An Indonesian youth plays with her tablet device as others stand in a line to fill up job application forms at Kompas Karier Fair in Jakarta on Aug. 22, 2014. Even with permissive poverty thresholds, the rate at which poverty indicators are improving is faltering. (Reuters Photo/Beawiharta)

Data Show Indonesia's Poverty Reduction Is Stagnating

JANUARY 07, 2015

Jakarta. The Central Statistics Agency, or BPS, last week released Indonesia’s latest poverty data, which found that 27.73 million people, or about 11 percent of the country’s population, lived below the poverty line as of September last year.

The agency defines being poor as living on less than Rp 312,328 ($25) a month.

The BPS’s definition, which averages out to just 80 cents a day, sets a threshold for poverty that excludes many more people — as many as 9 million according to a 2012 study — than internationally accepted standards, such as that of the World Bank, which sets the “absolute” poverty line at $1.25 per day, or the even higher standard of $2 per person per day, which is the average of the national poverty lines for all developing countries.

According to the latest figures in the National Socioeconomic Survey (Susenas), which BPS conducts three times a year, the number of people living below BPS’s “basic needs” poverty line fell from 28.8 million (11.25 percent) in March 2014 and 28.6 million (11.46 percent) in September 2013.

Experts, however, say the declines have been too slow, especially in light of the expected relapse of many Indonesians into conditions of poverty, when the survey is conducted again in March this year, due to economic shocks as a result of the increase in subsidized fuel prices last November and the elimination of the subsidy scheme entirely on Jan 1.

The fuel price hike has triggered increases in prices of other goods and services, as evident in the 8.36 percent inflation rate BPS found in December year-on-year — higher even than the projected 7.93 percent.

On a monthly basis, consumer prices were up 2.46 percent in December, compared with an estimate of 2.06 percent and the 1.5 percent rate in December.

The BPS survey data is consistent with findings by the World Bank, which, drawing on BPS data, concluded in a September 2014 report that progress on reducing poverty in Indonesia continues to slow, with only a reduction of 0.7 percentage points over the last two years, the smallest decline in the last decade.

The World Bank said wealth inequality, measured by an indicator called the Gini ratio, also increased in recent years. It warned that this inequality had the potential to disrupt social cohesion and jeopardize gains from solid economic growth that helped to reduce the poverty rate by roughly half from 24 percent in 1999.

The greatest risk, the World Bank said, is to the 68 million people in Indonesia who live just above the poverty line and are thus vulnerable of falling back into “official” poverty.

Economists Mayling Oey-Gardiner and Enny Sri Hartati said the new administration of President Joko Widodo needed to focus on creating more jobs and supporting business activities if he wanted to significantly reduce the poverty rate.

“Compare ourselves to China: They have done a good job at reducing poverty levels in their country because they have made great progress in the manufacturing sector,” Mayling said.

She added Joko’s administration would similarly fail to eradicate poverty if it continued on the path of former president Susilo Bambang Yudhoyono, whom she said relied solely on poverty alleviation programs to address the issue.

“It is now the task of Joko’s administration to address poverty by spurring the growth of industries, especially locally owned ones,” she said.

Mayling said this entailed revisiting regulations that posed obstacles to permits for opening and running businesses.

“More people in Indonesia will be unemployed if the [business] permit application system remains complicated,” Mayling said.

Enny, an economist with the Institute for Development of Economics and Finance (Indef), similarly said the government needed to overhaul its poverty alleviation policy by integrating it with programs to drive business activities, especially small-scale ones.

“Cash transfers only will not be effective for alleviating poverty,” Enny said, referring to the controversial but common practice of direct cash aid to Indonesia’s poor households following increases in subsidized fuel prices.