In Indonesia, why are the poor getting poorer?

Over the last couple of years Indonesia has made significant progress in reducing poverty, with the percentage of people living below the national poverty line falling from 19.14% of the total population in 2000 to 13.33% in 2010 and further to 11.66% in 2012

But where do we stand now? The poverty story line changed in 2013.

According to the Central Statistics Agency (BPS), the number of poor people as of September 2013 was 28.55 million (11.47%), up by 0.48 million from 28.07 million (11.37%) in March 2013.

The number of people living on the brink of absolute poverty is estimated at 70 million. They could easily plunge into absolute poverty even at the slightest decline in their economic condition.
The gap between the poor and non-poor is also yawning. Indonesia’s overall Gini coefficient, which measures income inequality, worsened from 0.35 in 2009 to 0.41 in 2011 and 2012, indicating widening inequality in income distribution. Disparity among and within regions as well as across rural and urban areas is still considerably large.

Poverty incidence in Papua and West Papua is more than double the national average, whereas in Jakarta, Bali, South Kalimantan and Bangka Belitung poverty is less than half the national average.

Multiple reasons have been given to explain the surge in the number of the poor in 2013. 

Certainly, the fuel price increase in June last year driving the year’s inflation to reach 8.38% played an important role. The plight of the poor is even worse as inflation experienced by the poor is relatively higher. But the reduction in fuel subsidies is justified because they are enjoyed mostly by the middle- and high-income earners.

To compensate those most affected by the fuel price increase, the government had worked out on designing an expanded yet integrated social assistance compensation package. The government implemented a program of unconditional temporary cash transfers (BLSM) that gives Rp 150,000 (RM8,000) to poor households every month for four months.

The government also expanded existing social assistance programs (P4S), including subsidized rice for the poor (Raskin) and Cash Assistance for Poor Students (BSM). The compensation package was delivered through a single Social Protection Card (KPS), distributed to the bottom 25% of the population covering some 15.5 million households.

What happened afterwards?

It’s possible that the compensation package has helped prevent social unrest. Also, the poor’s burden incurred from the fuel price increase may have been lightened. But the number of poor people still rose. This suggests the inability of the compensation package to help the poor sufficiently cope with the adverse impact of the fuel price hike.

Simply put, there is a net loss experienced by the poor. Hence, the argument that the subsidy reduction, despite being accompanied by the compensation package, gives fairness to the poor may fall flat, let alone accelerate reduction of poverty level.

It begs the following question. Why? To answer this question, one needs to look into other factors beyond the increased fuel price and other macroeconomic fundamentals. While these are all important determinants in explaining the rise in poverty in 2013, there are equally fundamental factors allowing the tide of poverty to wash over Indonesia for the last couples of decades.

Among these are: the lack of policy-program linkages, as well as weak institutional coordination both horizontally, among different government agencies at the same level, and vertically, between central and local governments.

Policy dialogues, even information exchanges, at all levels of government are weak if not absent. As such, national and local government poverty reduction policies and programs often overlap in many ways. This creates confusion among stakeholders, including the poor themselves, and results in less effective programs.

At the same time, local governments lack sufficient understanding of national policies and programs, hence do not participate meaningfully in national programs. Central government provides limited guidance and technical support to local governments, despite the dramatic increases in central transfers to regional governments since the beginning of decentralization in 2001.

The weak linkage between central and local policies and programs is combined with capacity deficits in local governments. The ability of many district governments to plan, budget and implement poverty reduction programs is limited. A high percentage (often more than 75%) of district budgets, for example, are allocated to pay for wages of civil servants and other overhead costs of public administration.

Local planning and budgeting processes are often dictated by political interest. Many local governments are faced with limited capacity in devising and implementing poverty reduction policies and programs. Local strategies and plans often lack realistic targets and expected outputs related to poverty reduction while targeting of the poor is not carried out in a systematic manner using solid and coherent data.

The role of local communities is not given adequate attention, resulting in local people not participating effectively in programs, thus significantly reducing the program impact on the targeted groups. Poverty reduction programs also often lack effective monitoring and evaluation systems, which has resulted in an inadequate level of feedback for improvements in implementation.

Hence, no matter how expansive the anti-poverty reduction programs are and how much money is poured into them, one cannot expect significant impacts on the poor, unless these factors are addressed. – The Jakarta Post, February 22, 2014.

*Abdurrahman Syebubakar is senior policy advisor at the Jakarta-based Indonesian Institute for Democracy Education.