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Informal Settlements and Affordable Housing 2009
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Financing Slum Upgrading inIndonesia: Can SustainabilityReinvestment Help?
Agung Sugiri
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ABSTRACT
Sheltering for the urban poor of developing countries, like Indonesia, hasbeen facing problems. Slums, characterised by crowded, unhealthyenvironment, poor quality buildings, and lacking public facilities andinfrastructure have been of much concern. Around 24-62% of urbanpopulation in developing countries live in this kind of housing with no sign of decreasing trend. Despite promising progresses, sustainability is still themain challenge for slum upgrading, in which financing is an important aspect.The paper seeks a theoretical foundation of utilising sustainabilityreinvestment scheme, a somewhat forgotten function in Indonesia, to helpfinancing slum upgrading. Sustainability reinvestment is among the methodsof ensuring intra- and inter-generational equity in development, in which asignificant portion of development benefits is reinvested for sustainingdevelopment. It is usually applied for restoring environmental damagecaused by the development activities based, among others, on polluters payprinciple. However, since hardly are people living in slums out of their freewill,inequity in development process must have something to do with it. Sluminhabitants are most probably deprived from their rights to get equitablebenefits from development.Therefore, the application of sustainability reinvestment can beextended to include financing slum upgrading. By this, slum upgradingbecomes an integrated part in ensuring sustainable development. Amongthe policy implications is tax policy reformulation. A new post in the tax yield,namely sustainability reinvestment pool, can be created. Equitable
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Department of Urban and Regional Planning, Diponegoro University Jl. Prof. Soedarto SH, Tembalang, Semarang 50275, agung.sugiri@uqconnect.edu.au 
 
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Sustainable Slum Upgrading In Urban Area
compensation for slum dwellers should be available from this post, and thiswould help financing slum upgrading.
Keywords
: intra- and inter-generational equity, slum upgrading, sustainabledevelopment, sustainable financing.
1. INTRODUCTION
Slum upgrading has become a favourable alternative solution to increase thequality of life of slum dwellers. However, slum demolition without proper resettlement program is still preferred by many local governments. This isespecially so in Indonesia, despite its former successful experience of slumupgrading –KIP (
Kampung 
Improvement Program)- in Jakarta.This introduction shows the importance of sustaining slum upgrading,and is also completed with the objective, the method, and the organisation of the paper.
1.1 Slum Bulldozing versus Slum Upgrading
A group of people gathered together in front of the World Bank office inMakassar, protesting the practices of slum demolition, recently widespreadin Indonesian metropolitan areas and big cities (WALHI, 2004). Thesepeople, mainly the worse off citizens like the urban poor, informal streetvendors, victims of slum bulldozing, and students, were coordinated byKMMAP (Makassar People’s Committee on Anti Deprivation). They evenexpanded their complaint to include refusal to all World Bank initiatives onurban development, especially the “cities without slums” program, which theyblamed as causing slum removals without proper resettlement programs bylocal governments. While their rejection to the World Bank programs is mostprobably because of some misunderstanding (see e.g. Dasgupta and Lall,2006; World Bank, 2000), their suffering of being displaced from their homesis real.The upshot of the incidence is clear, that slum bulldozing is mostcertainly not the best option for local governments. This, however, has notbeen the case for Indonesia. Centre on Housing Rights and Eviction, for example, has identified Indonesia as a country with the highest incidence of slum removals, mostly done in Jakarta, in 2003 (Hartiningsih, 2005). From2000-05, the Local Government of Jakarta has forced more than 90,000slum dwellers to move out from their homes, and threatened another 1.5million of the urban poor. The Jakarta Government also made more than20,000 ‘
becak 
’ drivers and 60,000 street vendors lost their jobs in that fiveyear period.Slums are often deemed as merely a housing disorder by urban localgovernments of Indonesia because of their illegal nature in land tenure.
 
Informal Settlements and Affordable Housing 2009
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Furthermore, the ugliness of slums due to the crowded, poor qualitybuildings, unhealthy environment, combined with lacking public facilities andinfrastructure has made the authority keen enough to eliminate them. Thus,to upgrade slums or to provide resettlements is considered too costly.Besides, upgrading would mean allowing the dwellers to stay there illegally,something paradoxical. Slum dwellers are considered as having no rights tostay. So, as far as the local authority is concerned, rather than to cure thedisorder, it is much easier to remove it.However, pondering on the concerns of the slum dwellers, slumremovals would most probably make the worse off worst. Around 24-62% of urban population in developing countries live in slums with no sign of decreasing trend (UN-Habitat, 2008 in Servants, 2009). It is indicated thatmany slum dwellers are in worse situation than their relatives in rural areas(UN-Habitat, 2006). By bulldozing them, at least two disadvantages wouldemerge. First, slum bulldozing would decrease the housing supply and makethe dwellers unsheltered. Rather than going back to their origin in ruralareas, these unsheltered urban poor would most probably find other placesto quickly build their new slums. Slum bulldozing has been proven byexperience as unable to eliminate slums (Painter 
et al.
, 2006). Second, slumdwellers usually run their economic activities not too far from home.Removing them would cut their opportunities, and thus reduce the urbaneconomic potential itself.This is also paradoxical because slum dwellers, although deprived, arenot without economic potential. Not only are they potential consumers in theurban economy, but potential producers as well. Slum dwellers are engagedin informal, small and micro enterprises, which are low productive. However,an interesting proposition is stated by Prahalad (CHF International, 2008:Appendix 4-2), that “If we stop thinking about the poor as victims or as aburden and start recognizing them as resilient and creative entrepreneursand value-conscious consumers, a whole new world of opportunity will openup.” Integrating the informal activities of slum dwellers into the urbaneconomy in terms of strengthening the opportunities, by giving them fair access to micro financial assistance, for example, is thus among theimportant strategies of urban development.Slum upgrading, therefore, is much more preferable than slumbulldozing in implementing “city without slum” program. It is true that slumupgrading is usually more costly than slum removal. It also needs more effortand time, however, these investments are effective and productive. Whileslum removal would most probably end up with similar new problem in other parts of the city, slum upgrading can resolve it. By slum improvement, slumscan be converted into good quality settlement without relocating thedwellers, so that maintaining their economic opportunity. Slum upgradingcan also empower the community to renovate and develop their housing withtheir own resources. Suitable and inexpensive housing for the urban poor,rather than a decline in the housing supply, is thus the main outcome of slumupgrading (Painter 
et al 
., 2006).
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