July 4, 2024
JAKARTA – The country’s poverty rate has fallen to a historic low this year while inequality, as measured by the Gini coefficient, has hit its lowest point in more than a decade, but both figures remain below the government’s target.
The poverty rate fell to 9.03 percent in March, beating the previous record of 9.22 percent in 2019. Statistics Indonesia (BPS) director Nurma Midayanti told The Jakarta Post on Tuesday that it was “the lowest” in the country’s history, according to the methodology used since 1998.
The statistics bureau set Rp 582,932 (US$35.56) per capita per month as the poverty threshold in its March survey. The figure is to be updated in the next twice-annual survey.
BCA chief economist David Sumual said the poverty rate falling to a historic low was good news, but he noted that the poverty metric was “tricky” because it was based on a relative definition.
Many Indonesians who are not considered poor are hovering slightly above the threshold and are therefore prone to slipping below the poverty line.
“So when there’s a shift in prices or high inflation, or changes in income or purchasing power, it will affect [the poverty rate]; it will certainly go up,” said David.
The World Bank forecast that Indonesia’s poverty rate could be around 16 percent in 2022 if measured by the global institution’s standard poverty line of $3.2 per day. Meanwhile, the government figure was 9.57 percent in the same year, based on its own threshold.
Despite the relative improvement, the poverty rate still missed its mark by quite a margin. The 2024 state budget, for instance, sets this year’s poverty rate target at between 6.5 and 7.5 percent.
The government also set the same target range for 2020-2024 in its National Mid-Term Development Plan (RPJMN).
David of BCA said that if all other factors were held constant, the target range set by the government would have been “achievable” but that the COVID-19 pandemic had pushed the trajectory off course.
Esther Sri Astuti, executive director of the Jakarta-based Institute for Development of Economics and Finance (Indef), said that in President Joko “Jokowi” Widodo’s 10 years in office, the poverty rate had only slid by 2.03 percentage points from 11.25 percent in 2014.
She called this improvement “insignificant” given that the government had been handing out “hundreds of trillions worth” of social assistance for years.
“That means the solution offered, like social assistance, is off the mark. The structural problem is still there,” Esther told the Post on Wednesday.
According to the Finance Ministry, the government spent over Rp 2.7 quadrillion on social assistance from 2015 to 2022 and another Rp 443 trillion last year.
Improving equality
Like poverty, inequality, as measured by the Gini coefficient, fell to a record 0.379 points in March, passing the last record low of 0.378 in 2010, according to BPS, which noted that inequality in urban areas was higher than in rural areas.
The higher a society’s Gini coefficient is, the more economically unequal it is.
This year’s state budget set the target for the index at between 0.374 and 0.377.
David of BCA said disparities between regions and demographics were important to heed, as further examination could reveal worse inequality.
“That’s where the fiscal functions of distribution and reallocation come in. They’re an important factor to make our growth more inclusive,” he said.
Skills key
David also noted that social assistance, such as direct cash transfers and food aid, had helped bring down the poverty figure but said this could not be the ultimate solution to the problem.
“We must not pamper” people with aid, said David, saying, “teaching people how to fish instead of giving them a fish” would be the best way to approach the issue for the long term, referencing a proverb. This could translate to providing more jobs.
Resolving poverty, he said, boiled down to improving economic growth by enhancing exports and labor-intensive investment, given that Indonesia had a big population and a dire need for jobs.
Esther of Indef also argued that social assistance was not the proper solution. She said education and worker training were the key to ending the “vicious cycle” of poverty.
Esther said developed countries had upgraded the skills of their workers, including by improving education, which allowed for higher-paying jobs.
“No country in the world has become a developed country by handing out social assistance,” she added.