Why the poor are still poor<\/p>\n
The following is the first of two articles on an assessment of
\npoverty in Indonesia by Poppy Ismalina, a researcher and lecturer
\non economics at the Yogyakarta-based Gadjah Mada University.<\/p>\n
JAKARTA (JP): When the government, dubbed the \"Reform Order\",
\nunder Abdurrahman Wahid (Gus Dur) and Megawati Soekarnoputri came
\nto power, the economy was in considerable disrepair.<\/p>\n
With the onset of the financial and banking sector crisis in
\nmid 1997, Indonesia's fortunes were reversed. The crisis which
\nquickly spilled over into the real sector led to a substantial
\nincrease in poverty.<\/p>\n
As stated in a World Bank working paper, when a macroeconomic
\ncrisis hits, there are several channels through which its impacts
\nare felt by households. These can be traced to the different
\nsources of household income -- wages, salaries, and self-
\nemployment incomes; returns on physical assets; and the receipt
\nof public transfers -- and to the prices a household faces when
\npurchasing goods and services.<\/p>\n
The government has tried to recover the economy by undertaking
\nboth prompt macro-economic adjustment measures and structural
\nreforms.<\/p>\n
The government has also implemented a series of programs,
\nknown as the Social Safety Net (JPS) programs. Such programs are
\ndesigned to provide short term support for the poor during the
\neconomic crisis. The program specifically aims to provide food-
\nsecurity, maintain incomes through employment creation and
\npreserve access to health and educational services.<\/p>\n
Surprisingly, there is evidence that poverty declined in
\nAugust 1999 to 11.3 per cent, as quoted in a report this year by
\nthe Asia Development Bank. The poor decreased from 41.6 million
\npeople in February 1999 to 23.3 million people in August 1999.<\/p>\n
However, the effect has been uneven between sectors and
\nregions. In the process, either some individuals or certain
\nregions advanced more quickly than others, while traditional
\nsupport such as from families, especially for the poor, may have
\nceased to be effective.<\/p>\n
Moreover, the above figure of the poor does not include
\nworkers from manufacturing sectors receiving minimum wages as
\nmuch as Rp 6,000 a day, although workers in this sector had
\nreached more than 11 million by 1998.<\/p>\n
Given the continued problem of poverty, which has been blamed
\nfor contributing to violent outbursts, a key challenge to the new
\ngovernment is designing a program to further reduce poverty and
\nto attain more balanced regional development.<\/p>\n
Here a special study which assesses the government policies
\nand programs of reducing poverty is needed.<\/p>\n
While poverty is still largely a rural phenomenon, it is
\nbecoming more prominent in urban areas given accelerating rates
\nof rural to urban migration, and high fertility in urban poor
\nhouseholds.<\/p>\n
Before the crisis, the decline in poverty was particularly
\nmarked in rural areas. Whereas 44.2 million poor people lived in
\nthese areas in 1976, by 1996 this number had fallen to 15.3
\nmillion, according to the 2000 ADB Poverty Assessment report.<\/p>\n
The decline in urban areas was less dramatic. In 1976, the
\npoor people living in these areas was 10 million, while there
\nwere 7.2 million in 1996.<\/p>\n
However, the urban population has been growing more rapidly
\nthan the rural population over these years; so the decline in the
\nabsolute numbers living in poverty has been much slower in urban
\nareas, and the urban poor accounted for almost one-third of the
\ntotal poor by 1987.<\/p>\n
The effect of the crisis is reflected in the increase of the
\npoor from 1996 -- when the figure was 22.5 million -- to 1998,
\nwhen it rose to 34.2 million people.<\/p>\n
Nevertheless, the number decreased significantly in August
\n1999 to 23.3 million people. The effect of the crisis has
\ndiffered across regions.<\/p>\n
In the national Susenas survey of 1999, the sub-sample studied
\nfrom February 1999 showed a larger increase in poverty in urban
\nareas than in rural areas.<\/p>\n
In rural areas, from 1996 to 1998, the percentage of people
\nwho lived in poverty increased from 12.3 per cent to 17.64 per
\ncent, whereas in urban areas, during the same periods, the
\npercentage of poor people rose from 9.71 per cent to 15.35 per
\ncent.<\/p>\n
The New Order regime adopted policies which were neither
\nspecifically designed for the poor nor to reduce poverty.<\/p>\n
Policies designed for specific purposes had implications for
\npolicy goals outside their immediate environments.<\/p>\n
This was as true for macro-economic policy as for other
\npolicies. Macro-economic policy was usually directed at price
\nstability, full employment, exchange rate stability, credibility
\nin foreign debt obligations, and so on.<\/p>\n
The policies designed to achieve these objectives had
\nimplications for poverty, but normally their influence on poverty
\nwas incidental, and poverty alleviation was not a priority in
\nmacro-economic policy.<\/p>\n
The trickle down mechanism, which assumed that the poor would
\nin time get some benefits, did not work as expected, even though
\nemployment growth had averaged 2.5 percent annually since the
\nmid-1980s, when deregulation and other structural reform measures
\nstarted.<\/p>\n
The effectiveness of the trickle down effect heavily relies on
\na structure of taxation and allocation of government budget.
\nYet the government only undertook a serious attempt to introduce
\na progressive structure of taxation since in the mid 1980s.<\/p>\n
Budget allocation for rudimentary social services like primary
\neducation or basic health care were usually somewhat \"pro-poor\",
\nbut distribution of benefits of public spending for higher
\neducation and expensive medical care was likely to be much more
\nregressive, as a 1993 World Bank study showed.<\/p>",
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