Eradicating Poverty in Indonesia

Although Indonesia’s National Development Planning Ministry is targeting a national poverty rate next year of 8.5 percent to 9.5 percent, that goal is ambitious, considering the poverty level at the end of 2017 was 10.12 percent.

Poverty has been falling at about .05 percent annually, meaning it would have to raise its efforts substantially. The government must strive to improve the quality of life and standard of living of 26.58 million poor people.

In addition, according to the World Bank’s March 2018 Economic Quarterly, the country is undergoing a radical shift. Although poverty rates in both urban and rural areas fell by 0.5 percentage points between September 2016 and 2017, the rural population shrank by 2.7 million at the same time the urban population grew by 5.8 million, an indication that increasing urbanization is changing the face of poverty in Indonesia.

“Over the past 15 years, poverty has slowly become a more urban phenomenon,” according to the report. In 2002, 34.7 percent of poor people lived in urban areas. As of September 2017, that share has grown to 38.6 percent, in large part because of the broader global trend of rural-to-urban migration, which has occurred as people sought better work opportunities and better access to jobs in urban areas. Going forward, government efforts to reduce poverty must consider its increasingly urban nature.

Despite the fact that the government’s “one policy fits all” approach, the people who fall below the poverty line are not a single group. There are varied poverty-stricken communities with distinct characteristics and environments, which should be taken into consideration create effective policy. The examples below demonstrate that.

Poor due to limited access

The first deals with rural areas, where connectivity and accessibility are limited, especially for disadvantaged areas such as peripheral, border and coastal areas and small islands. Of Indonesia’s 514 districts, almost a quarter, or equivalent to 122 districts that still lag are mostly located in eastern Indonesia. Secluded from the outside world, transport facilities such as asphalt roads, docks and bridges are minimal and often almost nonexistent, resulting in scarcity of staples and high prices of goods. The main problem to be solved is to build inter-regional connectivity with development.

During the reign of President Joko Widodo, eastern Indonesia has become the government’s main development focus. A full 60 percent of the Rp42.14 trillion budget for 2017 is directed to infrastructure construction in Kalimantan, Sulawesi, Papua, and other secluded areas. The budget allocation for Papua alone was Rp7.6 trillion. Development of Trans Jaya along 3,259 km that costs Rp3.4 trillion is promised to be completed by the end of 2019.

Accessibility is expected to open new economic centers and encourage businesses to enhance their activities. Development is ongoing, but existing funds are being directed in the right direction. Hopefully, the basic rights of people in Eastern Indonesia for good development facilities from the government will accelerate economic growth.

Less Capital

Those living below the poverty line generally do not have their own production capital such as adequate land, skills, etc., so that the ability to earn is very limited. For example, those who work as farm laborers – sharecroppers – do not have their own lands so that harvests are shared with landowners. Those who do not work in the agricultural sector must be satisfied to be manual laborers or freelancers because of lack of qualifications.

In this circumstance, the government's Social Forestry program is well targeted. As we reported elsewhere, state-owned land use certificates allow farmer communities around the forest to productively use some portions of forest land for 35 years. Moreover, the program facilitates citizens with capital, credit loans, training, seed production, to distribution and marketing of crops.

Of the target of 12.7 million hectares of land in 2017, only 1.33 million, the majority are on the island of Java, handed over to residents. In 2019, the number is expected to rise to 4.38 million hectares. The expansion of this program to various regions of Indonesia is designed to give people the opportunity to work and support their families.

Ineffective Urbanization

One of the misplaced assumptions that may still be found in Indonesia is that the poor are those who live in the villages and are backward in various aspects of life. But reality is not like that. In fact, Maluku and Papua, which have justifiable reason to be poor, are not the country’s poorest regions with the greatest amount of poverty in Indonesia. The title is held by Java, the most advanced, urbanized region in the whole archipelago.

Statistics have shown that Sumatra has 5.97 million poor with the other 1.52 million concentrated in the Maluku-Papua region, while the poor are only a minority on the island of Borneo with a total of 980,000. Meanwhile, no fewer than 13.94 million, or more than 50 percent of the total poor communities that the government should have existed on the island of Java, most of them urban, technological literacy close to the center of government.

Although more than 30 million service and industrial jobs were created between 2000 and 2016, replacing less productive agricultural jobs and raising incomes for millions, and as real per capita incomes doubled to nearly US$4,000, with an additional 32 million people joining the middle class during 2006 and 2016, the benefits of growth have not been shared widely, according to the World Bank’s economic report. .

Notwithstanding these achievements, the benefits associated with growth have not been shared widely.

Real consumption of the poorest 40 percent of households grew by 1.5 percent per annum between 2006-2016, compared to 5.1 percent per annum for the richest 20 percent, according to the World Bank. Inequality has risen substantially: the Gini coefficient on consumption, a measure of inequality, rose from 30 points in 2000 to 41 points in 2013.

“Compared to advanced and other emerging economies, the contemporaneous effect of fiscal policy in Indonesia on inequality of disposable incomes is very small. In 2012, Indonesia’s Gini coefficient, a measure of inequality, barely changed after accounting for taxes and transfers,” the World Bank said.

The poor in Jakarta, for example, struggle with poverty and starvation. The conurbation, in which five cities have grown together, skyrocketed in size from 11.91 million inhabitants in 1980 to 28.01 million in 2010. In 2010, wider Jakarta, known as Abideable, accounted for 11.79 percent of Indonesia’s total population, but with this population residing in less than 0.3 percent of the country’s total area. It has continued to grow in size, straining services, transportation and the environment.

As the World Bank study shows, it is difficult to move up the economic ladder. With minimal qualifications, they often get only refusals when they apply for work. Even if their salaries triple their wages in the village, the demands of life in the city are greater. The cost of living is so high that they live in slums despite the risk of loss of property due to flooding. It turns out their step to live in a big city and look for jobs end in pain. Moreover, access to basic services is increasingly limited.

Low wages often mean they are unable to afford living near their place at work. Most people choose to reside on the edge of the city, and commute by limited, uncomfortable, and expensive public transport because roads are not efficiently designed. Though a third of their income is spent on their trips, they have no recourse.

Rapid urbanization is double-edged. It can be an opportunity or a challenge, especially if the rapid pace of urbanization is not accompanied by an effective urban planning policy, guaranteed employment, and affordable housing development.

In this case, the government has been providing direct assistance such as vouchers to buy staple foods. This, however, is only effective in the short-term as they burden the government’s funds. For the long-term, there is a need to build, for example, affordable housing and public facilities for those who live in big cities. The loss of Jakarta’s governor Basuki Purnama Tjahaja in the most recent election has removed from the government a hard-charging official determined to move the city forward. It is uncertain at this point whether the new government is equally motivated.

In any case, to improve its efforts to eradicate poverty, the government should take into consideration the fact that its poor populations have differing characteristics and circumstances. Doing so would make it easier to provide more effective policies to help achieve its goal.

Muhammad Zulfikar Rakhmat and Dikanaya Tarahita write regularly on Indonesian social issues.