Many experts say Indonesia’s micro-economic indicators show that economic growth is not even or sustainable, pointing to decreases in tradable sectors like agriculture, mining, and manufacturing, and the low rate of absorption of the labor force. Meanwhile, two indicators that are rising markedly are income inequality and economic inefficiency.
We also need to consider the number of people living under the poverty line, the budgets allocated to eradicate poverty, and look at income distribution between the rich and the poor.
In evaluating Indonesia’s progress in achieving the Millennium Development Goals, the Central Statistics Agency (BPS) has shown that in 2004, using a poverty line of $1.50 (PPP), there were 36.15 million poor people — or 16.66 percent of the population. By March 2013, the number of poor Indonesians had fallen to 28.07 million people — 11.37 percent of the population — so it looks like we are making good progress.
But if we look at the World Bank’s data (their poverty line is set at $2 per day), in 2013, 51.1 percent of Indonesians were living in poverty. To meet the first MDG we need to reduce this number to 7.5 percent by 2015. This is not going to happen.
Let’s also consider the budget allocations for poverty reduction. BPS data shows that in the years 2004-13, the percentage of people living in poverty decreased by 5.29 percent, or 0.58 percent per year. Meanwhile the budget of the Coordinating Ministry for People’s Welfare for pro-poor programs was increased by Rp 56.7 trillion in 2004-10, or about Rp 8.1 trillion per year. In 2010 alone the budget increased by Rp 27.8 trillion — about 42 percent. The Indonesian Institute of Sciences (LIPI) calculated in 2011 that in the year before, the government spent almost Rp 47 million per capita to lift Indonesians out of poverty. Despite these enormous sums, we are not seeing any correlating impact on the numbers of Indonesians living in poverty.
We can also measure the impact of our pro-poor policies by using the Gini coefficient, which measures income distribution. According to the BPS, Indonesia’s Gini coefficient steadily increased during the 17 years from 1996 to 2013 from 0,355 to 0,413, meaning we have moved into a range of high income inequality.
Indonesia’s Gini index is still better than Malaysia’s (0.46) and that of the Philippines (0.43), but it’s worse than Cambodia’s (0.38), Thailand’s (0.40), Vietnam’s (0.35), or that of Laos (0.36). This means that our per capita Gross National Income of $3,580 does not reflect the actual income of most people. In 2010, the wealth of the 40 richest people in Indonesia was Rp 680 trillion — the equivalent of 10.3 percent of the national GDP. The total wealth of those 40 equaled the wealth of 60 million of the country’s poorest people, an NGO study found.
Yudhoyono’s administration has certainly overseen positive economic growth, but this growth is not benefiting the majority of Indonesians, or generating sufficient employment. Indonesia’s economic growth was relying on the market mechanisms with little participation from people outside the major cities. To share the wealth we need to create jobs and to do this we should rely on labor-intensive industry rather than technology and capital. The unemployment rate increased by 0.11 percent from 6.14 percent in August 2012 to 6.25 percent in August 2013.
Even though the government has succeeded in reducing the number of Indonesian living in poverty by about 5 percent in 2004-13, we cannot say that the pro-poor policies are effectively reaching all the people who need them. The incoming administration needs to consider this data and develop new policies if it is serious about improving the lives of poor Indonesians across the country.
Agung Wasono is researcher at The Partnership for Governance Reform (Kemitraan) in Jakarta.