Millions of Indonesians at risk of falling back into poverty, World Bank warns

The lender found that more than 40 percent of Indonesians were economically insecure – half of the people classified as not poor, according to its 2019 data.

Deni Ghifari

Deni Ghifari

The Jakarta Post


A stage director looks on at the IMF/World Bank Annual Fall Meetings Plenary Session in Washington, DC, on October 18, 2019.(AFP/Andrew Caballero-Reynolds)

May 11, 2023

JAKARTA – The World Bank has called on Indonesia to expand its poverty eradication efforts to protect the millions of citizens it says are in danger of falling back into poverty, despite the country’s achievements in improving the lot of its people over the past decades.

Less than 1.5 percent of Indonesians were living under the World Bank’s extreme poverty line of US$1.9 per day as of 2022, according to the development lender’s data, far below 19 percent recorded two decades ago.

Eradication of extreme poverty has been a priority of President Joko “Jokowi” Widodo. He hopes to end it completely by 2024.

However, 16 percent of Indonesians remained below the World Bank’s standard poverty line of US$3.2 per day as of 2022.

The lender found that more than 40 percent of Indonesians were economically insecure – half of the people classified as not poor, according to its 2019 data.

This insecurity meant members of the group could fall into poverty when exposed to shocks, such as a pandemic, natural disaster or economic downturn.

World Bank Indonesia country director Satu Kahkonen told audiences at the Indonesia Poverty Assessment report launch event on Tuesday that despite the current situation, economic security could become a reality in Indonesia, but it would require a concerted effort. The lender also provided recommendations to achieve it.

The first was the creation of sustainable livelihoods through more and better jobs, which Kahkonen noted was the ultimate solution to escaping poverty.

However, Kahkonen noted that jobs in Indonesia were often insufficient to lift people out of privation. She suggested the government enacted policies that enabled the private sector to create more productive employment.

Speaking at the same event, Finance Minister Sri Mulyani Indrawati claimed the Job Creation Law would serve such a purpose by cutting down on bureaucracy and making it easier to do business in the country, thereby attracting investment that provided employment.

“President [Joko “Jokowi” Widodo] has been pushing the Cabinet to change the investment [environment] because you cannot create jobs by giving a social safety net,” Sri Mulyani said on Tuesday.

The Job Creation Law has been opposed by a number of groups, including labor unions and civil society organizations, since its inception, but the minister defended it, saying it was ultimately intended to bring jobs to Indonesia.

The second recommendation from the World Bank was to protect households against economic, health and climactic shocks.

“Indonesia is prone to shocks, especially from weather-related incidents,” wrote Kahkonen in the report’s foreword. “As usual, the poor and economically insecure carry a disproportionate burden when a disaster strikes”.

Between 1990 and 2021, Indonesia experienced more than 300 natural disasters, affecting more than 11 million people, and 70 percent were climate-related, according to the World Bank.

The last recommendation was to finance “pro-poor investment”, which covered scaling up of social protection that included social assistance and insurance.This included increasing financial inclusion as well as improving health care and education.

Kahkonen acknowledged that these measure would have to be funded by state revenue, likely tax receipts, and reducing spending on energy and agricultural subsidies, which she called “less effective and often regressive”.

Sri Mulyani said the government had addressed the issue through the Tax Harmonization Law but that the problem was likely to persist because it lay in governance. She noted that subsidies often ended up in the wrong hands.

In addition, three years of pandemic and the current geopolitical situation were holding back poverty eradication efforts.

“I would like to say that the world is not in an okay situation,” said Sri Mulyani.

The issues had led to soaring inflation, followed by interest rates hikes by some central banks to bring it down, which contributed to “killing jobs”.

She noted that political issues could get in the way of good policy-making.

“Creating political space is much more important for any reform to be successful. […] That is the reality,” said the minister, adding that the government had to balance achieving its goals with electoral considerations for next year.

Jakarta State University (UNJ) economist Dianta Sebayang told The Jakarta Post on Tuesday that she agreed that the government should look further than the $1.9 per day extreme poverty line, adding that the figure was considered outdated.

The World Bank wrote in its blog last year that it had updated the line to $2.15 per day to reflect increases in costs of staple foods. The latest figure is based on 2017 prices.

Dianta concurred that 120 million Indonesians were at risk of economic shocks, as suggested by the World Bank, especially considering that, as of August 2022, more than 59 percent of the country’s workforce was in the informal sector.

He said that meant many Indonesians’ incomes were highly dependent on fluctuating economic conditions.

However, Dianta disagreed with the World Bank’s recommendation to cut subsidies on energy and agriculture.

“The poor’s income vulnerability is highly correlated to fuel, electricity and food prices, all of which depend on energy and agricultural subsidies,” said Dianta.

“Especially to respond to the uncertainties brought about by the war in Ukraine. Even developed countries are giving out energy and agriculture subsidies to their people,” he added.

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