Poverty Reduction in Indonesia Slows, Inequality Increases: World Bank reports

September 23, 2014

Rate of Poverty Reduction in 2013 the Smallest Decline in Decades


Jakarta, September 23, 2014 – Poverty reduction in Indonesia continues to slow down, with only a reduction of 0.7 percentage points over the last two years – the smallest decline in the last decade, says the World Bank.

Inequality has also increased in recent years, potentially disrupting social cohesion and hence jeopardizing the gains from solid economic growth, which has helped to reduce the poverty rate to 11.3% in 2014, compared to 24% in 1999. 

Some 68 million Indonesians remain vulnerable of falling into poverty, earning incomes only marginally higher than families living below the official poverty line. Economic shocks such as illness, disasters or job loss can easily drive the vulnerable back into poverty.

These twin challenges of slowing poverty reduction and increasing inequality were the focus of a World Bank conference attended by a diverse cross-section of Indonesia’s civil society and opened by the country’s Vice President, Dr. Boediono.

“Reducing poverty and inequality will be the most important challenge for Indonesia's new government.  With effective implementation of good public policies by the central and local governments, as well as partnership with the private sector and civil society, the World Bank is confident that Indonesia will make substantial progress in achieving these objectives. Eliminating extreme poverty and sharing prosperity is the World Bank’s mission, and we look forward to supporting the new administration in reaching these goals," said World Bank Country Director for Indonesia, Rodrigo A. Chaves.

Rising inequality also makes escape from poverty more difficult. 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.

Inequality is not an unavoidable consequence of growth. Other countries have been able to grow while, at the same time, continue reducing poverty and inequality.

“The main strategy to alleviate poverty and reduce inequality is to assist the poor to help themselves by creating more jobs and better jobs. At the same time, we need to make sure that children across the country have equal access to quality services, in order to give them a fair start in life,” said World Bank Lead Economist for Poverty, Vivi Alatas.

Investing in public services and social safety net programs will help to improve the access of poor families to better nutrition, better health-care, and quality education. This can improve their chances of leaving poverty behind.  Currently, Indonesia spends only 0.7% of GDP on social assistance programs, compared to  1.5% in Brazil and other low middle-income countries.

Support for the conference was provided by the Australian Government, which is partnering with the Government of Indonesia and the World Bank to open up opportunities for the poor and promote sustainable economic development.

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