Indonesia Human Development Report 2004

The Economics of Democracy: Financing Human Development in Indonesia

Indonesia has made critical human development gains in recent years. These include the steady reduction of extreme poverty, improved access to basic services, and the creation of a more equitable society. Central to all these gains has been the development of Indonesia's democracy, where improved public participation in the political process will put more pressure on the public sector to deliver services to all.

Indonesia's Second Human Development Report examines the cost of guaranteeing these rights for every citizen. The Report argues that, in the economics of democracy, public expenditure is the critical driver in delivering basic standards and rights. Understanding these costs, and their benefits, is especially vital to a country that is consolidating its democracy.

This year's Report estimates that the cost of ensuring Indonesia's basic human development rights would not exceed IDR 50 trillion (USD 5.9 billion) per year, corresponding to 3 to 4 percent of GDP, which would bring Indonesia on par with public social spending in comparable Asian countries. It can be argued that this budgetary reallocation to guarantee basic standards need not push the state budget into an unsustainable deficit if it is achieved through reprioritizing existing budgets and improving the effectiveness of revenue collection and expenditure.

Yet the response becomes more complicated at the local level. The Report finds that many districts cannot meet the cost of basic social needs, while others are disproportionately compensated for their requirements. Such inequality in social spending exacerbates the country's wide regional variations in resources and human development achievements. The Report argues for a national consensus on sharing the collective responsibility of meeting human development needs and proposes an Indonesian Social Summit to achieve this.

This year's National Human Development Report owes much to the people and institutions whose contributions have considerably enriched its quality and content. We hope that readers will find its coverage and conclusions a compelling addition to the policy debate on human development in Indonesia.
 
 

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	Download the Indonesia Human Development Report 2004. [PDF 4.77 MB]
	See the previous Indonesia Human Development Report 2001.