Financing Slum Upgrading

in Indonesia: Can
Sustainability
Reinvestment Help?

Presented at
CIB-W110 Meeting and Conference
Surakarta, April 16, 2009

Agung Sugiri
Department of Urban and Regional
Planning
Diponegoro University
 Organization

• Slum upgrading v slum bulldozing

• Challenge to sustain slum upgrading:
lessons learned from KIP (Kampung
Improvement Program)
• Inequity and Slums: the Importance
of Sustainability Reinvestment
• Toward tax policy reformulation
• Conclusions
2
 Bulldozing v Upgrading

• Indonesian paradox  recent

practices of slum bulldozing v past
success of KIP
• Upgrading  favorable for people
• People’s complaint on slum
bulldozing  even blame the World
Bank’s ‘cities without slums’ program

3
Example of protest from the
deprived

4
 Bulldozing v Upgrading

• The worse off people most probably

misunderstood about the ‘cities
without slums’ program, but
• Their suffering from slum removals is
real
• Slum Upgrading should be the
choice, however,
• The most difficult is to finance,
especially in Indonesia. 5
Lessons learned from KIP

• Kampung Improvement Program is

considered among the best practices
of slum upgrading
• Key factors (Chavez et al. 2000):
– Governor’s initiative turned to bottom
up  community empowerment
– The Management – special unit; gotong
royong culture; leadership structure
– Helps from World Bank (esp. the
finance) 6
Lessons learned from KIP
• However  finally found
unsustainable
• The maintenance is not good
• Finance is the key; the local
government has no enough money
for maintenance

• Do slum dwellers have the right to

get help, not applied yet in the
existing development mechanism in
7
 Inequity and slums
• Most of slum inhabitants are simply
forced to live in there;
• Economic dualism (both global and
within developing countries)  rural
urban migration  urban poor 
slums
• Equity failures in development
process must have something to do.
• Equity: fairness in process, justice in
distribution (see e.g. Rawls 1971) 8
Equity based
development

9
Equity failures related to
slums
• Those failures in Benefit Distribution
– people are deprived in terms of low
welfare level despite their hard work
(equity failure Ia); many slum
inhabitants are easily identified as hard
workers, but earn so little money.
– unfair access to public infrastructure,
facilities and services (equity failure Ib);
hardly can slum dwellers get basic
infrastructure and facilities properly.
10
Equity failures related to
slums
• Failures in Sustainability
Reinvestment
– people would bear negative externality
costs with no or inappropriate
compensation (equity failure IVa); slums
are usually neglected from any
compensation by, for instance, a nearby
pollutive industry.
– insignificant sustainability reinvestment
would be insufficient to maintain the
ecosystem (equity failure IVb); slum
11
dwellers would be the most vulnerable
Equity failures related to
slums
• Failures related to Production
Function, especially
– unfair competition in the economy that
would make a few stakeholders better
off at the expense of the majority
(equity failure IIb); job applicants from
slum dwellers are less likely to be called
for interviews than those from better-off
neighborhoods (UN Habitat 2006).
12
 Expanding the use of
sustainability reinvestment
• Slum dwellers are victims of
inequities
• When inequities are corrected, they
have the rights to be recompensed
• Compensation should come from
those benefitted from the related
equity failures
• This can be done through tax policy
reformulation 13
Tax policy reformulation

• The principles
– Apply market based instruments (MBI)
– The tax payers should be well identified
– Specific pool of tax collection 
sustainability reinvestment pool
– Equitable arrangement of tax
distribution

14
Tax policy reformulation

• The stages
– National awakening  correcting
inequities and the importance of
sustainability reinvestment
– Enrichment in the taxation system

15
 Conclusions
• Slum upgrading for ‘cities without
slums’
• Existing equity failures in
development contribute in creating
slums
• Those benefitting from the inequities
should be responsible  help fixing
the problems 
• Sustainability reinvestment  slum
dwellers have the right for 16
 References
• Chavez, R., Gattoni, G. and Zipperer M., 2000, Indonesia,
The Kampung Improvement Program (KIP): Successful
Upgrading with Local Commitment, an interview with Chris
Banes, Municipal Engineer at the World Bank, [Online],
Available:
http://www.worldbank.org/urban/upgrading/kampung.html
[January 27, 2009].
• Rawls, J., 1971, A Theory of Justice, Oxford: Oxford
University Press.
• WALHI (Wahana Lingkungan Hidup Indonesia/Friends of the
Earth Indonesia), 2004, Komite Masyarakat Makasar Anti
Penindasan (KMMAP) Menolak Segala Program Bank Dunia
(Makasar People’s Committee on Anti Deprivation (KMMAP)
Refuses All World Bank Programs), [Online], Available:
http://www.walhi.or.id/kampanye/globalisasi/040906_demo
dprd.html [February 24, 2009].
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Financing Slum Upgrading
in Indonesia: Can
Sustainability
Reinvestment Help?

THANK YOU
Agung Sugiri
Department of Urban and Regional
Planning
Diponegoro University