Editions : January-March 2015


In opening a wide-ranging Strategic Review public forum in early October on the topic, “Should Fiscal Policy Be Used to Promote Public Health?” Wijayanto, a vice rector of Paramadina University in Jakarta, began by talking about the piano.

Five years ago, he explained, “I bought a piano.” His goal was to learn to play so that he would have a lasting hobby as he grew older. “But after five years,” he said, “I can play nothing. It is not as easy as it looks. The instructions are clear, but it is far more complex than just ‘doe, re, me, fa, so, la, ti, doe.’”

This, Wijayanto said, got him thinking about government policy. The economic policy bureaucracy is like the piano, only more complicated. “The ‘Indonesian Economy’ piano has many keys, he said. “But even when we press the ‘doe’ key or the ‘fa’ key, if it doesn’t always produce the right sound. Imagine how difficult it must be to play the ‘Indonesian Economy’ piano.”

In considering public health and other complex issues, Wijayanto said, Indonesia is trying to improve something, but the policy outcome may turn out to be the opposite. We raise excise taxes, for example, and for a time, revenue increases, but then industry slows down and soon tax revenue actually decreases. “The question is, will the piano key named ‘fiscal policy’ (raising excise taxes on carbonated beverages, for example) produce the beautiful song we expected? There are so many factors.”

In setting his intricate musical stage, Wijayanto, who is now an economic adviser to Vice President Jusuf Kalla, asked a series of experts – among them then-Finance Minister Chatib Basri – to discuss the complexities and pitfalls of using fiscal policy to make the nation healthier. It is not an easy thing to do.

Below are translated excerpts from the speakers’ remarks:

The academic view

Professor Amal Chalik Sjaaf, health expert from the University of Indonesia:

I was surprised to see the title of this discussion because of the words “to promote public health.” This is unique when we discuss health policy in this county because what do we mean by public health? Is it the holistic meaning of health? Is it environmental health? Is it people who are ill and then get hospitalized or go to the Puskesmas (Community Health Center) This is what interested me because so far, this country has never defined public health and what we call individual health.

The 2009 health law was divided in two: individual and public health. It stated that individual health is guaranteed by the government. And we now have in the law a national individual health financing system, BPJS, that is done through a market mechanism. The financing is done privately, and the government only guarantees those who are underprivileged.

On the other hand, it is said that public health, which we are discussing here, is 100 percent the government's responsibility. But the health sector has not defined what is public health and what is individual health. I am not surprised if [policymakers] are confused.

In the health law, there are 17 health activities from A to Q, if I’m not mistaken. But which of those 17 health activities belongs to individual health and which are public health? It is not clear, and the funding for public health from the state budget will come from tax, right?

If we ask, “Should fiscal policy be geared toward promoting public health?” isn't it already the government’s full responsibility to promote public health? If it is up to the individual, then that is not promoting public health. It’s promoting personal health care.

Grey areas in public health

We have discussed this in the Ministry of Health many times. I have said, “You have to immediately define which is public health and which is individual health.” There are still too many grey areas.

In Indonesia, we still have high maternal mortality, high child mortality, child malnutrition, etc. Should these be categorized as public health or personal health problems? If it is personal, then BPJS is the one to guarantee it, [since] the underprivileged are guaranteed by the government.

Take tuberculosis. Within the Millennium Development Goals (MDG), we refer to ATM – AIDS, TB and Malaria. Are those diseases public or personal health problems? I think it is a public health issue because if a person has untreated TB, for example, he will spread the disease to others. We know that TB has entered a multiple drug resistant (MDR) phase because it is not controlled properly. So, I think it is a matter of public health.

The consequence is that the government must secure the funds. Do not have BPJS take care of it as a matter of private care. We have to be prepared for the TB rate to increase and to understand that the cost of medicine for MDR diseases is multiplied.

Other cases, such as HIV/AIDS, have been seen in this country as within the domain of private care facilities but funds are still planned in the public health domain. This will create ambiguous funding. And if it is not done properly, it will be put under BPJS, in the social protection system for health. Perhaps the maternal mortality number will not change. Perhaps the TB rate will not decrease significantly, or will even increase.

The budget for the Ministry of Health, as I remember, is approximately Rp 30 trillion ($2.4 billion). But within that, around Rp 5 trillion is generated by working units, public hospitals, which generate direct income. So actually, the funding is around Rp 25 trillion rupiah

Do not let, for example, fiscal policy be used for the things that are now often discussed, for instance, tobacco, then sugary drinks, carbonated drinks, etc. Those are part of which area? Public health or private health? The ultimate goal is for public health, yes.

But I see it like this, if the core of what we are doing now, let's be frank, is fiscal policy on cigarettes: the excise tax is raised. My question is, if the money is there, what will the excise be used for? To educate the community to have a healthy lifestyle? Or throw the money to hospitals again, to buy medical equipment and medicine? How is this?

For me, it is fully government’s right to obtain the budget. But I am worried that it seems with the excise tax, the health ministry’s plan to educate people about public health is gone. The impact is that the money intended for educating people goes back to take care of smoking cases, buying new equipment, etc. Then we must prepare new medicines also because TB, for example, can no longer be taken care of with current drugs. So it is money misallocated.

The industry view

Adhi Lukman, chairman of the Indonesian Food and Beverage Industries Association (Gapmmi)

Professor Amal talked about public health and personal health, how to define this and the relationship to food and beverages. Of course, it is very closely related, especially to food safety, but what is more interesting are noncommunicable diseases (NCD). This NCD issue has become world trending, and the food and beverage industry is now burdened with watching after public health. We have to help the government, yet we also need to improve our competitiveness so that we can exist.

And if we ask if the food and beverage industry is supporting public health, we say, “Yes, 100 percent.” How do we do this? Is it by using fiscal policy or another way? That is what we have to discuss together.

We also have to see the definition of food security in law, which is also related to good nutrition, safety, etc, and the world now is also talking about this. Many countries are suffering from a “double nutrition” burden. Malnutrition is everywhere, and overnutrition or poor nutrition has now become a concern. And that is also associated with the food and beverage industry.

Causing obesity

What we have to think about together is how we can react more broadly. We see that the World Health Organization has already asked everyone to act on NCD, and of course we agree to support that. We can see that in Indonesia, research shows that obesity has increased rapidly, especially for females above 18 years old. This doubled from 2007 to 2013. Lucky for men, it has not increased so rapidly for them.

And we see the tendency for malnutrition, and that there are many opportunities for the food and beverage industry to reduce malnutrition and to handle the overnutrition problem. We need to do this together, government and industry.

If we look at the excise tax issue in the law (No. 39/2007, Clause 2) it states that particular goods to be levied with excise taxes need to have their consumption controlled and their distribution supervised, etc. Of course, if we want to make proper public policy, it has to be based on research or proper data. Without it, I am afraid that regulations will be wasted. To be honest, in Indonesia many regulations are produced that cannot be implemented; there is no enforcement, there are just so many.

Recently, so many laws have been passed. One of them is the Halal Law, for instance. This cannot be completely implemented because it collides with at least two other laws. Why is it set to be law? Because Indonesia is productive in producing regulations but is not productive in implementation. This is very important. Regulations and laws should be based on scientific evidence. If not, they will burden the consumer and boomerang on Indonesia.

Let us see one of the cases. In Malaysia, junk food was blamed for causing obesity and diabetes, etc. But research showed that the main cause of diabetes in Malaysia is rice, not junk food. But junk food was blamed, maybe because it originates from a superpower country.

Adhi Lukman

That is something Indonesia has to see. Before we make a regulation, we should do research to find out what needs to be done, what is proper to do.

In America, according to the WHO bulletin, there is “very little evidence about the use of food taxes as a public health strategy.” This is according to the WHO. It also said, “Taxing food and beverages may reduce obesity” but this is in advanced countries. In developing countries it said, “Future research should estimate rice scarcity in low and middle-income countries and identify potential health benefits against the wider impact on jobs” and everything else.

And, of course, we cannot just implement American policies or policies from advanced countries. The most important thing, in my opinion, is how we educate consumers. Fiscal policy from our government is expected to do more in education.

But in our country, there are regulations from the Ministry of Health regarding limitations on sugar, salt and fat, and then other regulations. These regulations are released without clear evidence or survey data. So it creates confusion when it’s implemented. It is just not clear.

We would expect those with more experience in the government to push regulations based on proper surveys and proper data. Do not make a regulation first, then become confused when implementing it. In that case, it looks like those regulations were made without clear backing.

‘Naughty manufacturers’

For instance, in America, diet guidelines are promoted, consumers are educated. For manufacturers, it is actually quite simple. If consumers are smart, and they keep choosing healthy foods, soon manufacturers won’t produce unhealthy food. But if the consumers are not smart and not well-educated, automatically there are so many opportunities for “naughty” manufacturers.

In Indonesia, supervision will be hard. For that reason, top-down regulation is difficult. For instance, the BPOM (National Food and Drug Agency) often arrests sellers of illegal products. But if one is arrested today, there are 10 the next day. Why? Because it is hard to supervise the market. Therefore, what is important for me is to educate.

And now, in the Ministry of Health, they are going to educate, issue balanced nutrition guidelines. I think we have to push this together so the consumers become smart about nutrition, to support public health. And we also expect that government can use fiscal policy to push this kind of education.

If the education succeeds and our consumers become smart, our budget for health can be reduced and maybe used for education. The consumers will be smarter and the naughty manufacturers will be naturally reduced. Thank you.

The government view

Chatib Basri, former Indonesia minister of finance:

First, I want to thank Strategic Review for the invitation. I thought that I had to talk about something relating to macroeconomic stability, or something like that. But when [I found out] that the topic was public health, I decided that I had to come because this is an issue that is so important for Indonesia.

We have listened to Pak Amal and Pak Adhi and their sectoral perspective. I would not argue that it was wrong or was not needed. But perhaps, to complete it, we have to see the big picture.

‘Jurassic Park’

In this room, there is the luxury to be imaginative, to talk about something ideal. But the fact is outside, it is impossible to do so. We are not living in the best world. We are living in the second-best or even the third-best world, run by the third-best or fourth-best bureaucracy. And we cannot complain. Because if we are cursing the darkness, tell people that this is wrong, nothing will change. If we want to do something, [we have to think about] what kind of policy will still work.

When we study policy at the university, the bureaucrats are honest brokers, the institutions are functioning and the law is firm. Definitions are clear. In reality, it does not happen. Now, as a good policy maker, given the constraints, you are still able to produce a policy.

So, first we have to see that in the short term, all of our constraints or concerns are unchangeable. The bureaucracy is stuck. The law is not firm. The definitions are unclear. The agents are dishonest. Corruption exists. In these conditions, what kind of policy will work?

If we can come up with a policy, it can solve the problem. If not, we will only constantly be crying over problems. That is why I keep saying: “If our institutions are like ‘Jurassic Park,’ do not come up with a policy as polished as ‘Star Wars.’” It will not work. Come up with policy that is applicable in ‘Jurassic Park.’ And our institutions are “Jurassic Park.” Let’s leave it at that.

Of course, the ideal would be if the budget was enough to cover everything. But the fact is, the Constitution directs 20 percent of our budget to education, whatever education does. That is something good, but is it quality education? That would be the issue.

And then the Village Law was introduced. There, 10 percent must be allocated for villages. Yes. We are very fond of making boxes in our laws. That makes fiscal room ineffective. Twenty percent of our budget is also allocated to the fuel subsidy, and that is basically burned each day.

So, our fiscal space is very limited. We have to look for policy that works. It will not be optimal, but pragmatism in policy can be achieved because people respond to incentives.

The fiscal condition in a new era

Our fiscal condition is thus far from ideal because the government does not have full control of the budget. It is constrained by law. We have to be realistic with this.

But we are entering an era that we never imagined before. First, the resource boom is over and many countries are facing the fact that commodity prices are declining. The US has started to produce shale gas. And not many people imagine that now the US is the largest producer of energy in the world, due to both its efficiency and innovation.

The implication is that this will make the US less dependent on Middle East oil. At the same time, China is entering an era of normal economic growth of around 7 to 7.5 percent. [Because of these factors] I can predict that in the next 5 to 10 years, energy prices will decline. And therefore, commodity prices will decline.

Countries like Indonesia have 65 percent of our revenue and exports coming from commodities and energy. This means, our current strategy can’t remain. Not only Indonesia; South Africa is facing problems. Australia is facing problems. Brazil is technically in recession now. South Africa’s growth may be only around 2 percent. Turkey’s growth is under 4 percent. There are only three countries among the G20 whose growth is above 5 percent: China, India and Indonesia. The rest are under 4 percent. That is the condition that we are facing. Well, Indonesia cannot remain in [natural] resources any longer.

There was a long debate between my friends and me; [they are from] the World Bank and they said, “Let’s stay with the comparative advantage like this.” I told them that one day, the boom will be over and we cannot do it anymore.

Have you been to Dhaka?

At the same time, we have the rise of the middle class. Even grocery shopping has become a weekend luxury for the husband or the wife. Typically middle class, they may eat out more, a trend that was not there 15 years ago. With the signs from the middle class like this, we cannot stick to cheap labor. Bangladesh? Have any of you been to Dhaka? No offense if any of you are from Bangladesh, but if you complain about Jakarta, have you been to Dhaka? Jakarta is a complete paradise. Including the traffic.

I have been on the IMF’s Board of Advisors for Asia-Pacific and I traveled to many countries. But what was puzzling was that Bangladesh is able to export garments at a far lower price compared to Indonesia, although their infrastructure is completely collapsed. The explanation is that their labor costs are one-third of ours.

If we want to survive in the garment business, what can we do? We have to create the [kind of] batik that the middle class will demand, batik priced at millions [of rupiah]. It means we are entering a niche market in terms of quality. The implication is that when the resource era is over, cheap labor is over, the emphasis in the development strategy should be in the quality of human capital. And if you’re talking about human capital, you’re talking about two things: education and health. Those are the main ingredients.

That is why, when I came across the invitation for the forum, I thought, I had to come, because this is part of Indonesia’s strategy for the future. We have to work on the quality of human capital.

South Africa, Brazil and South Korea all belong to the middle income [nations]. However, only South Korea is among the industrial economies because they emphasize human capital. Here, the issue of promoting public health is relevant. I will talk about some issues relating to policy, and later on will talk about public health.

Catching up

In the Finance Ministry, we have a program called LPDP (the Scholarship Management Fund.) Every year we allocate Rp 16 trillion that we invest in government bonds with a return of around 7 to 8 percent, so every year we have Rp 1.2 to 1.5 trillion from the investment. And now, that is being allocated for scholarships for Indonesians who are accepted into the top 200 universities. We cover their tuition fees and living expenses. The requirement is that they have to return to Indonesia.

I am now starting to see young Indonesians studying at MIT, at Harvard, Cambridge, Oxford, through the LPDP fund. There have been 3,000 students. Only in this way can we catch up with Singapore and Malaysia.

The next is public health. We do not want to have people who are only brilliant but not healthy. We can argue about what is personal health, or what is public health. I fully agree. But there are two principles.

Let me talk first about BPJS. This is universal health coverage for individuals. What the government can cover is for poor people. When I was talking to the Health Minister, I asked her to find a program so BPJS will not create a moral hazard in which the patient is seen as an income source, and if they are sick they are treated over and over at the hospital. This would not be sustainable.

At that time, I thought the minister had a brilliant idea about the funding allocation for doctors in which if there are a lot of sick people in a place, the doctor’s share will be small. But if there are few sick people, the doctor has a big share. So the doctors will have an incentive to make people healthy. Why? Because if all the sick people come to the Puskesmas, they will not receive any income. This is more or less so. So the doctors have to cure people. Because if that sick person comes again, keeps asking for medicine, they will not have any income.

Penalty and rewards

I believe in penalty and reward like this; it forces people to not keep a patient in hospital. But we are talking about the allocation of something that cures. If the fund is used to buy hospital equipment, this allocation will never end because it does not address the source of the problem. This must be a preventive [effort], so the budget for public policy should include health education.

But the biggest allocation is for sick people. The big allocation is for curative efforts, which benefit the manufacturers of medicine and hospital equipment. This is the issue that we have to face. If at the same time we have to address fiscal policy for treatment and prevention, the money is limited. Like it or not, something has to be done to increase the revenue side. Like what? We are going to increase the excise tax 10 percent. And excise is actually not revenue collection.


Excise is actually to discourage consumers to buy something that is considered hazardous. If we want to aim for revenue, we go for a tax. That is the difference between excise and tax. We are trying to do this. But the money will not be enough for what we are doing right now, with the current deficit like this and the allocation for the fuel subsidy. [The fuel subsidy was reduced by about one-third by new President Joko Widodo in November.] In my view, the fuel subsidy has to be limited to Rp 1,000 per liter, and after that we can save up to Rp 200 trillion.

Data-based policy

Now, I am entering into what Pak Adhi presented, the need for policy to be supported by evidence-based studies. The government is trying to perform at that level, but I have to be honest. Quality from government offices, from our bureaucracy is limited.

Why? Because with the remuneration package we have right now, the best and the brightest people will not want to work in government offices. One, the salary is too low. Second, the risk of being detained [on corruption charges] is too high. [laughter]

I am serious about this. It is difficult to find graduates from the best universities who want to become government officials. Because the best and the brightest will be in the private sector while the government sector will get those who are less and less competitive in the market. They will end up as government officials.

These are the conditions. And then they are told to create miracle-based policy evidence. There are constraints. And then the businessmen say, “OK, let’s make [the study] together.” If it comes 100 percent from the businessmen, the policy recommendation must be for the interests of the businessmen. Government is very bad at picking leaders, but losers are very good at picking the government. [laughter]

So, if an association comes with a study, I have nothing against that, but the government side must also be strengthened.

I will give you an example. Initially, I did not really want to say this. I asked for a study. A policy should come from a technical ministry, so the finance minister cannot raise an excise on carbonated drinks, because we do not have the knowledge. It has to be the Ministry of Health [who issues the policy]. Do you have any idea? After three and a half years, until now, the study has not been completed. I do not know why. Maybe the printer is out of toner. [laughter]

But this is the fact. In this condition, what can we do [to make it work]? This is where I see the role of universities and think tanks in public policy. If not, all the public policies will be driven by various interests, and the best place to put an interest is in the parliament.

Current lessons

Last, I want to remind the audience to learn something from what is happening in Europe and in America. They started a wonderful social welfare system, but countries in Europe are now facing difficulties, and they have their crises now. Because of what? Because the countries want to cover everything. The health system, all, the countries want to cover all.

This is what I see, if we are looking from this side of public health, we have to see whether we can fund it or not. That is why, when I was asked to increase the subsidy for premium care for PBIs [Penerima Bantuan Iuran – the beneficiaries of premium health care] on the demand side, I said, “Let’s start from Rp 19,000 first.” The health minister said that this did not make any sense. I asked, “How much do you need for it to work?” She told me Rp 19,225. “OK, let us start from that during the first year [2013].” This year we will increase it to Rp 22,000. I know that the equilibrium is Rp 26,000. But we start from something. We evaluate it, whether it works or not. And later, we increase it.

Because if not, everyone will start to ask for something ideal. It is the finance minister’s job, then, to say, “No.”


A Strategic Review Forum featuring Chatib Basri and other experts. 

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