Behind the rise of poverty in Indonesia: The Jakarta Post columnist

A riverview of the homes of illegal squatters at the riverbank in Kampung Melayu, East Jakarta.
A riverview of the homes of illegal squatters at the riverbank in Kampung Melayu, East Jakarta. PHOTO: ST FILE

One of the impacts of the slowing economic growth in Indonesia is the rise of poverty. About 1.1 million more people from 26 provinces became newly poor (defined as those whose incomes fell below the poverty line) between September 2014 and September 2015. At the same time, 268,000 people from 13 provinces were lifted from poverty. According to Central Statistics Agency (BPS) figures, the total number of people in absolute poverty is now 28.2 million, an increase of 2.8 percent over the same period, but these figures hide the wide differentials of poverty increases among provinces in the country. Major provinces in Sumatra, except Lampung, had worsening poverty. North Sumatra, Riau and Jambi registered a double-digit increase in the number of their poor people. These provinces are major commodity producers and so they were not only hit by the falling commodity prices, but also by forest fires and the smoky haze they spewed that rampaged through those provinces for several months in 2015. 

The highest increase in poverty was in East Nusa Tenggara (NTT), where it jumped by 17 per cent, six times the rate of increase of the national average. But the most baffling is Bali, where despite its flourishing tourist industries, its number of poor people went up by 11 per cent, the third largest increase in the country after NTT and Riau. In Sulawesi, except in West Sulawesi where poverty declined by 1 percent, all provinces suffered substantial increases in poverty, the biggest being in Southeast Sulawesi where the number of poor increased by almost 10 per cent. In Kalimantan, out of four provinces, only West Kalimantan suffered a poverty increase. Surprisingly, despite the fall in coal prices and declining exports, the number of poor people in East Kalimantan fell by 17 percent. Papua, which has the highest poverty rate in the country, surprisingly experienced a modest increase in poverty, while in West Papua the number of the poor did not change.

In Java, the number of poor people increased in Banten and West Java and slightly increased in East Java. In Central Java, the number of poor people declined by 1.8 percent, while in Yogjakarta it dropped by nearly 9 percent. In Jakarta, the capital, the number of poor people fell by 10.7 percent. This is not surprising given the aggressive actions by its governors in implementing various social programs to alleviate poverty, specially by issuing various smart cards to the poor. It is not clear at this point why few provinces managed to reduce poverty. The presence of a high number of manufacturing industries is no guarantee for containing poverty, as shown in Banten or West Java. But political will by the head of the local government could play an important role in reducing poverty, in the form of their determination to build infrastructure a high priority in their budget, to spend more on health and education and to improve the access for the poor to water and better sanitation.

Unfortunately as most provinces lack the resources and determination to alleviate poverty, the general trend has been an increase in poverty. Besides, there are also several reasons that could be attributed to the increase of poor people during this period. First, because economic growth slowed, many companies have shredded their workforces, economic activities shrank and many lost their jobs. 

Second, when President Joko "Jokowi" Widodo decided to cut fuel subsidies at the end of 2014, the government initiated the Prosperous Family Savings Program (PSKS), a temporary cash handout to the poor, with the objective of shielding them from the effects of fuel price increases, but because of the budget fiasco in 2015, the cash disbursement to the poor was delayed and it was distributed only in April 2015. Therefore, the poor were practically unprotected during the first three months of 2015, at a time when the impacts of the fuel price increases had already started. Another reason is that during this time, as reported by the BPS, while real wages of construction workers stagnated, real wages of farm workers shrank by 2 per cent. As the majority of farm workers are poor, the decline in their real wages has significant impact on the poverty increase. But the most damaging reason for the increase in poverty is the steep rise in rice prices.Given the large need for rice on the poverty line, a small increase in rice prices could lead to a substantial increase in the incidence of poverty. This is because income of the poor is mostly used for buying rice, but last year the increase in rice prices was not small. According to the BPS, the price of rice of inferior quality - the kind that is mostly consumed by the poor - rose by 9.5 per cent between December 2014 and December 2015. The poor, especially farm workers, must have been badly hurt by the rice price increase because it happened when their real wages went down 2 per cent.

So in protecting the poor and keeping poverty low, there is nothing more critical than stabilising the prices of rice, but the government record in this matter was poor last year. Estimates of rice production by the Agriculture Ministry showed a surplus, but in fact rice stocks dwindled and prices kept surging. Reluctantly, the government has finally conceded that it had to import rice. It ultimately imported 848,000 tons of rice from fourth quarter to January 2015 and an additional of 600,000 tons are on their way. Maintaining an adequate supply of rice for the government is getting more complicated in the face of the impact of El Niño and a delay of rice planting for several months. The problems are confounded by the unreliable government statistics on rice production on which policy for building rice stocks are based. The uncertainty has forced the government to resort to importing rice, but for the sake of preventing rice prices and poverty from increasing, importing rice should not be done on ad hoc basis.

The writer is a commissioner at a publicly listed oil and gas services company.