ANALYSIS OF POVERTY IN INDONESIA

POVERTY IN INDONESIA
Poverty is one of the biggest problem in almot every nation in the world, Indonesia is not
excluded. In the 1960s, the economy deteriorated drastically as a result of political
instability. Indonesia had a young and inexperienced government, which resulted in
severe poverty and hunger. By the time of Sukarno's downfall in the mid-1960s, the
economy was in chaos with 1,000% annual inflation, shrinking export revenues,
crumbling infrastructure, factories operating at minimal capacity, and negligible
investment. In February 1999, as much as 47.97 million people were classified as poor,
representing 23.43% of Indonesia's population. However, this figure must take into
account the slide of the rupiah in the Asian financial crisis. By July 2005, that number
had been reduced to 35.10 million, representing 15.97% of the total population.
Indonesia has grown rapidly in recent years and living standards have improved. On the
basis of purchasing-power parity (PPP), gross national income per head doubled during
the decade to 2012. The proportion of the population living in poverty fell by half, from
24% in 1999 to 12% in 2012. McKinsey, a consulting firm, has predicted that the
countrys consuming class of people earning more than $3,600 annually will treble to
135m by 2030 (again, on a PPP basis and adjusted for inflation). The growing ranks of
consumers, in turn, have prompted a spurt of foreign investment.
Yet Indonesias growth has been uneven. According to a forthcoming report by the
World Bank, real consumption grew by about 4% a year on average in 2003-2010. But
for the poorest 40% of households it grew by only 1.3%. In contrast, consumption by the
richest 20% grew by 5.9%. In other words, the rich are getting richer much more rapidly
than the poor are. At 0.38 in 2011, Indonesias Gini coefficient, a measure of income
inequality, is in line with that of other developing countries. But it has jumped from 0.29
in 2000.
Over 3m migrants from the countryside arrive each year in Jakarta and other cities.
Many of them end up with jobs in low-end services, hawking food by the roadside or
selling things from handcarts. They are part of a vast informal economy, which accounts
for some 70% of GDP. They rarely earn the official minimum wage and receive few

government benefits. The World Bank estimates that labour productivity in Indonesias
low-end service sector is about double that in agriculture. But it is still only one-fifth of
that in manufacturing. In other words, poverty falls as people leave rice fields to work in
low-end services, but it would fall much faster if they were to find jobs in factories
instead.
Manufacturing in Indonesia is hamstrung by decrepit infrastructure, rigid labour laws
and protectionist policies that make it difficult for its factories to be competitive. Even
though the share of Indonesias labour force employed in agriculture has been in
decline for decades, manufacturings share has not changed much at all, hovering at
about 13%. And local manufacturing remains dominated by the processing of palm oil
and other primary commodities. In contrast, services now employ about 44% of the
labour force, up from 37% a decade ago. Widening access to things like well-built
houses, clean water and sanitation, along with education and health care, might slowly
start to share the rewards of Indonesias rapid economic growth more evenly.
Indonesia has increased its social spending. It has bold plans to introduce universal
health care by 2019, for example. But government spending is still skewed towards the
rich. About 20% of the central governments budget, or 282 trillion rupiah ($24.5 billion)
this year, goes on energy subsidies. Cheap petrol benefits the rich, who are the biggest
consumers, more than the poor. It squeezes spending on public services, too. According
to the World Bank, getting rid of fuel subsidies, while reforming taxes and cutting
spending on civil servants, would allow the government to double spending on
infrastructure, health and social welfare. That would be better for the environment, the
economy and especially the poor.
The issue of poverty has recently been brought to the publics attention. In addition, the
UNs International Fund for Agricultural Development has warned that with the earths
population set to reach nine billion by 2050, there is a real threat of massive food
shortages and poverty in developing countries. The picture of Indonesian development
reveals many families are not benefiting from national economic growth. The Center for
Welfare Studies reported that the number of poor people in Indonesia increased by 6.7
percent over the last three years to 43.1 million. The report showed the number of

Indonesians living in extreme poverty was 40.36 million in 2008, 44.83 million in 2009,
and 43.07 million in 2010. In 2011, Indonesia experienced a decline in poverty rates
from 12.49 percent in March, but it decreased to 12.36 percent in September. Some
islands have different poverty percentages. For example, Maluku and Papua had the
largest percentage of its people in poverty, at 25 percent, while Kalimantan had the
lowest at 7 percent. Java is the island that hosted the poorest Indonesians, at 16.74
million people, while the major island with the smallest number of poor was Kalimantan,
with 97,000 people. The Asian Development Bank (ADB), however, said not all the
statistics in the paper were directly comparable, as they were based on different
sources and methodologies.
The government also has different methodologies of creating poverty data. According to
the Central Statistics Agency (BPS), the number of Indonesias poor is at 30.2 million,
which is much lower than the ADBs 43.12 million. In this case, the ADB marks the
countrys poverty line at an earning level of $1.25 per day, while the government has set
it at $1.13. If the poverty line was set at $2 per day as suggested by the ADB, the
statistic for the number of poor here would further increase to reach at least 117 million,
or about 50.57 percent of the population. In 2011, the BPS reported that the number of
poor people was only 12 percent of the population. In this case, the poverty line used
was the monthly per capita earnings of Rp 243,729 ($26.80) in September and Rp
233,740 in March. The use of different values of poverty lines to count the poor has
caused confusion for common audiences. Data from the last six years shows a decline
in the number of low income people from 17.75 percent in 2006, 16.58 percent in 2007,
15.42 percent in 2008, 14.15 percent in 2009, 13.3 percent in 2010 and 12.49 percent in
2011. However, this trend has not proved that the poor population in Indonesia has
significantly declined. In reality, using the income and the poverty line to measure
poverty still does not picture poverty reduction. As reported by ADB, Indonesia is the
only country in Southeast Asia in which poverty is on the rise. It is upsetting since Laos
and Cambodia have few natural resources and inattentive governments. Cambodia
reduced poverty from 4.1 million people in 2009 to 4.09 million in 2011. Laos cut poverty
from 2.18 million in 2009 to 2.04 million in 2011. H. Ritonga, director for social resilience
statistics at the BPS, said that although the number of poor was declining, poverty

wasnt significantly reduced. This is due to the fact that Indonesia is in a situation of
chronic hardcore poverty. In this condition, the rich obtain most benefit from the
economys rapid growth, while the poor, without sufficient access to capital, become
relatively poorer. In fact, eradicating poverty is more difficult for areas that have limited
access to governments facilities and services.

TOTAL AND PERCENTAGE OF POOR SOCIETY OF INDONESIA, 1970-2013

PHILIPPINES VS INDONESIA
From 2005 to 2010, the Philippines went from fifth-poorest to third-poorest country in
Southeast Asia, as estimated by the Asian Development Bank (ADB) with a new Asian
regional poverty line of $1.51/person/day (ppp, 2005 prices), as published in its August
2014 special report, Poverty in Asia: A Deeper Look.
In 2005, the poverty distance from Indonesia to the Philippines was 2.0 points (32.9
minus 30.9). By 2010 this distance was only 1.2 points (28.0 minus 26.9). At this pace,
Indonesia will also catch up with the Philippines by 2015, and there will be a triple tie
with Lao PDR for the tag of poorest country of Southeast Asia. Other poverty line
adjustments. The ADB also made poverty lines adjusted for: (a) food insecurity, due to
high fluctuations of food prices, and (b) vulnerability of the poor to shocks like natural
disasters, climate change, illness and economic crises. (These are separate from the
adjustment from the African $1.25 to the Asian $1.51.)

INDONESIAN POVERTY AND GEOGRAPHICAL DISTRIBUTION

One remarkable characteristic of Indonesian poverty is that there is a major difference
in terms of relative and absolute poverty in relation to geographical location. While in
absolute terms over half of the total Indonesian poor population lives on the island of
Java (located in the more populous western half of Indonesia), in relative terms the
provinces of eastern Indonesia show far higher numbers of poverty. The table below
shows the top five of Indonesian provinces regarding highest incidences of relative
poverty. All these provinces are located outside the more developed western-located
islands of Java, Sumatra and Bali.

RURAL AND URBAN POVERTY IN INDONESIA

Indonesia has experienced a process of rapid and continued increased urbanization.
Since the mid-1990s the absolute number of Indonesia's rural population began to

decline and today more than half of Indonesia's total population lives in urban
environments (20 years ago approximately one-third of Indonesia's population lived in
urban societies). With the exception of a few provinces, the rural populations of
Indonesia are relatively poorer than the urban ones. Indonesia's rural poverty rate
(percentage of the rural population living below the national rural poverty line) dropped
to around 20 percent in the mid-1990s but suffered at the hands of the Asian Financial
Crisis that ravaged the country between 1997 and 1998, causing this number to rise
again to 26 percent.

CONCLUSION
We can conclude that most of the causes of Indonesias poverty are indebtedness, high
rate of corruption, unability to process the natural resources, etc. High levels of
economic growth from 19871997 masked a number of structural weaknesses in
Indonesia's economy. Growth came at a high cost in terms of weak and corrupt
institutions, severe public indebtedness through mismanagement of the financial sector,
the rapid depletion of Indonesias natural resources, and a culture of favors and
corruption in the business elite. Corruption particularly gained momentum in the 1990s,
reaching to the highest levels of the political hierarchy as Suharto became the most
corrupt leader according to Transparency International's corrupt leaders list. As a result,
the legal system was very weak, and there was no effective way to enforce contracts,
collect debts, or sue for bankruptcy. Banking practices were very unsophisticated, with
collateral-based lending the norm and widespread violation of prudential regulations,
including limits on connected lending. Non-tariff barriers, rent-seeking by state-owned
enterprises, domestic subsidies, barriers to domestic trade and export restrictions all
created economic distortions.
Fifty percent of Indonesias population is still poor, hovering around the poverty line,
living on less than US$2 per day. Also, concerns have arisen as data on poverty status
exist. If this continues, it will create unpredictable progress in terms of the countrys
prosperity in the future.

The unemployment rate (in February 2007) was 9.75%. Despite a slowing global
economy, Indonesias economic growth accelerated to a ten-year high of 6.3% in 2007.
This growth rate was sufficient to reduce poverty from 17.8% to 16.6% based on the
Governments poverty line and reversed the recent trend towards jobless growth, with
unemployment falling to 8.46% in February 2008. From that experience, government
should consider a way to reduce the poverty in Indonesia by observing the previous
experiences in handling the poverty rate.