Counting The Poor in Indonesia∗

A confusing aspect of the now rather large literature on trends in poverty in Indonesia in the New Order period is that virtually every study has used a different poverty line concept; indeed, even the World Bank appears to have used different poverty lines in different published studies and unpublished reports Unlike the government of Malaysia, for example, the Indonesian government has not chosen to promulgate a poverty line in its official planning documents, and successive Five Year Development Plans have had very little to say about poverty trends. However, the Central Bureau of Statistics (BPS) has in recent years put forward its own poverty line concept which has been used to estimate numbers in poverty in urban and rural areas, and these estimates have been published for some years in the annual Indikator Kesejahteraan Rakyat [Welfare Indicators]. Although the BPS estimates are now widely quoted in Indonesia, they have not won universal acceptance, and other authors continue to use other poverty line concepts and thus derive different conclusions regarding the extent of poverty in Indonesia, the regional distribution of the poor and trends in poverty over time.

One purpose of this paper is to review critically these different poverty concepts and to explain why they have produced different results. A second aim is to compare the Indonesian poverty line estimates with those from neighbouring ASEAN countries. Finally, some suggestions will be made on possible new initiatives in poverty research in Indonesia.

     

How Robust Is Indonesia’s Poverty Profile? Adjusting for Differences in Needs

Poverty profiles showing how the magnitude of poverty differs across subgroups of a population are important tools in designing effective social protection programs. Using data from the March 2013 round of the National Socio-economic Survey (Susenas) and the fourth round of the Indonesia Family Life Survey (2007–8), I explore the sensitivity of Indonesia’s poverty profile to different assumptions about the relative costs of individuals, taking into account differences in age, gender, body weight, and physical activity levels. I adopt parameter estimates for my simulation exercises from various Indonesia-specific publications, as well as from a joint intergovernmental consultation on nutrition. I compare my estimates with the per capita scale used by Statistics Indonesia (BPS), the central statistics agency. My findings suggest that the age–poverty relationship in Indonesia is sensitive to assumptions about the relative costs of individuals, with all alternative scales showing substantially lower poverty incidence among young children than by BPS’s estimate. Overall, however, I find that Indonesia’s poverty profile is relatively robust.     

Assessing Poverty Trends in Indonesia by International Poverty Lines

Indonesia has made well-documented and drastic progress in raising average incomes and reducing poverty. This article adds to the literature by providing a complementary perspective of poverty between 1984 and 2011. We discuss the evolution of poverty in Indonesia using international poverty lines—$1.25 per person per day (in 2005 purchasing power parity dollars) and $2.00 per day, and we add $10.00 per day. We generate estimates of poverty since 1984 and make projections based on various trends in growth and inequality. We find that Indonesia has the potential to become a high-income country by around 2025 and end $1.25-per-day and $2.00-perday poverty by 2030, but this will require strong economic growth and favourable changes in distribution. Looking ahead, the end of poverty in Indonesia may mean that a large proportion of the population will remain vulnerable to poverty for some time to come, suggesting that public policy priorities will need to balance insurance and risk-management mechanisms with more ‘traditional’ poverty policy.     

Growth,Poverty, and Inequality under Jokowi

SUMMARY

The political authority of President Joko Widodo (Jokowi) was bolstered in the third quarter of 2015 by a cabinet reshuffle, his coalition's gaining a parliamentary majority, and several foreign-policy developments. Indonesia's request to rejoin OPEC, for example, after having left in 2008, seemed more about international relations than oil prices, while official visits to the Middle East and the United States allowed Jokowi to project his presidency on the international stage. He still faces resistance from within his own party, however.

Jokowi's politically bold reshuffle of economic ministers in August soon yielded a range of policy announcements. In September and October, his government introduced its first substantial set of reforms—a number of economic policy packages intended, among other things, to attract investment and stimulate domestic demand. If even half of these policies are put in place, the impact on Indonesia's economy should be tangible.

Few countries have escaped the effects of falling global commodity prices and China's growth slowdown. At 4.7%, year on year, in the third quarter Indonesia's rate of economic growth again fell short of the government's target. Slowing growth and a negative outlook have lowered market expectations and weakened the rupiah, which is also burdened by the large outstanding external debt held by corporate borrowers. Indonesia's real effective exchange rate has recently begun to depreciate, however, which may stimulate exports. Growth prospects will also improve if the substantial increase in capital and infrastructure spending allocated in the state budget is realised.

Against this backdrop, we focus on what has happened to poverty and inequality in Indonesia since Jokowi took office. The distributional impacts of the current macroeconomic climate are likely to be hardest felt by the poor. Indonesia is well known for its record on poverty reduction, but between September 2014 and March 2015 the share of the population in poverty increased, even though economic growth was close to 5.0%. Slowing growth, rising food prices, the falling real wages of farmers, and the delayed disbursement of fuel-price compensation all had an effect. Such impacts may be mitigated in the medium term by Jokowi's budget reallocations to infrastructure, if realised, and his expansion of social spending.     

Does Economic Growth Really Benefit the Poor? Income Distribution Dynamics and Pro-poor Growth in Indonesia

We explore the nexus between poverty, inequality, and economic growth in Indonesia between 2002 and 2012, using several pro-poor growth concepts and indices to determine whether growth in this period benefited the poor. Our regression-based decompositions of poverty into growth and redistribution components suggest that around 40% of inequality in total household expenditure in Indonesia was due to variations in expenditure by education characteristics that persisted after controlling for other factors. We find that economic growth in this period benefited households at the top of the expenditure distribution, and that a ‘trickle down’ effect saw the poor receive proportionately fewer benefits than the non-poor. If reducing poverty is one of the Indonesian government's principal objectives, then policies designed to spur growth must take into account the possible impacts of growth on inequality.     

Authoritarian Legacies in Post–New Order Indonesia: Evidence from a New Dataset

Democratisation has fundamentally changed the formal institutional structure of Indonesian politics, but a wealth of contemporary research has demonstrated that the informal mechanisms of power and influence have survived the transition. This article uses a unique, hand-collected dataset of information on Indonesian public figures to empirically catalogue the changes and continuities in Indonesian politics since democratisation. Our results provide quantitative evidence of a substantial shift in Indonesia’s political economy over the last decade and a half: the simultaneous rise of the private sector and decline of the military and the state as avenues to political influence at the national level. Our evidence also suggests that the origins of this shift pre-date democratisation itself.     

Revisiting the Impact of Consumption Growth and Inequality on Poverty in Indonesia during Decentralisation

This article analyses the consumption growth elasticity and inequality elasticity of poverty in Indonesia, with a particular focus on the decentralisation period. Using provincial panel data, we show that the effectiveness of growth in alleviating poverty across provinces was greater during decentralisation—that is, between 2002 and 2010—than at any other point since 1984. The growth elasticity of poverty since 2002 is estimated to have been –2.46, which means that a 10% increase in average consumption per capita would have reduced the poverty rate by almost 25%. However, we also find that rising income inequality negated a quarter to a third of the 5.7-percentage-point reduction in the headcount poverty rate. This increasing inequality has contributed to a lower level of pro-poor growth than that maintained in Indonesia before decentralisation.     

Towards a better measure of income inequality in Indonesia

Indonesia has experienced significant economic growth in recent years (on average, 5% in 2000–08), but many people are still living in poverty. Income inequality, as measured by the official Gini coefficient, has also increased. This paper evaluates household income and income inequality in Indonesia, assessing both market and non-market income to reach a more accurate measure of how actual income affects living standards. We find that if household income considers non-market income, income distribution is significantly more balanced, the coefficient of income inequality falls from 0.41 to 0.21 and the income share of the population's poorest deciles increases more than fivefold. The results suggest that market income alone is a misleading measure of income distribution in Indonesia.     

FOREIGN DIRECT INVESTMENT IN INDONESIA: FIFTY YEARS OF DISCOURSE

The topic of foreign direct investment (FDI) has been prominent in assessments of economic development in Indonesia during the past 50 years. In this article I review Indonesia's FDI record in a historical perspective; the current urge to control FDI inflows and the need to augment domestic savings and facilitate technology transfers are not at all new in Indonesia. I draw in particular on the discourse on FDI in this journal, the Bulletin of Indonesian Economic Studies, giving special attention to contributions by this journal to the international literature on FDI and its impact. The article demonstrates that the relation between FDI and economic growth has been less straightforward in Indonesia than elsewhere in Southeast Asia. Although FDI has grown in a restrictive investment climate, on occasion it has failed to do so despite more liberal conditions. This may be attributed to the sustained role of natural resources in determining Indonesia's attractiveness as a host country of FDI.     

Dawn of Industrialisation? The Indonesian Automotive Industry

This article traces the development of industrial policy towards the Indonesian motor industry within the automotive global value chain. Showing the current dominance of Japanese motor assemblers in Indonesia, it notes the rather undeveloped nature of the locally owned supporting industry, particularly compared with that of neighbouring Thailand. Most investment in auto-parts production has been by foreigners. Nevertheless, Indonesia's rapid domestic-market growth has allowed it to attract foreign automotive investment without having to offer excessively generous incentives. While the continued entry of foreign suppliers of auto parts into Indonesia offers opportunities for local suppliers to upgrade their productive capabilities, it also limits their chances of becoming first-tier suppliers themselves. Japanese automotive investors are optimistic about Indonesia's export potential, more so than Malaysia's.     

Food poverty,hunger and household production in rural Eastern Cape households

More than two decades since the advent of democracy in South Africa, the place of small-scale agriculture in rural development, poverty alleviation and food security remains ambiguous and highly contested. However, there is now some new evidence that official income poverty estimates in South Africa may be underestimating the contribution of rural, land-based livelihoods when measuring household well-being. This paper aims to explore this possibility further by identifying how household production activities are associated with improved food security among rural Eastern Cape households in the former homelands. The analysis is based on data from Statistics South Africa’s 2008/9 Living Conditions Survey and its annual General Household Surveys. In adopting a food poverty lens, the findings suggest that hunger levels are lower among farming households in the Eastern Cape even though a higher percentage of these households (relative to non-farming households) live below the national food poverty line. The paper concludes by discussing some implications for policy.     

Indonesian politics in 2013: the emergence of new leadership?

The rise of Joko Widodo (Jokowi) from small-town mayor to presidential frontrunner asks again whether new, alternative leaders could enter Indonesian politics in the 2014 elections. This article surveys Jokowi's impact on Indonesian politics over the past 12 months, and examines whether his election as Jakarta governor, and his evident popularity, has opened the way for alternative candidates at local level, or if it has changed parties’ calculations for the presidential election. The article concludes by considering whether a new leader could tackle some of the entrenched defects of democracy in Indonesia, given that he or she may have only minority support in the parliament. The article focuses in particular on corrupt law enforcement, the military and the rule of law, and violent religious intolerance.     

The Indonesian Environmental Impact Management Agency (Bapedal): Its Role,Development and Future

This paper looks at the setting up and initial growth of the new Indonesian Environmental Impact Management Agency (Bapedal). Coming into being at a crucial time in the development of Indonesia's overall environmental management policy, Bapedal is the first national specialised environmental regulatory body to be established in Indonesia with implementation powers to monitor pollution and the negative impacts of development on the environment. As with any new agency in Indonesia, it has faced some major hurdles in its early development. However its ultimate success as an agency is of crucial importance if Indonesia is going to effectively handle its growing environmental problems over the next decade.     

Poverty and Vulnerability in Indonesia Before and After the Economic Crisis

It is well known that the economic crisis in Indonesia has caused the poverty rate to increase significantly. The present study finds, not only that the poverty rate increased significantly, but also that much of the increase was due to a large increase in the chronic poor category (i.e. the poor who have expected consumption below the poverty line and most likely will stay poor in the near future). Furthermore, the present study also finds that the proportion of households that have high vulnerability to poverty has more than doubled since the economic crisis. As a result, the proportion of the total vulnerable group (the current poor plus the high vulnerability group) has jumped from less than one-fifth of the population before the crisis to more than one-third after the crisis.     

How social security policies and economic transformation affect poverty and inequality: Lessons for South Africa

This article examines how various characteristics of social and economic policy frameworks affect poverty and inequality levels in developing countries, principally in Botswana and Mauritius. The research findings suggest that poverty and inequality are lower in countries with generous and broad-based – rather than pro-poor – social security policies, and where social policies are complemented by economic policies promoting economic transformation rather than mere economic growth. While South Africa's challenges of combating poverty and inequality are shaped by its own historical context, the lessons from other countries offer the opportunity to reflect on the social consequences of various social and economic policy mixtures. In particular, it may be worth considering how to bridge the divide between the economically productive contributors to social security policies and the economically marginalised beneficiaries of such policies.     

RECENT TECHNICAL PAPERS ON BPS DATA

This note discusses a series of papers produced by the USAID-funded STAT project at the Indonesian Statistics Agency (BPS). The project's goal was to help BPS design new activities based on improved statistical techniques, so as to enhance the agency's provision of accurate and timely data, and to increase its openness and transparency through documentation of sources and methods, and soliciting of user feedback. The papers described here document the methodology of certain statistical series, and explore data-related questions. They are aimed mainly at users outside BPS, and cover series on the national accounts, industry, the labour force and agriculture.     

HEINZ ARNDT: AN APPRECIATION

This appreciation was compiled on behalf of the Editorial Board of the Bulletin of Indonesian Economic Studies (BIES) by Peter McCawley, one of the first of Heinz Arndt's graduate students to work on Indonesia, and later head of the Indonesia Project (1981-85) and joint editor of the BIES (1983-86). Heinz was the founding editor of the BIES (1965-82), and a member of its Editorial Board for the remainder of his life.     

CLIFFORD GEERTZ, 1926–2006: MEANING,METHOD AND INDONESIAN ECONOMIC HISTORY

Clifford Geertz was best known for his pioneering excursions into symbolic or in terpretive anthropology, especially in relation to Indonesia. Less well recognised are his stimulating explorations of the modern economic history of Indonesia. His thinking on the interplay of economics and culture was most fully and vigorously expounded in Agricultural Involution. That book deployed a succinctly packaged past in order to solve a pressing contemporary puzzle, Java's enduring rural poverty and apparent social immobility. Initially greeted with acclaim, later and ironically the book stimulated the deep and multi-layered research that in fact led to the eventual rejection of Geertz's central contentions. But the veracity or otherwise of Geertz's inventive characterisation of Indonesian economic development now seems irrelevant; what is profoundly important is the extraordinary stimulus he gave to a generation of scholars to explore Indonesia's modern economic history with a depth and intensity previously unimaginable.     

Indonesian politics in 2010: the perils of stagnation

In the first year after President Yudhoyono's re-election, Indonesian politics continued to evolve in largely familiar patterns. Contrary to the expectations of some observers, Yudhoyono's strong popular mandate and his Democratic Party's newly won parliamentary plurality did not result in significant changes to the president's cautious style of governing or the fickle nature of president–parliament relations. Most political parties also opted for continuity over change, electing or re-electing established figures as leaders despite high levels of public dissatisfaction with their performance. The fact that the 2009 election failed to generate any new momentum for reform does not augur well for the remainder of Yudhoyono's second term. Although the basic parameters of Indonesia's democracy remain intact, political developments during 2010 have also confirmed a pattern of stagnation that is likely to see Indonesia barely muddle through as a reasonably stable yet low-quality democracy.     

Indonesia’s Year of Democratic Setbacks: Towards a New Phase of Deepening Illiberalism?

This article suggests that 2017 has been a year of distinctive democratic setbacks in Indonesia. It offers a tentative framework that explains how democratic regression is likely to continue by virtue of the further mainstreaming of conservative Islamic morality and reactionary hyper-nationalism in Indonesian political discourse and practice. It contends that such mainstreaming has been a growing feature of intraoligarchic competition in Indonesia, the effect of which is to accentuate longstanding illiberal features within Indonesian democracy. While the article focuses on the conflicts surrounding the highly polarising and emotive Jakarta gubernatorial election of 2017 in order to expand on this framework, other controversies are also discussed, including those regarding corruption eradication and continuing impediments to a national ‘reconciliation’ with former Indonesian communists. Developments in Indonesia are set against a global background characterised by growing threats to liberal democracy and the emergence of anti-pluralist political impulses in a range of societies.