Vulnerability to poverty needs to be examined<\/p>\n
Ari A. Perdana, Center for Strategic and International Studies,
\nSchool of Economics, University of Indonesia, Jakarta<\/p>\n
In his 1981 book entitled Poverty and Famines, Nobel Laureate
\nAmartya Sen wrote, \"Much about poverty is obvious enough. One
\ndoes not need elaborate criteria, cunning measurement, or probing
\nanalysis, to recognize raw poverty and to understand its
\nantecedents\". However, the statement views poverty only in a
\nstatic concept. It basically captures poverty as a condition of
\nwelfare at a certain point in time. In reality, poverty is also a
\ndynamic concept. Households frequently move in and out of poverty
\novertime. This raises an issue of \"vulnerability\" to poverty.<\/p>\n
Vulnerability to poverty can be defined as the risk or
\nprobability that a household will become poor in the near future.
\nThere is always a chance that a \"currently non-poor\" may end up
\nbeing poor in the near future. Non-poor households may fall into
\npoverty due to events such as natural shocks, disasters, economic
\nshock and crisis, security problems and many others.<\/p>\n
Vulnerability measures the resilience against such bad events
\n-- the probability that those events will result in a decline in
\nwell-being.<\/p>\n
Conversely, a currently poor person also has a chance to
\nescape from poverty. Economic upturn may bring more job
\nopportunities, which provides income. As the result, economic
\nimprovement enables the poor to climb up from poverty. However,
\nthis situation does not always apply to those who suffer chronic
\npoverty. People in the chronic poor category face not only income
\ndeprivation, but also deprivation of their capability. They lack
\naccess to economic resources and human capital. Consequently they
\nare more exposed to economic downturn, but unlikely to benefit
\nfrom economic upturn.<\/p>\n
According to a 2000 World Bank report, a household or
\nindividual becomes more vulnerable to poverty due to several
\nreasons. First, fewer physical assets -- those that can be sold
\nto compensate for temporary loss of income -- which a household
\npossesses. Among households who have adequate physical assets,
\nthose who have income diversification are less vulnerable. But
\nincome diversification does not always provide more income if the
\nsources of income have risks that are related to each other.<\/p>\n
Second, more limited human capital, especially education.
\nPeople with low level of education are in general unable to
\nmanage risk and subject to economic fluctuations.<\/p>\n
Third, the lack of social insurance system. A social insurance
\nsystem may not be a formal one and provided by the government.
\nThe informal safety net system, provided by family or local
\ncommunity, has played a significant role as social insurance in
\nmay societies, including Indonesia.<\/p>\n
An empirical study by Suryahadi and Sumarto in 2001 reveals
\nthat the economic crisis has not only increased the poverty
\nincidence, but has also significantly increased the number of
\nIndonesian households with high vulnerability to poverty. The
\nnumber of poor households almost doubled from 1996 to 1999. This
\nis equivalent to about 27 million additional poor people during
\nthe period.<\/p>\n
However, the number of households which are statistically not
\npoor but face a relatively high probability of falling below
\npoverty line have increased from 13 million to 38 million. This
\nillustrates that the crisis has put households at risk of falling
\ninto poverty three times as much as before the crisis.<\/p>\n
One possible explanation for the increase in vulnerability is
\nthat during the crisis, many people have to withdraw their
\nsavings to compensate for their loss of regular earnings. When
\nthe amount of savings is smaller, these people had been more
\nexposed to any future economic shock. Another explanation is,
\nduring the crisis households have had to adjust their
\nexpenditure. Often they have had to sacrifice education and
\nhealth expenditure to compensate for basic needs. Consequently,
\nthe level of human capital in general decreased, making harder
\nfor many people to manage risk.<\/p>\n
As an implication, poverty alleviation strategy should not
\nfocus only on reducing the headcount poverty rate, or the
\npercentage of poor households to total population. Decreasing
\nheadcounts in the poverty rate may be a short-term objective. But
\nin the longer-run, policy objective should be to reduce the level
\nof vulnerability to poverty. In general, that degree of
\nvulnerability is higher for rural households, agricultural
\nworkers, women and those who completed lower than tertiary level
\nof education. This suggests the general characteristics of
\nvulnerable groups as the main target of a specific policy.<\/p>\n
We therefore need to establish a social insurance system. A
\ncomprehensive social insurance system includes three main
\ncomponents. The first is a formal social safety net to prevent a
\nhousehold fall far below the poverty line.<\/p>\n
Second, the unemployment and pension benefit as protection for
\npeople who are temporarily unemployed or who are no longer in the
\nlabor market.<\/p>\n
And third, policies to promote human capital, especially those
\nthat enhance access to education and health infrastructures.<\/p>",
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