Since the devastating impact of the 1997 Asian Financial Crisis (AFC), Indonesia has shown profound economic growth. Since 1998, it has boasted a greater than 5% compound annual GDP growth rate, ahead of the global average of below 3%. Indonesia now ranks as the 16th largest economy in the world, up from 36th in 1998. Concomitant with this economic improvement has been a noticeable reduction in poverty in the country. Most recently, poverty in the country is below 5% of the population versus 67% 30 years ago. By comparison, approximately 10% of the global population lives below the international poverty line. Yet despite this promising data, poverty in Indonesia remains a major issue. Here are six facts about poverty in Indonesia.
6 Facts About Poverty in Indonesia
The rate of poverty reduction is slowing, but poverty is low. Indonesia’s efforts to grow its economy showed great results in the years immediately following the AFC. Rapid industrialization, increased global integration and a focus on domestic infrastructure all helped in this regard. This resulted in relatively dramatic improvements in poverty. After an eight-year period of decline, however, the rate of reduction has slowed to 9% in recent years. Despite a slowing in the rate of reduction, the percentage of the Indonesian population living in poverty is at the lowest level since 1984 (4.6%).
CARE, an international humanitarian agency, has been working to assist Indonesia”;s poor particularly during emergencies. Indonesia is prone to natural disasters like earthquakes and floods, so CARE has worked to provide Indonesians with food, shelter, water and medical supplies. After the 2004 Indian Ocean tsunami, CARE aided 350,000 Indonesians and helped them rebuild their communities. Non-governmental organizations like CARE are key to assisting the government in protecting Indonesia”;s poor after frequent disasters and emergencies.
Income disparity is growing. Indonesia’s economic growth has flowed disproportionately to the wealthy. The country’s Gini coefficient, a measure of a country’s income disparity, has increased from 28.5 in 2000 to 38.1 in 2017 (lower is better). Oxfam reported that in 2014, the richest 1% of Indonesians owned 50% of the nation’s wealth. Not surprisingly, Indonesia’s rural inhabitants are worse off than their urban counterparts, with about 1.5 times more incidences of poverty on an absolute basis. One can also see this in the geographic distribution of poverty. Eastern Indonesia, the more rural part of the country, fares worse. President Joko Widodo has noted that improving income inequality is one of his top priorities. He has taken some steps to decrease income disparity, including providing direct cash transfers through its Program Keluarga Harapan, creating more social assistance programs, investing in infrastructure and creating health and education protections.
The near-poor are a significant group in Indonesia. While Indonesia’s reduction in poverty is impressive when including those who are near-poor, the results are not as positive. Many in Indonesia live precariously close to the poverty line and are at risk of falling back into poverty. The Asian Development Bank highlights that over half of the poor in Indonesia were not poor the year before. Furthermore, a quarter of Indonesians will suffer from poverty at least once every three years. Even though only 5% of Indonesians live below the poverty line today, as many as 25% live just above it.
Indonesia must watch inflation. Since 2016, inflation in Indonesia has been below 4%. The government and the Bank of Indonesia established the range of 3% to 4%. However, with so many living at or close to poverty, changes in prices can have deleterious impacts, disproportionately so on the poor. Statistics Indonesia notes that food represents a 43% weight in Indonesia’s CPI basket, putting a degree of focus on food prices, especially given their historical volatility. The Indonesian government has focused in this area, recognizing that stable rice prices are essential for steady economic prosperity. Nevertheless, food prices remain exposed to exogenous shocks.
COVID-19 is having a huge impact. The Indonesian government did not impose restrictions relating to the COVID-19 pandemic until April 10, 2020, almost six weeks after the identification of the first case in West Java. Unfortunately, the economic fallout from COVID-19 will have material effects on Indonesia’s poor and near-poor, underlining the fragility of the last 30 years of Indonesia’s efforts. In mid-April, 2020, Indonesia’s finance minister predicted that Q2 GDP growth could fall to about 1%, after the weakest rate of growth in nearly 20 years in Q1. COVID-19 cases surged rapidly after President Widodo hesitated to implement a nationwide lockdown. In response, he declared a national health emergency and worked to increase the number of test kits, personal protective equipment and ventilators available in the country. Additionally, he passed a stimulus package worth $8 billion to stimulate the economy, with $324 million going towards helping low-income households.
These six facts about poverty in Indonesia have shown that Indonesia’s government has put much effort into improving the conditions for its poor. Against a backdrop of economic growth, President Widodo increased spending on social assistance, health, education and infrastructure. Additionally, CARE”;s continual aid has substantially reduced poverty in Indonesia since the AFC. However, with so many near the poverty line, those results are fragile. With the unprecedented impact of COVID-19, much of that work could become obsolete.
– Harry Yeung
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