Tuesday, November 08, 2005

Dazed and Confused

Not only are there some confused politicians in Jakarta, there also seem to be a lot of dazed citizens elsewhere. Well, maybe not a lot, but I am sure I am not the only one dazed by the extent to which the government has fumbled the ball in its handling of the cash transfer program. I am also at loss trying to understand how an economic team who were so skillful in explaining the intricacies of the economics of oil subsidy could come up with a cash transfer program so flawed.

Economists and public policy makers usually pride themselves on understanding the unintended consequences of human actions (and government policies). While arguing their case to lift the oil subsidy, the government and even SBY himself showed that they do have this expertise. In months leading to the fuel price hike, they succesfully pointed out the numerous unintended consequences of distorting the market to the general public (e.g, who were enjoying the subsidy, why the subsidy encourages smuggling, what the environment impacts are, etc.). Although their case was solid, convincing the public was not an easy task, so they should be applauded for the efforts.

Yet following the price hike, and within weeks of implementing the cash transfer program that were meant to cushion the impact for the poor, we have seen some of the unintended but entirely foreseeable consequences the program. For example, there were households that split in order to be able to receive more than one transfer payment. News reports told stories of households hiding their motorcyles to be eligible for the transfer. Now, news reports are just that, until we have a systematic way to evaluate the program objectively, we won’t know how widespread the problem is, so I won’t even think of chalking this up as evidence of failure of the program. [Aside: This being 2005, a program evaluation mechanism should have been designed even before the program takes place. Dare we hope?]

However, the apparent absence of any mechanism in the program that could minimize these “second order” effects, and even worse, the refusal of the government to even admit that they should at least have anticipated these effects, is astounding. Cases of mis-targeting or misidentifying the poor are inevitable in any cash transfer programs, but over time the problems may get worse as households and individuals adjust their behavior to meet the criteria. Anyone who understands how oil subsidy would distort the market and create unintended incentives should also be able to anticipate that a cash transfer program would create incentives for people to make themselves eligible.

Perhaps a best summary about how the program was flawed can be represented by a statement of a BPS official who lamented that some households were not being honest in answering BPS or RT’s officials' questions. Herein lies the problem. For a program of this scale, to hinge too much on people’s honesty is just a lazy way to pass down the responsibility from the policy makers down to BPS officials, RT officials, and ultimately the poor households. And that is simply dishonest.

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