East Asia and Pacific remains the world’s growth engine despite a challenging external environment, with developing economies growing by 7.2% in 2013. The proportion of people living in poverty in the region has steadily declined—less than 10% of the population lives on $1.25 a day—but much more needs to be done as there are still close to half a billion people living on $2 a day.
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The state of inequality in IndonesiaInequality of household consumption in Indonesia has been increasing since 2000. The country’s official poverty rate has halved between 1999 and 2012, falling... Show More + from 24% to 12%. However, the Gini coefficient, a measure of national consumption inequality, has increased from 0.32 in 1999 to 0.41 in 2012. Hence income distribution has become much more unequal. The affluent were the most affected by the Asian financial crisis and slowest to recover, but since 2003, Indonesia’s richest 20% have enjoyed much higher growth in incomes and consumption. Regional disparities also persist, further contributing to inequality nationally. Eastern Indonesia lags behind other parts of the country, notably Java.The relatively low consumption growth of Indonesia’s poorest 40%, and resulting inequality, may begin to adversely affect social and political cohesion. Strong economic growth and poverty reduction has not dampened the perception and reality that many Indonesians are not enjoying the fruits of economic development. There is some evidence that inequities in access to social assistance have increased crime and eroded social capital. In addition, growing inequality may be affecting political and social cohesion on a range of recent public policy issues, such as the contentious discussions in recent years over the minimum wage.Low consumption growth of the poorest 40% may also threaten future economic growth nationally. The inability of Indonesia’s poorest 40% of households to exit vulnerability and move into the middle class could weaken economic growth, which is expected to be driven by a growing –and consuming - middle class. Lower consumption growth by the poorest will also lead to underinvestment in human capital and in entrepreneurial activities, further dampening broader economic growth prospects. World Bank support on inequality reduction in IndonesiaThe World Bank continues to work closely with the Government of Indonesia in analyzing the trends and consequences of inequality. The Bank is currently working on a flagship report on inequality, expected to be available in late-2014. The report will highlight new research on equality of outcomes and opportunities, mobility in and out of poverty, the middle class, and fiscal incidence. This research will serve as the foundation of support to be provided to the Government of Indonesia in designing and implementing policies to reduce inequality.The World Bank also provides policy support based on evidence and success stories on reducing inequality in other countries. World Bank research in Latin American countries shows that a sound macroeconomic base needs to be supplemented with progressive policies, programs, and spending from the government. Providing equal access to vital services such as education and health will give future generations a better chance of climbing out of poverty. Enhancing the productivity of low-income workers through creating more and better jobs will boost incomes and allow the poor to help themselves. Finally, creating a comprehensive safety net will protect the poor from the various economic shocks that can send them plummeting back into poverty.___________________________________ The Gini takes the range of 0 (perfect equality) to 1 (perfect inequality), and is often expressed in percentage points. Commonly, values of 30 or below are considered low, while 50 and above are considered high. Income Ginis (used in many Latin American countries) are usually 5-7 points higher than Consumption Ginis (used in much of Asia and Africa). Indonesia’s Income Gini has historically been 4 points higher than its Consumption Gini. Show Less -
The state of poverty in IndonesiaStrong economic growth in Indonesia has helped to reduce poverty, but the pace of poverty reduction is slowing. Recovery from the Asian Financial Crisis of 1997-98 has... Show More + seen steady economic growth, a growing shift of labor from agriculture to services, and solid job creation in cities. These trends have contributed to a halving of the poverty rate, from 24% in 1999 to 11.4% by early 2013. However, the rate of poverty reduction has been slowing. In 2012 and 2013, poverty declined by only 0.5 percentage points each year -- the smallest declines in the last decade.Many people live just above the poverty line and are vulnerable to falling into poverty. Many Indonesians who have climbed out of poverty remain just above the line. In 2013, around 28 million Indonesians lived with less than IDR 293,000 (roughly $25) a month. An additional 68 million made do with not much more. Small shocks can drive them into poverty, and indeed many families fall in and out of poverty. Based on 2010 data, over half of the poor each year were not poor the year before. A quarter of Indonesians suffer from poverty at least once in a three year period.World Bank support on poverty reduction in IndonesiaThe World Bank continues to work closely with the Government of Indonesia in its efforts to reduce poverty. Research on poverty and poverty alleviation spans a broad range of areas, such as poverty trends, social assistance, social insurance, community-based programs and generating more and better jobs. This research repository serves as a foundation of evidence for the policy recommendations and other support that the Bank provides to the Government of Indonesia. The Bank also provides technical support for the implementation of government programs. For example, the PNPM Support Facility provides analytical and implementation support for Indonesia’s National Community Empowerment Program. Show Less -
Global Growth Disappointing – Questions over FundamentalsThank you. I am very pleased to be here with you today.The picture has changed, and 2014 could turn out to be a disappointing year for the glob... Show More +al economy. Global growth has been revised downwards and is now expected at 2.6 percent this year, only marginally up from 2.4 percent in 2013. Over the past three years forecasts have been following a pattern of repeated revisions, pointing towards a systematic underestimation of global headwinds and inadequacies of policy responses.Sentiments are clearly changing, and in my view this raises questions over the fundamentals in developed countries. Many are getting skeptical of the growth story going forward, especially in Europe. We should not be surprised if we are heading towards another downward revision of our forecasts, especially for 2015. At the World Bank we are of course looking into what this means for emerging and developing economies. Growth in major emerging countries has been slowing down since the crisis, with some improvements and new pockets of vulnerabilities. In good news, India’s economy is picking up, while growth in China is slowly moderating and headwinds have strengthened in Latin America and emerging Europe.In China, growth will gradually moderate to 7.4 percent in 2014 and 7.1 percent in 2016, reflecting intensified policy efforts to address financial vulnerabilities and structural constraints, in an effort to place the economy on a more sustainable growth path.Developing East Asia and Pacific will remain the fastest-growing region in the world. APEC emerging markets and developing economies are expected to account for about 1/3 of world growth. The rest of the region, growth will bottom out in 2014.So what needs to be done in emerging and developing countries?The question is whether we are looking at a cyclical or structural slowdown. There are certainly some cyclical headwinds. As global financial conditions are set to tighten, developing countries have to step up their level of preparedness and strengthen resilience to adjust to the new monetary policy environment. But there are also structural issues at play. As most emerging economies are facing capacity constraints, stronger growth will require accelerated reforms.Let me highlight some of these constraints. Unreliable energy supply hampers manufacturing activity in India, Pakistan, Brazil, and the Philippines. Burdensome business and labor regulations and taxation encourage informality and constrains firm size in Brazil, Bangladesh, and India. We see restrictive trade and investment policies introducing policy uncertainty in Russia. State-owned enterprises and parastatals lead to low-productivity in Eastern Europe and India. Infrastructure bottlenecks hamper market access in parts of East Asia, parts of Sub-Saharan Africa, and Mexico. Weak banking systems constrain lending to productive investments again, in Eastern Europe and India. And unequal access to education reduces labor force participation in Malaysia, parts of the Middle East and North Africa.Despite high growth rates in the last decades, low-income countries could feel the headwinds and could become vulnerable to a slowdown in the rest of the world. For example, Sub-Saharan Africa is still showing strong growth rates, but the cooling down in high-income and emerging economies like China as well as other external shocks could have an adverse impact.I want to highlight a few areas that are of risks:First, commodity prices. Growing concern over a slowdown in the Euro Area and emerging economies - including China-, a strong US dollar, a well-supplied oil market and good crop prospects have contributed to a weakening of many commodity prices since the summer. The World Bank energy price index declined by about 6 percent during the third quarter after being broadly stable in the first half of the year. While lower commodity prices will help ease balance of payments pressures in food and energy importing countries, but commodity-exporting countries may feel the pinch because of lower export earnings.Countries with more space for counter cyclical policies, such as Chile and Peru, would be less affected than others, such as Brazil, which have less fiscal buffer space. In East Asia, commodity exporters like Mongolia and Indonesia are examples of countries that could lose as a result of continued price weakness while Cambodia could likely gain as its oil imports become cheaper.Second, Ebola. This is an external shock playing out right now in West Africa. We are not only witnessing a very high human and social toll, we also see a real and anxiety-driven impact. Our analysis shows that if the virus continues to surge in the three worst-affected countries and spreads to neighboring countries, the two-year regional financial impact could reach $32.6 billion by the end of 2015, dealing a potentially catastrophic blow to already fragile states.We’re seeing a major disruption of economic activity and people’s livelihoods, with businesses and schools closing, farmers abandoning their fields, and cross-border commerce and international travel declining. We also see the fear factor taking its toll way beyond the actually affected countries. Contagion – not in the medical, but in the psychological sense could have a significant negative impact on fast-growing low-income countries in Africa whose growth is becoming more important for the global economy.Third, political instability. We see serious pockets of concern. In the Middle East, ISIS is causing major disruptions. Another case is the crisis in Ukraine. Combined with the related sanctions it will have a significant impact on that region. Our latest assessment says that Ukraine’s economy will shrink by 8% this year, much more than expected. We are concerned over the stability of banks, the disintegration of key industries and a deterioration of the fragile ceasefire.Overall, the situation has a profound impact on financial flows, economic activities, and growth prospects, all of which could have implications for Europe’s recovery.In sum, we are seeing an increasingly fragile recovery of the global economy with major risks out there. Policymakers in high-income and emerging economies need to send a signal of confidence by taking necessary policy steps and tackling reforms to improve their fundamentals.Thank you. Show Less -