New Poverty Frontier in Indonesia: Reduction Slows, Inequality Rises

September 23, 2014

  • Indonesia’s strong economic growth has helped to reduce the rate of poverty.
  • However, the pace of poverty reduction is slowing, and inequality is growing faster than in neighboring countries.
  • Tackling poverty and inequality will need the active involvement of all Indonesians: the government, think tanks, the private sector, and civil society organizations.

Jakarta, Indonesia, September 23, 2014 – Strong economic growth in Indonesia has helped reduce poverty, down to 11.3% in 2014, compared to 24% in 1999.  But the pace of reduction is slowing.  The reduction by 0.7% points over the last two years were the smallest declines of the last decade.

Some 28 million Indonesians suffer from poverty.  Murtianah, a scavenger, is among them. “Normally I can earn Rp 20,000 ($1.80) a day. But when it rains, the most I can earn is Rp 15,000 ($1.30),” she says. A widow, Murtianah wanders the streets of Jakarta to put food on the table and to pay for her only son’s education -- and hopes that he will have a better life.

“When my son was born, we lived under a bridge.  When he became older, I rented a room so that he won’t be embarrassed. And I put him through school, so that he doesn’t have to be like me.”

Poverty and inequality:  A bigger problem than many think

Although Indonesia is considered a member of the 20 largest economies in the world, one fourth of its population is still vulnerable to falling back into poverty at any time. The difference in income between the poor and near-poor is not much: some 68 million Indonesians live just above the poverty line, just a little bit more than the Rp 11,000 ($1.00) per person per day baseline income for one to be considered poor. Small shocks such as illness, disasters, or job loss can easily drive them back into poverty.

Take, for example, Chasudin and his family. Chasudin, a clam harvester in Jakarta, can earn Rp 50,000 ($4.50) a day. But that is just enough to pay for a day’s basic needs.

Says Chasudin: “What we earn today, we spend today. There’s nothing left for savings.”

When there is no work, Chasudin and his family rejoins the ranks of the poor.

“The last time there was no work, I had to borrow money from the local loan shark. I borrowed Rp 100,000 ($9.00), and paid back Rp 120,000 ($11.00) the following month.”

" What we earn today, we spend today. There’s nothing left for savings. "


Clam farmer

Many others share Chasudin’s fate. 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. In addition, a poor family spends very little on health and education – on average just 5%. This leaves their children uneducated and in poor health, passing on the family’s poverty to the next generation.

Inequality of household consumption in Indonesia has indeed been increasing since 2000. The Gini coefficient, a measure of consumption inequality, has increased from 0.30 in 2000 to approximately 0.41 in 2013. Regional disparities persist. Eastern Indonesia lags behind other parts of the country, notably Java. Consequently, despite its progress in reducing poverty, Indonesia has one of the fastest rising rates of inequality in the East Asia region.

There are a number of ways that can be done to reduce poverty, which include:

  • Improve access to food, health and education for the poor
  • Create more and better jobs for the poor
  • Invest in safety nets to protect the vulnerable

Tackling poverty and inequality will require the active involvement of not only the central government, but also local governments, think tanks, the private sector, as well as civil society organizations.