Saturday, March 01, 2008

Thinking Outside the Box: A Citizen Subsidy

About 40m* people in Indonesia are poor by the lowest possible standards, each of them lives on less than the /absolute/ minimum needed for a healthy life.

Based on purchasing power parity (PPP) the minimum necessary to live decently in Indonesia is approximately $175 (USD) per person per year.

A people subsidy would cost the Indonesian government about $41bn (at $175 x 235m** Indonesians). That's about 50% of the government's total revenue and less than 4 times the government's expenditure on corrupt subsidy programs.

Cash in the pockets of Indonesian mothers and fathers will work harder for Indonesia's children than in the pockets of Pertamina, Bulog officials and other bureaucrats.

Bowls full of food at a family dinner is a loftier aspiration than having large cars filled with low cost fuel.

*All figures taken from The World Factbook. If anyone has /poverty/ PPP rates for Indonesia please share. All calculations are of the back-of-the-envelope type, correction suggestions are welcome!

**235m people is used, because making all Indonesians eligible makes more sense economically (it doesn't distort people's incentives)


Therry said...

Rp. 1,750,000 for a year? Really?

That's exactly the amount I have to pay for my car installments every month ..


David said...

"...the minimum necessary to live decently in Indonesia is approximately $175 (USD) per person per year."

That equates to about two bowls of bakso per day (if you don't live in Jakarta that is) - hardly living decently. The figures seem very flawed.

Unknown said...

hrm, i dunno what market prices are for basics, that'd give you enough calories to live on. that would b interesting to know tho...

David said...

Hi John,
Is PPP in relation to the cost of living nutritiously only, so not including the cost of living in general- clothing, shelter, electricity etc?

But again, outside of Jkt a bowl of Bakso (meatball soup) will set a person back about Rp2500.

The official(BULOG)price of rice is about Rp4500 /kg. so US$175 (Rp1,600,000) would give each person about 1 kg of uncooked rice per day for about 355 days. A single person wouldn't eat that much, so there'd be a few rupiah left over to buy vegetables and tofu.

So I guess, if it's in order to live with the *very basic* (rather than 'decent') nutritional requirements, US$175 might just cut it.

Unknown said...

thx david for the info.

yeh it's v basic.

generally absolute poverty includes shelter and nutrition etc. the international standard poverty line is a dollar a day, and in indonesia you get more bang for your buck, so the PPP measure says that you need just over 50c a day to survive.

however, due to indonesia's tariffs on rice and other imported staples, it's very possible that $175 underestimates the minimum to survive.

obviously a dollar a day wouldn't get you very far in ireland for example, but here (as in most western countries) you are poor if you can only afford a small house in a poor neighbourhood and you can't afford a holiday etc.

what constitutes a "decent" life is subjective. about 40m people in indonesia however are /objectively/ poor - they live below the absolute minimum.

also the people subsidy would be cash without strings attached. any money people earn would be on top of the $175. I suspect that $60 a month for an Indonesian family of 4, would go a long way.

David said...

Thanks for the clarification John.

"I suspect that $60 a month for an Indonesian family of 4, would go a long way."

Add to that the fact that we who have way more than plenty see things through our experiences and can't imagine how anyone could survive off such a tiny amount. Yet from what I've seen and experienced in Central Java, people are extraordinarily industrious and can make such a little go such a long way.