welfare System

Indonesia cannot fit into three social welfare's regime as identified by Esping-Anderson. The nearest regime might be the conservative where government is responsible to social welfare only when the market fails (residual), which social policy is delivered through targeted (instead of universal) program (Esping-Anderson 1990, pp. 18-29). However, there are 49.2 per cent of Indonesian citizens who do not have any health insurance (Kompas 2010). This means that state is not responsible when the market fails. That is because Indonesian public budget is limited to cover social welfare costs. In 2009, for example, total government revenue was only 16.1 per cent of national Gross Domestic Product (GDP) (Departemen Keuangan n.d., pp. 1-12). Furthermore, social policy in Indonesia is positioned to support economic development (Bappenas 2010, p. II.3-1). In 2009, social expenditures which include health, education, subsidies other than fuel, and social protection were just 6.8 per cent of GDP (Departemen Keuangan n.d., pp. 1-12; Departemen Keuangan 2007). Therefore, government's policy is always to keep tax low and allow people to spend their money for their own welfare. As a result, ratio of tax revenue to GDP was only 9.9 per cent compared to an average of 14.0 per cent among non-OECD countries in Asia (IMF 2008, p. 11). These characteristics match with 'productivist' or East Asian model (Holiday 2000, p. 709; Jacobs 2000, pp. 2-4; Aspalter 2006, p. 297). However, compared to other East Asian countries, Indonesia has the highest corruption rate. The corruption perception index was 2.4 in 2008, in contrast to South Korea, for example, which was 5.6 (Transparency International 2009, pp. 397-400). This makes Indonesian government more difficult to create social welfare.

Indonesian social welfare characteristic calls for a process implication to improve social solidarity and private sector participation on poverty mitigation. In 2005, poor households only received IDR300,000 which was equal to around US$30 (Widjaja 2009, p. 3). That might be sufficient to help the near-poor to improve their purchasing power, but the amount was too small for the poor. Social solidarity will improve the social safety net of the poor. Private sector, through corporate social responsibility, should participate by improving poor people livelihood. For example, they can help to grow small scale and micro entrepreneurs which could create jobs at micro level.

In the long term, as an implementation implication, government must create more jobs in formal sector. In 2006, there was more than 50 per cent of Indonesian worked in informal sector (Hermanto et al. 2010, p. 5), which most of them did not pay income tax. This makes government revenue become small, not only because the low tax, but also because the number of tax payers are small. Government believed that there were about 25 to 30 million more people are eligible to pay taxes out of 6 million that have been registered by 2008 (The Jakarta Post 2008).

Key Actors and Their Roles

At political decision level, the key actors were the President with support from the Ministers of Finance, Social Welfare, and Energy. Their roles were to initiate and make a final and official decision of the policy. All of them are politicians with strong interests on political gain. As a process implication, it needs checks and balances procedure on political decision process. Other political interest groups and independent experts must involve in decision making process. Without check and balance, the ruling party in government could be just prioritize the urban poor and neglect the poor households in remote area. By doing so, the ruling party could have political gain from the majority of the poor, and at the same time possible to alleviate poverty. This would satisfy their political interest. The implementation implication is that government must consult public sector and support their UCT policy by scientific evidence; for example, reliable poverty data. This is in line with what Jeremey Bantham called 'expert bureaucracy' (Bessant et al. 2006, p. 15).

At implementation level, the key actors were Ministry of Social Welfare (DEPSOS), BPS, post office, and village officers. The DEPSOS played a central role in the implementation as it is they who manage the UCT budget, prepare the guidelines, coordinate other actors, and presents the accountability report. BPS was important to produce accurate ‘poor household’ list. Post office carried out a significant role by checking accuracy of BPS data, distributing the household poor cards (the card) and undertaking payment. Village officers were, in many cases, the key figures who determined the success and failure of the implementation. That is because the accuracy of ‘poor household’ list depended on them as they help BPS and post office officers on field investigation and data verification. In addition, village officers' role was also important in organizing cash collection in remote areas.

The implementation implication of including DEPSOS is to attain support from the local government for ensuring the performance of village officers. Under decentralization policy, DEPSOS has limitation in controlling implementation at field level. They just can rely on local governments because of decentralization. There are 584 local governments in Indonesia and the leaders not necessarily from the ruling party (Departemen Dalam Negeri 2010). Therefore, they need to have an effective coordinating and communication role. That creates a process implication, that is a need for a detail and clear implementation guidelines which organize all actors. The guideline must be able to help all actors from national to village level to perform their tasks well.

BPS needs additional enumerators due to the limitation of BPS officers. At the moment, number of BPS officers is only half of their need (BPS n.d.). That is still far than enough to conduct survey in around 72,000 villages (Kominfo-Newsroom 2009). If they rely on the village officer, the outcome could be biased because the village officers may have vested interest in selecting his or her relatives or prioritizing his or her ethnic group and neglecting others. However, the increase of the enumerator number is not enough. The process implication to ensure accurate data is a need of transparent and objective mechanism to determine the poor. If the reliable mechanism does not exist, there will be conflict and tension during implementation. This was happened during UCT implementation of 2005 where there were number of protests, threats to BPS and village officers, vandalism to public facilities, and conflict among villagers (Widjaja 2009, p. 12)

The process implication to allow post office to handover the cash is to have additional arrangement helping the poor from remote areas to pick up their cash. Post office branches are only available down to sub-district level. Without a different arrangement for collecting the cash, the value of the cash will be offset by the transport cost. DEPSOS reported that during the first instalment of 2005 eligible households received only 94.1 per cent of the total payment. In the second instalment it was only 89.6 per cent. One cause of the payment deduction was the payment cut did by village officers to cover the transport and fee cost to pick up the cash collectively (Departemen Sosial 2008b, p. 13). Furthermore, the post officers have no specialization on checking the accuracy of poor household list. Therefore, as an implementation implication, they need a special training on field verification.

The Change Drivers

The combination of oil price, government budget stability, and number of poor households will determine whether or whether not the UCT policy will be implemented again in the future. This indicates that the government must monitor all those variables. However, in the long term, government has to decrease the poverty at the level where public budget able to support the poor. In the case of fuel price subsidy, number of poor must be decreased significantly before government eliminate all fuel subsidies.

An election and other short term political interest could initiate the UCT policy because it can increase the popularity of the ruling party on poor people. This was the suspicion of the opposition parties when the UCT policy was enacted in 2009. This is not happened in Indonesia only, the conditional cash transfer policy in Mexico and Brazil were also used for political gain (Sewall 2008, p. 175). This creates a process implication to balance the power during decision making process as discussed previously. For long term purpose, the implementation implication is a need to improve the political awareness, particularly among poor people, so they aware that any kind of subsidy come from public budget, not from the politicians' pocket.

Availability of reliable socioeconomic data on individual citizens will increase the use of the cash transfer policy regardless of whether it is conditional or unconditional. Reliable data makes it easy to do eligibility testing. It may improve effectiveness of any social policy with targeting approach. Apart from several issues as discussed previously, The World Bank concludes that the UCT of 2005 was successful to mitigate the poverty (World Bank 2006, p. x). Cash transfer approach, as contrast to service provision approach such as free health care, is more effective to mitigate the short term impact of the increased fuel price (Yusuf & Resosudarmo 2008, p. 45). The conditional cash transfer in Mexico and Brazil was successful to alleviate poverty in the short term, with potential for sustainable impact in the long term (Sewall 2008, p. 185). Moreover, economists have proved that income transfer will create more economic surplus than subsidy (Frank et al. 2009, pp. 181-182). The wider use of (un)conditional cash transfer approach in social policy create a process implication; that is to strengthen the eligibility testing system which include a need of reliable data and information technology as well as a well-trained assessors and analysts. This also calls for an implementation implication where government must educate the recipients on how to use the cash in order to support the policy objective.


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