POVERTY AND INEQUALITY IN INDONESIA : TRENDS AND PROGRAMS *)

Transcription

1 POVERTY AND INEQUALITY IN INDONESIA : TRENDS AND PROGRAMS *) By Prijono Tjiptoherijanto **) Sutyastie Soemitro Remi ***) *) Paper presented at International Conference on the Chinese Economy Achieving Growth with Equity, Beijing, 46 July **) Professor at the Faculty of Economics, University of Indonesia ***) Senior Lecturer at the Faculty of Economics, University of Padjadjaran

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3 POVERTY AND INEQUALITY IN INDONESIA : TRENDS AND PROGRAMS By Prijono Tjiptoherijanto Sutyastie Soemitro Remi Abstract During the period prior to the crisis ( ) income inequality indicated by Gini Ratio tended to increase in Indonesia as a whole, from 0.34 to The inequality scemed to be more apparent in urban Indonesia reaching a level 0.36 in 1996, than in rural Indonesia with a level of 0.27 or less inequality. Declines in equality during the period ( ) were also indicated by other indexs the Theil Index and LIndex. 1. Introduction The main objective of this paper is to give an insight of the extent to which the crisis has affected the D:\My Documents\Yanruis Conference\aces_ppk.doc 1

4 incidence of poverty in Indonesia. In doing so, a trend data analysis on poverty estimates and indicator/indices will be performed. The analysis compares the incidence of poverty prior to the crisis (using the 1993 and 1996 data ) with the incidence during the ongoing crisis (1999). This paper also addresses some inequality issues related to the changes in expenditure distribution during the period of 1993 to Moreover, attempt are also made to examine some socioeconomic dimensions of poverty, by examining the changing characteristics of poor households as compared to nonpoor households, both in urban and rural areas. Considering the poverty profile it is expected the policy being formed in alleviating poverty can be more directed. Likewise, it can be evaluated whether the government s policies being carried out have or have not succeeded in reducing the number of poor population and inequality rate 2. Trends in Poverty and Inequality Prior to 1997, Indonesia recorded a relatively remarkable decline in poverty level as compared to achivement in order lessdeveloped countries. The success of poverty alleviation, in term of monetary measure of welfare, was consistently coupled with the improvement in nonmonetary measures of welfare and poverty, such as D:\My Documents\Yanruis Conference\aces_ppk.doc 2

5 education and health indices. The improved people's welfare was subject to almost three decades of sustained economic growth resulting from a series of developmental strategies, including green revolution since the late 1970s, trade liberalization in the early 1980s and the establishment of exportoriented growth economy starting in the early 1990s (Irawan and Sutanto, 1999). However the crisis squeezing the Indonesian economy in the mid 1997, following the long drought during the year, has been adversely affecting the overall macroeconomic condition, and most importantly people's welfare. The number of people living in poverty is believed to increase drastically. The readily available contemporary data from the result of the 1998 SUSENAStype suggests a substantial increase in poverty incidence from the precrisis period (1996) to the end of Table 1 presents the number and percentage of population living below the designated poverty lines (headcount ratio) in both urban and rural areas from 1976 to The magnitude of poverty as measured by poverty incidence in 1999 is 18.20% (37.5 million). Out of this number, around 12.4 million lived in urban area (15.10%), and million (20.20%) lived in rural area. D:\My Documents\Yanruis Conference\aces_ppk.doc 3

6 Table 1 Number and Percentage of People in Indonesia by UrbanRural Areas, Year % Poor People (Headcount Index) Number of Poor People (in million) Urba Rural Urban+ Rural Urban Rural Urban+Rur n al (1) (2) (3) (4) (5) (6) (7) D:\My Documents\Yanruis Conference\aces_ppk.doc 4

7 Source : BPS, 2000 During the overall number of the poor in Indonesia sharply decreased from 54.2 million people (40.08% to total population) to 22.5 million people (11.34%). However, the comparable figure in 1998 was estimated to rise to 36.5 million (17.86%), or an absolute change in the D:\My Documents\Yanruis Conference\aces_ppk.doc 5

8 number of the poor by around 14 million as compared to the 1996 figure. The 14 millionincrease did not necessarily indicate the real impact of crisis on poverty incidence from the mid1997 to the end of To really measure the crisis impact, one should compared the 1997 (estimate) figure with that of As the 1997 figure was believed to be lower than the 1996 poverty level, the crisis impact would be higher than 14 million. Provided the 1997 poverty level was presumably 21.5 million (assuming the same annual rate of decline in the absolute poverty as happened from 1993 to 1996), there might have appeared around 51 million additional poor people, which likely measures the crisis impact on poverty. Table 2 also suggests that during the number of the poor in urban areas has increased at almost a similar extent to those in rural areas i.e. by 61.1% (4.40 million) for urban and 62.7% (9.60 million) for rural. The change in poverty incidence (percentage of the poor to total population) was larger in rural than in urban areas (7.78% compare to 4.72%). However, if consistency were ignored, the absolute number of the poor grew by around 140% (10.4 million) during the last two year in urban areas (from 7.2 to 17.6 million people), where as the figure in rural areas was around 105% or 16.6 million (from 15.3 to 31.9 million people). If the intertemporal analysis uses the 1998 standard, poverty incidence appeared to get worse in urban area than in rural area during the period of D:\My Documents\Yanruis Conference\aces_ppk.doc 6

9 Table 2 indicates that there were around an additional 8 million poor people in urban area during that period, while the increment was around 7 million in rural area. Table 2 Change in Number and Percentage of Poor People in Indonesia by UrbanRural Areas, Year Change in Percentage Urban Rural Urban+Rur al Absolute Change (milion People) Urba Rural Urban+Rural n (1) (2) (3) (4) (5) (6) (7) D:\My Documents\Yanruis Conference\aces_ppk.doc 7

10 Source : BPS, This finding seems to confirm the earlier estimates that in agregate the urban population was suffered more severely by the crisis than their rural counterparts. As argued by Daimon and Thorbecke (1999), there are two possible explanations for the more rapid increase in the number of the urban poor. First, the crisis tends to most adversely affect some major economic sectors in urban D:\My Documents\Yanruis Conference\aces_ppk.doc 8

11 areas, such as construction, trade and banking leading to a negative impact on urban unemployment (also see in Panggabean, 1999). Second, while rural people could fulfill subsistence level from their own production, the increased food prices negatively affected the net purchasers more than it affected the net producers of food, that brought about a more suffering among urban households than among rural households. In their surveybased study of 295 companies mostly in urban areas, Irawan and Sutanto (1999) also found that the number of displaced workers increased between 1997 and 1998, and the majority of laid off workers were those of lower socioeconomic status, indicating an intense pressure on employment and welfare of urban poor people presumably due to the crisis. A substantial increase in absolute poverty in fact was resulted from a drastic change in the designated poverty lines in both urban and rural areas (see Table 3). As compared to 1996, the poverty lines n 1998 increased by around 154 and 165% in urban and rural areas respectively. The adjusted 1998 poverty line, as compared to 1996, increased by around % and % for urban and rural, respectively. This indicates that the nominal value of expenditure spent by an individual per month to fulfill their basic needs in December 1998 has multiplied by more than two times of the value in February The extent of the increase in poverty line was apparently consistent to the skyrocketing prices, especially food commodities, during the D:\My Documents\Yanruis Conference\aces_ppk.doc 9

12 same period and partly, due to the redefinition of the food and nonfood bundle. From February 1996 to December 1998, the inflation rate for food was recorded at around 148.6% (BPS, monthly series of Economic Indicators). Table 3 Poverty Line and Their Changes in Indonesia, by UrbanRural Areas, (Rupiah/capita/month) Year Poverty Line Change in Percentage Absolute Change (milion People) Urban Rural Urban Rural Urban Rural (1) (1) (2) (3) (4) (6) (7) D:\My Documents\Yanruis Conference\aces_ppk.doc 10

13 Source : BPS, Table 4 shows that during the period prior to the crisis ( ) income (proxied by expenditure) inequality as indicated by Gini ratio tended to increase in Indonesia as a whole, from 0.34 tp The inequality seemed to be more apparent in urban Indonesia, reaching a level of 0.36 in 1996 (categorized as "medium inequality" with a coefficient ranging between 0.35 and 0.50), than in rural Indonesia with a level of 0,27 or "less inequality" (less than 0.35). However, in 1998 there were declines in gini ratios, reaching 0.33 in urban areas and 0.26 in rural areas. It means that the inequality has decreased by 8.3% in urban and by 3.7% in rural areas during period of Declines in inequality during the period or were also indicated by other indices the Theil Index and LIndex. This finding was at glance confusing and inconsistent, given the previous evidence concerning the worsening inequality among those living below the poverty line (see Table 4). Whether the improvement in inequality during the crisis was simply methodologicalrelated issues, especially nonsampling error in probing questions on expenditure or merely a real fact is hardly known. However, it is posible to speculate that the crisis may have affected more severely the total expenditure D:\My Documents\Yanruis Conference\aces_ppk.doc 11

14 of those involved in modernformal sector than those in traditionalinformal sector, representing for middle and high income classes for the former and low income class for the latter. This impact was believed to get through large shifts in relative prices that may have had benefited those engaged in the rural economy, rather than for those in the modernformal economy (Caille, et.al; 1999). As a consequence, presumably, the crisis has caused a more drastic drop in the averaged expenditure of the midlle and the high classes than the expenditure of the low class that has already been at a low level. Frankenberg, et.al, suggests that the averaged nominal expenditure among the upper deciles of sample population of 2,000 households decreased more rapidly than those in the lower deciles. Such a pattern of decline in expenditure may have reflected the drop in total income. Meanwhile, the expenditure level of the low class has already been at a level which was hardly possible to go down further to fulfill their basic consumption at a subsistent level. These two factors might best explain the "improvement" in gini ratio and other inequality indices during the crisis. Daimon and Thorbecke (1999) argued that decline in inequality was not consistent with increase in poverty incidence unless there were two aspects underlying this inconsistence, First, variation in income distributions of the lowest classes increased drastically resulting from the crisis. D:\My Documents\Yanruis Conference\aces_ppk.doc 12

15 Second, there was a flawed methodologicalrelated drawback in measuring poverty and inequality indicators. Looking at different extent of shifts in inequality between those below and above the designated poverty, Table 4 confirms the above argument that inequality has increased within the lower tail of the income distribution, in couple with a drop in inequality among the betteroff. Table 4 Gini Ratio in the Theil Index and LIndex Urban and Rural Indonesia, Area/Group of Population Gini Ratio The Theil Index The LIndex (1) (2) (3) (4) Urban Below the PL Above the PL Rural Below the PL Above the PL D:\My Documents\Yanruis Conference\aces_ppk.doc 13

16 Uban + Rural Source : Irawan P.B (1999) The above argument seems to be in line with the changing patterns of expenditure distribution by population groups, as reported in Table 5. During the period of , the share of total expenditure spent or enjoyed by the lowest 40% of population has decreased both in urban and rural areas, while in the same time the share for the highest 20% of population increased in both areas. It indicates that a few years prior to the crisis inequality in income tended to widen, yet according to the World Bank's criterion, it was categorized as "low level of inequality". By 1998, however, there was a decline in the expenditure share enjoyed by the highest 20% of population, coupled with an increased in the share for the lowest 40% of population, as compared to a share composition in This evidence may not necessarily indicate improvement in income inequality during the crisis, because as mentioned above, such improvements in Gini Ratio and the World Bank's criterion may have to do with the level of expenditures which are less flexible for downward adjustment in the case of lower class than of higher class. Table 5 Expenditure Distribution of Population in Urban and Rural Indonesia, D:\My Documents\Yanruis Conference\aces_ppk.doc 14

17 Area/Population Groups (1) (2) (3) (4) Urban : The lowest 40% The middle 40% The highest 20% Rural : The lowest 40% The middle 40% The highest 20% Urban + Rural The lowest 40% The middle 40% The highest 20% Source : BPS, Programs Related to Poverty Alleviation The crisis looming over Indonesia s poor is huge. Once growth resumes, of course, employment opportunities and income gains will reduce their misery. But it will take several years. During the economic crisis, D:\My Documents\Yanruis Conference\aces_ppk.doc 15

18 the Government of Indonesia and other donors fully recognised that there was a need to establish social safety net programs to meet the decline of purchasing power of the majority. Substantial funding for this purpose has been allocated since mid1998 (see Table 6). Thus was embedded in the Community Recovery Program (CRP) and the Social Protection Sector Development Program (SPSDP), which aimed to directly help people in need. The program assumes that civil society can lead and coordinate the CRP and act as the channel for distribution of resources. Shortterm assistance is given to people who are unable to continue their daily social and economic activities. This would be implemented by proactively plugging gaps in the social safety net, giving intermediate response to poor communities most affected by the crisis and establishing synergy between the civil society, government, and the private sector, together with the international community for improved response to the need. The design called for decentralisation of resources and decisionmaking processes, strong involvement of civil society, and transparency. The CRP and SPSDP programs can be classified as emergency or adhoc programs for poverty alleviation during the economic crisis. The programs are estabilished according to the need. Once economic performance improves, these programs will be terminated. D:\My Documents\Yanruis Conference\aces_ppk.doc 16

19 The purposes of social safety net programs are: to provide which can accessed by poor people to provided productive labour opportunities that can improve purchasing power of poor people; to improve the welfare of poor peole; to recover social and economic services for poor people; and to recover economic activities for poor people (Bappenas, 1999) Table 6 Budget Allocated for Social Safety Net Program Budget Programs (in billion rupiah) Component/Activities 1998/ /20 00 Food Security Special Market Sources of Funding and Institutions which are responsible for implementation PM PM BULOG/Menpangan Operation National Food Reliance Ministry of Agriculture D:\My Documents\Yanruis Conference\aces_ppk.doc 17

20 Social Protection Education Scholarships and Ministry of Education and operational financial aids Rehabilitation of Primary school buildings Construction of new Culture Presidential Instruction for Regency Presidential Instruction for peimary school buildings Regency Health Basic Health Services Ministry of Health in community Health Centre Basic Health Service in 48.0 Ministry of Health Hospital Social Weafare Ministry of Socail Welfare Revitalisation of Emergency Food Relief 15.7 Presidedential Instruction for Health (SKPG) Health Infrastructure Presidential Instruction for Health Food Supplement for School Children Supplement for School Children Employment Creation Sector Labour Intensive Labour Intensive of Ministry of Public Works Public Works Sector Crisis Impact and Employment Problems Solving (PDKMK) Skilled Unemployment Problem Solving (P3T) Labour Intensiv of Forestry Sector Regional Labour Intensive (PDMDKE) Ministry of Manpower Ministry of Manpower Ministry of Forestry Presidential Instruction for Regency and Bappenas D:\My Documents\Yanruis Conference\aces_ppk.doc 18

21 Total Source : Bappenas, 1999 D:\My Documents\Yanruis Conference\aces_ppk.doc 19

22 The programs cover four activities, which are as follow: Food Security Program; Social Protection of Education Program; Social Protection of Health Program; and Labour Intensive Public Works Program The food security program is established so poor families have better access to food in terms of price and readiness. The program covers two main activities; first, food aids through special market operations (Operasi Pasar Khusus/OPK). In OPK, poor families can by rice at one thousand rupiah per kilogram. Each family can buy 20 kilogram rice per month. In the fiscal year, OPK had been implemented to 7354 million families according to the number of poor families collected by National Family Registration. Besides rice, through the OPK activity, poor families have the possibility of receiving, free of charge, cooking oil, milk powder, and soybean. However, the availability of these commodities depends on international communities or donor agency grants. The second aim is to improve national food reliance through empowering farmers. During the fiscal year, the activity had been implemented in 27 provinces. In the fiscal year , the national food reliance activity has changed to fishery and poultry breeding activity. D:\My Documents\Yanruis Conference\aces_ppk.doc 20

23 The OPK activity is coordinated by the State Ministry for Food and Horticulture and the main implementors are the Ministry of Agriculture and BULOG. Meanwhile the national Food Reliance activity is coordinated and implemented by the Ministry of Agriculture. The purpose of the Social Protection of Education Program is to maintain education service to poor families. The program covers three activities, which are: scholarships and operational financial aids; rehabilitation of primary school buildings; and contruction of new primary school buildings. Under the Social Protection of Education program, children from poor families are free from tuition fees and other financial obligations related to study purposes. During the fiscal year, scholarships have been given to around 4.1 million students including 321 thousand college students throughout the country. Operational financial aids have been given to around 131 thousand schools and 1200 universitas in Indonesia. The Social Protection of Education Program is implemented by the Ministry of Education and Culture, and the Ministry of Religion and Local Government. In the health sector, the social safety net program covers four main activities, namely: providing basic health services for poor families; providing pregnancy and delivery as well as childrearing services for poor families; D:\My Documents\Yanruis Conference\aces_ppk.doc 21

24 providing food supplements for infants (six to 11 months) and children (12 to 23 months) of poor families; and providing food supplements for school children. All family members or poor families receive, free of charge, health services at the Community Health Centre. They also receive a nutrition supplement especially for mothers and children (including infants). Food supplements are also provided in schools and orphanages. Therefore, the government has allocated a special budget for essential drugs, vaccines, and primary health care. The communicable disease and community health programs get special attention. The Labour Intensive Public Works Program is designed to help poor households maintain purchasing power. In fact, the Government has a long history of using a labour intensive public works program, called padat karya. In the beginning, the program was implemented in the areas that suffered greatly from the crisis, such as urban areas and drought areas. Three main programs have been developed in the program. These first, Sector Labour Intensive, is mainly to redesign current projects to become labour intensive projects. For example, infrastructure projects at the Ministry of Public Works were redesigned in order to absorb more manpower. The key is to redesign the current project. The second, Special Labour intensive, is D:\My Documents\Yanruis Conference\aces_ppk.doc 22

25 mainly to create a special project in order to absord people who have been laidoff from their current job. The Special Labour Intensive program consists of projects ot face the employment problem due to economic crisis, called PDKMK program, labour intensive projects to face unemployment of skilled workers (P3T), and labour intensive projects in the forestry sector. The approaches of the two above programs are topdown and departemental. Government has been much criticised on the this matter. Therefore in November 1998, the government launched the third program called Local Empowerment in Facing the Impact of Economic Crisis (Pemberdayaan Daerah dalam mengatasi Dampak Krisis Ekonomi : PDMDKE). The program has been launched in all villages throughout the country. Under this scheme, the central government provided budgets directly to communities via local governments accourding to the number of poor households and the amount of unemployment in their villages. In this case, NFPCB and CBS are responsible for providing the data. Indeed, under this scheme, economic activities as well as target groups are selected by local community people. The government hopes that the PDMDKE program will run smoothly since the program is monitored actively by the community. Social safety net programs have been criticised by many parties, particularly by nongovernment organisations D:\My Documents\Yanruis Conference\aces_ppk.doc 23

26 (NGOs). Most of the criticisms are about the transparency of the programs. According to them, the social safety net programs funds are mostly not received by the target group. They even argue that the government spends that budget for political purposes. Therefore, they insist, government and international donor agencies should terminate the programs. In the last couple of months there have been hot debates in the country on these matters. In this regard, government is trying hard to improve the quality of the programs implementation. NGOs and students are welcome to participate actively in the programs implementation, starting from the planning phase through to the monitoring phase. 4. Concluding Remarks There is no doubt that in the last twenty five years, Indonesia s economy has been improving remarkably. The most powerful indicator of the success of Indonesia s development strategy and policy adjustment is the degree of absolute and relative poverty reduction. Considering the development process in the last twenty five years, much progress has been made in reducing the absolute poverty in Indonesia. Data shows that in 1999, the number of poor people in Indonesia were around 37.5 million and it was much lower that in 1970 which were 54.2 million people. D:\My Documents\Yanruis Conference\aces_ppk.doc 24

27 In line with the smaller number of poor people, the effort to alleviate the poverty is becoming harder than before. There are two reasons for above condition, (1) the target group is harder to be found than before, and (2) the government s concern on poverty alleviation is less than before since the budget for alleviating them is getting more expensive. However, since the National Ideology and the 1945 Indonesian Constitution stated that all Indonesia people should benefit from the development, no matter the cost and the effort, the poverty alleviation has to be done. Concerning the number and location of poor people at the present time, government of Indonesia aware that policy and program on poverty alleviation can not be depended only on macro economic policy. Micro economic policy or even social policy should be bring together with macro economic policy to alleviate the poverty. One example of micro economic and social approach in alleviating the poverty in Indonesia is the development of prosperous family. 5. REFERENCES Daimon, T. and E. Thorbecke, Mitigating the Social Impacts of the Indonesian Crisis: Lessons from the IDT Experience, May Haryono, Suyono Poverty Alleviation Through the Development of the Prosperous Family in NonIDT D:\My Documents\Yanruis Conference\aces_ppk.doc 25

28 Villages. State Ministry for Population/NFPCB, Jakarta, Indonesia. Irawan, P.B. (1999), How to identify the poor: Some Methodological Issues, paper presented at Two Days Seminar on Dampak Krisis di Indonesia at the Demographic Institute, Faculty of Economics, University of Indonesia, Depok, 1920 May Jossi P. Moeis, Aziz, Faisal Basri, and Yando Zakaria. Profil dan Penanggulangan Kemiskinan di Indonesia (Profile and Alleviation of Poverty in Indonesia), in Faisal Basri, Ekonomi Indonesia Menjelang Abad 21 (Indonesian Economic Towards XXI Century). PT. Airlangga, Jakarta, Indoneisa. Mubyarto, 1999, Poverty Reduction in Indonesia: What s New and What s Different, Majalah Perencanaan Pembangunan, No. 16, Juni/ Juli, Prijono Tjiptoherijanto, Population Issues in the Economic Development, Lembaga Penerbit FEUI, 1999.,1997. Pengentasan Kemiskinan (Poverty Alleviation). Paper presented at the Seminar of the Role of Private University on Poverty Alleviation in Indonesia, Bandar Lampung, 26 September Sutanto, (1999) The December 1998 Poverty Estimate: Methodological Issues, paper presented at the Workshop on Poverty Number Computational Method D:\My Documents\Yanruis Conference\aces_ppk.doc 26

29 at BAPPENAS (National Development Planning Bord), Jakarta, 25 June Sutyastie Soemitro, Impact of Crisis on Poverty and Inequality in Indonesia: Methodological Issues and Trends, Economic Journal, Faculty of Economics Padjadjaran University, Vol. XV No. 1, March World Bank, 1998, Indonesia in Crisis: Macroeconomic Update, The World Bank, Washington D.C., July 16, D:\My Documents\Yanruis Conference\aces_ppk.doc 27