Poverty in Indonesia


Poverty is a condition whereby a society or a person lacks the financial essentials and resources to enjoy a minimum standard of well-being that is considered acceptable. It can be assessed in either absolute or relative terms. Relative poverty may be outlined as economic inequality that surfaces in the society. Absolute poverty on the other hand is the deprivation of basic human needs that include sanitation, water, clothing, health care, education and shelter (Khan, 2013). Several international organisations such as the World Bank and United Nations have been working towards poverty reduction. In 2008, the World Bank estimated that more than 1.29 billion people in different countries were living under absolute poverty. From this number, 173 million were in china and 400 million in India. In terms of percentage, sub-Saharan Africa had the highest incidence rate at 47% (Khan, 2013). The truth is that poverty is global challenge that manifests itself in all parts of the world including the developed economies. It has been the key stumbling block to economic development in most developing countries. There is need to devise strategies that will help to eradicate this menace at the national level.

Scope of Poverty in Indonesia

In Indonesia, poverty is a widespread issue that has persisted for a long time. However, recent statistics show that there are improvements since the poverty levels are decreasing with time. Poverty can be classified into urban and rural poverty due to the dense rural nature some parts like Bali, Java, parts of Sumatra and Lombok (Arifin, 2013). Urban poverty is more prevalent in Medan, Surabaya and Jabotabek. Poverty implications and characteristics vary widely from culture to culture and island to island. Papua has its own serious poverty issues due to cultural, linguistic, economic and physical isolation whereby it is set apart from the rest of Indonesia (Arifin, 2013).

In light of current development, it is apparent that most families are not gaining from the national economic growth. 50% of the population are currently living on less than US$2 on a daily basis (Jones, 2014). The country witnessed significant reduction in poverty; both rural and urban between mid-1960s and 1995. During this time, Suharto New Order government was in charge.  The government had established efficient pro-poor programs and a robust economic growth. Only 11% of the population lived under the poverty line during this period. However, the situation changed when the Asian Financial Crisis of the late 1990s hit the country. It caused the poverty levels to rise from 11% to 19.9% in the late 1998 (Moeliono, 2012).

The table below provides poverty figures for the past few years.

The table shows that there is a steady decline in poverty over the past few years. However, Jones (2014) asserts that the Indonesian government applies easy conditions and terms when it comes to the definition of the poverty line. This ends up giving a more positive picture compared to the reality. In 2013, the government set the poverty line at a per capita income of US$25 on a monthly basis, which showcases very low living standards. If the poverty threshold used by the World Bank comes into play, which recognises people living below US$1.25 a day as poor, then the percentages in the table above would change significantly (Jones, 2014).

Causes of Poverty

Several factors have resulted to current poverty levels in Indonesia. Most of these factors are controllable while some are beyond the control of the government.

Among the causes of poverty in Indonesia is a large population. Based on 2010 census, the country’s population was 237.6 million. Going with the current birth rate, Indonesia’s population is expected to surpass that of USA by 2040. The population growth rate stands at 1.4% (Eicher, 2014). Since 1967, different government regimes have been trying to educate the citizens on the benefits that come along with family planning practises. This has not helped much due to the religious beliefs that people have when it comes to giving birth. A large population plays a significant role in promoting poverty levels in the country. When the population size is large, the levels of unemployment are also high. This is because there are many people competing for minimal resources in an attempt of earning their daily bread. Most people that fail to get employment in both the formal and informal sectors end up living below the poverty line since they have no funds to cater for their expenses. High population also means presence of high dependency ratio. If only few people in a given population are working this means that there are other individuals depending on them for survival. This includes children and other family members. Employed individuals end up distributing their income to these people, and at the end of the day they also struggle since their income is reduced significantly (Eicher, 2014).

Dependence on agriculture also contributes to the poverty levels in the country. This is because the sector has not developed adequately to enable it sustain the population that it serves. Agriculture contributes close to 15% of the country’s GDP. In 2012, around 49 million people were employed in the agricultural industry. This is a representation of 41% of the total workforce found in the country (Kanō, 2013). Returns derived from agriculture are not quite sufficient to sustain the number of people that depend on it. As the population grows, more people tend to come in and put hope on being employed to work on various areas in this sector. At the end of the day, people end up being unemployed hence leading poor lives. Another way that agriculture contributes to poverty is lack of incentive by the government to institute appropriate policies and mechanisms that will ensure the agricultural sector in the country attains its optimal potential. The rate at which the population is growing is not consistent with the improvements being introduced in the sector. Agricultural sector in Indonesia does not grow as steadily as the service and industry sectors. It grew by 4% in 2012 and 3.4% in 2013 (Kanō, 2013). This means that at some point the increase in population increases the demand of agricultural products, and since the supply is not equivalent the prices tend to rise. People leaving under poverty end up paying more than their budgets can hold hence ending up in more poverty misery. Based on the fact that the agricultural sector employees more than 40% of the country’s labour force, some production mechanisms being adopted are also propagating unemployment.  Most individuals owning large farms are adopting mechanised labour at the expense of human labour. This is resulting to loss of jobs hence propagating poverty in the long-run (Manning, 2011).

Environmental disasters also have their fair share to some levels of poverty in the country. Indonesia is prone to various natural disasters since it is located in a region that experiences a lot of tectonic activities. People have to cope with constant risk of floods, tsunamis, volcanic eruptions and earthquakes. Among the current earthquakes are Pangandam in Java and Yogyakarta, which occurred in 2006 and killed 700 and 5,800 people respectively (Kumar & Motha, 2013). A lot of people were displaced in the process, and property worth significant amounts destroyed. In 2009, Padang earthquake claimed more than 1,117 lives. These instances of environmental disasters occurring are quite common. In February 2014 there was Sinabung and Kelud eruptions, which displaced over 30,000 and 100,000 thousand people respectively (Otsuka, 2014). Once these disasters hit, they usually cause a lot of damage on people’s crops, business premises and livestock among others. There is need for these people to start all over again. Funds donated by the government and other well wishers are not sufficient to restore them to their previous status. The losses experienced when the environmental disasters hit lead the affected individuals to a life of struggle hence spearheading poverty.

HIV/AIDs and other diseases have also contributed to the presence of poverty to some extent.  In 2010, UNAIDS postulated that HIV/AIDS in Indonesia was among the fastest growing epidemics in Asia. There was an expectation that in the next two years that followed, over 5 million people would be living with the epidemic (Otsuka, 2014). In 2007, the country was ranked 99th worldwide in terms of prevalence rate. Only 5-12% of HIV/AIDS sufferers get diagnosed and treated due to high social stigma and low understanding of the disease symptoms (Kumar & Motha, 2013).  This disease and others prevalent in the country result to death of people in different fields. Some of the people who end up dying are the sole bread winners for their families. Upon their deaths, no one is left to provide for the bereaved families. The life of struggle commences, as a result. The families end up being laden in poverty.

Impacts of Poverty on Economic Development

Poverty tends to hinder economic development in Indonesia in various ways. Among them is that the government has to spend a lot in terms of donations and standardize prices for goods and services in regions that are more affected by poverty. Most of the donations given to the people do not help them for a long time. This is because they consume them, and they are back to where they were before. This hinders economic development in that the government spends a lot of funds in trying to sustain the poor. If these people were in a better position to provide for themselves adequately, the government could use these funds in other developmental projects (Hebel & Nurrochmat, 2010). The projects would definitely have positive impacts to the economy if the government makes the most appropriate investments. This is likely to result to improved living standards hence promoting the prospects of economic development.

Poverty also hinders economic development by hampering children with high IQs from proceeding with their education. Most people in Indonesia complete their primary education since the government is very keen on this. This is why the literacy level for males stand at 95.6%, and that of females is at 90.1% (Otsuka, 2014). However, many students that complete their primary education never get the opportunity of pursuing their careers by proceeding with secondary and tertiary education. This normally affects children that come from poor families. These children based on their level of comprehension have the ability of attaining great heights if only they had the opportunity to further their education. In the long-run, the country is devoid of great minds that would fit in different sectors and contribute significantly to economic development (Hebel & Nurrochmat, 2010). The contributions might come in way of innovations, which are critical for development. The government would also reduce the costs of hiring foreign labour for some developmental projects whose required manpower is not sufficient in the country.

Another issue is that poverty diminishes the purchasing power of the affected households. This reduces the level of Gross Domestic Product in the country. When the levels of GDP are down, economic development is diminished.

Government Response to Poverty

Indonesian government is making several efforts in an attempt to curb the poverty menace that has been around for some time. Among the mechanisms that the government is using is enforcement of Millennium Development Goals. These goals include reducing child mortality, eradicating extreme poverty, attaining universal primary education, combating HIV/AIDs and other diseases, improving maternal health, ensuring environmental sustainability, promoting gender equality and ensuring global partnership in development. The millennium development goals have different objectives, but they revolve around a similar outcome. They all aim at improving the well-being of the citizens. This leads to improvement of the living standards, which results to eradication of poverty in the long-run (Arifin, 2013).

Another response from the government is the introduction of the National Medium-Term Development plan of 2004-2009 and 2010-2014. It has resulted to positive contribution towards poverty eradication in the country. The initiative has helped in surpassing the set targets of reducing the number of people living under $1 per day by half (Arifin, 2013). Since its inception the number has reduced significantly. This is an indication that it has resulted to enhancement of improved living standards. The main contributor to this situation is increased employment opportunities, which results to increased income for the people involved.

Indonesia’s government has also introduced national community grant programs. These grants have reduced poverty since they enable the poor in the country to help themselves.  The government scaled-up the empowerment program between 2007 and 2009. This was aimed at providing block grants to urban and rural sub-districts, which supported community level development projects (Schumpeter, 2013). The approach helps to build capacity for coordinated action while it leverages local knowledge in order to identify obstacles to development. Impact evaluations indicate that the system has increased consumption levels in poor households. This has helped the people involved to move out of poverty. It has also helped fill the infrastructure gap and resulted to employment generation.

The government has also introduced safety nets that protect families from various shocks. Impact on households resulting from unexpected events like natural disasters, global financial downturn, expected shocks and sudden health crisis undermines the country’s progress in reducing poverty. This has helped the government to understand that the best way to protect the poor is devising systems with coherent structures and effective targeting. A good example is the BLT, which was very effective in buffering households during the fuel subsidy reduction (Otsuka, 2014).

Australia’s Role in Aiding Indonesia’s Poverty

Australia has played a part in trying to help Indonesia overcome its poverty problems. Much of this has been attained through provision of aid and donations. Over the years, Indonesia has been the largest recipient of aid coming from Australia. Australia’s aim is to achieve sustainable development and reduce poverty while serving its national interests.

Indonesia and Australia have been development partners for many years. In 2004, the Indian Ocean earthquake was one of the worst natural disasters to occur in the region in modern times. Indonesia, Thailand and Sri Lanka were the hard-hit countries.  More than 275,000 people were killed, tens of thousands injured and 10 million were displaced and left homeless (Kumar & Motha, 2013). This disaster resulted to the formation of Australia-Indonesia Partnership for Reconstruction and Development. It was launched in early 2005, and attained A$1 billion funding in order to assist rebuilding of communities affected by the disaster. The initiative was also meant to be used for promoting economic growth across the country. This was a great initiative since it helped the people affected by the disaster to restore part of their lives in order. It ensured that the occurrence of this disaster did not lead the affected individuals to extreme poverty. They were given a life line, and something to build on as they try to restore themselves to their previous status (Kumar & Motha, 2013).

In 2007, Australia donated close to A$100 million to help contain the HIV/AIDS epidemic in Indonesia. The ultimate objective of the program was to reduce the number of people that contracted the disease by offering sufficient education. It also aimed at reducing the socio-economic effects and improving life of sufferers (Bevan, 2013). Australia has been offering assistance with regards to this epidemic for over 15 years. This helps in eradicating poverty since it helps to reduce the number of people that die as a result of the disease. Deaths of family bread winners have been contributing to increased poverty levels since the individuals left behind do not have the ability of sustaining themselves.

In 2012-2013, Australia’s aid to Indonesia was worth over $540 million. It was expected to grow to over $640 million in the next financial year. The aid primarily focuses on effective governance, sustainable development and education (Bevan, 2013). Recently there has been funding for roads improvement projects in Eastern Indonesia, improving water and sanitation systems, developing several infrastructure initiatives and improvement of Islamic schools. All these efforts are aimed at improving the living standards of the citizens by ensuring that sustainable development is attained. Such prospects help and will continue to help in poverty eradication (Bevan, 2013).

Future Direction of Poverty in Indonesia and its Impact on Economic Development

The future looks bright for Indonesia when it comes to poverty eradication. This is based on the initiatives that the government and other private stakeholders have put in place. Among them is the development partnership with other countries like Australia. This initiative will help in creating more employment opportunities, improving the infrastructure development and enhancing provision of better education among others. The lives of the people living below the poverty line will be enhanced in the process. Addressing transitional threats such as HIV/AIDS is also a step in the right direction. A healthy nation always amounts to more productivity levels (Bevan, 2013). Indonesia’s government is also committed to instituting the Millennium Development Goals. The aspect is vital for various developments to be realised. If the MDGs are implemented fully, the country will have the ability of transitioning and hence combat poverty levels effectively.

Eradication of poverty will result to improved economic development. This is because when poverty is reduced it means that people have more money at their disposal. This improves their well-being and purchasing power. When the purchasing power is high, there is an increase in the Goss Domestic Product.  Both the improved living standards and increase in GDP are indications of economic development. Poverty eradication also enhances economic development in that the government does not need to invest more on donations for poor households. This amount can now be used in other projects, which will bring development to the country (Kumar & Motha, 2013).



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