Indonesia's slow road to recovery

UNSFIR, Jakarta

Indonesia's 2004 National Human Development Report tracks the country's recovery following the financial crisis. It points out that Indonesia certainly made progress, and has now made up most of the ground lost after 1997. But economic growth is still slow, so regaining the former human development momentum will demand a new approach to public spending.

Indonesia's 2004 National Human Development Report, The economics of democracy, offers a new perspective on the country's recovery from the 1997 crisis. The report, which is a joint publication of the national planning agency (BAPPENAS), the Central Bureau of Statistics (BPS), and the United Nations Development Programme (UNDP), presents one of the most detailed statistical pictures yet of this diverse nation.

The report's primary statistic is Indonesia's human development index (HDI), a composite measure of income, life expectancy and educational achievement that takes a value between 1 and 100. The global human development report, which is produced by UNDP in New York, has also calculated this index for Indonesia annually and has indicated consistent progress from 47 in 1975 to 68 by 2001 -- and suggests little or no effects from the 1997 crisis. However, the global report uses a measure of national income that is relatively insensitive to changes in the circumstances of the poorest people -- using national accounts data to estimate the country's gross domestic product (GDP) which is divided by the total population to give the per capita income.

The National Human Development Report, on the other hand, estimates income by using household surveys which tend to be more responsive to the income of the poorest groups. This is the approach that BPS has used since 1990, and it shows far greater fluctuations in the HDI. In 1996 the HDI had reached 69, by 1999 however it had dropped back to 64 -- largely due to the effects of the crisis but also because from that year BPS changed the way in which it estimated household income.

Using data for 2002, the 2004 National Human Development Report shows a rise in the HDI to 66. It may appear from this that the country's level of human development is still below that of 1996 but the remaining gap is largely due to the change in the method of calculation; in fact all the component indicators of the HDI are now higher than they were in 1996, particularly those for income and literacy, so the real story is of an improvement but a very modest one -- and nothing like what might have been expected without the 1999 crisis.

As the report also points out, however, even the HDI gives only a very partial view of human development. Like any index which reduces a complex concept to a single number it misses many important components of development. It does not, for example, factor in such issues as social or political freedom.

On this basis, Indonesia has made dramatic gains, moving from a crony-based dictatorship to a much more open democracy -- which has not just resulted in two successful national elections but also encouraged a diverse and flourishing media along with a multitude of non-governmental organizations. The HDI does not reflect this -- probably one of its greatest flaws as a measure of human development.

While in 2002 the average HDI for the whole country was 66 the values among the provinces ranged from Jakarta (76) and Yogyakarta (71) to Papua (60) and West Nusatenggara (58). Even greater, however, were the differences between districts. The highest value was in East Jakarta (76) and the lowest was in the Papua district of Jayawijaya (47). Just as striking, however, was the comparison between districts in the same province. In East Java, for example, while the city of Surabaya had a HDI of 72 and the district of Sampang on the island of Madura, only 90 kilometers away, had a HDI of just 50.

Just as there are variations in the HDI across the country, there are also differences in the rates of improvement. Between 1999 and 2002, most districts made some progress; however 18 districts saw a fall in their HDIs. Most of the weaker, declining regions are in Papua and the Malukus. In Papua, the main reasons for this have been deteriorations in education and income. In the Malukus, they have been the result of declines in life expectancy and real income that can be related to social conflict.

As well as giving the latest figures on human development, the report also tracks changes in levels of income poverty. Since the height of the crisis in 1999 the proportion of people living below the poverty line had by 2002 fallen back to 18 percent. But low income is only one part of the poverty picture; people may be deprived in many other ways, beyond having insufficient income.

They may lack education, for example, or be in poor health, or live in an unsafe and insecure environment -- and generally lack opportunities to expand their capabilities. The report tracks this using the human poverty index (HPI) another composite measure -- this time of deprivation in health, nutrition, education and access to safe water and sanitation.

Here too there has been progress: Between 1999 and 2002 the HPI fell from 25.2 percent to 22.7 percent -- much smaller than the drop in income poverty because the components of the HPI are less susceptible to short-term fluctuations than the income poverty index which is sensitive to both incomes and prices which tend to be more volatile.

The HDI and the HPI reflect the situation for the population as a whole. But since the situation of women is frequently worse than that of men, UNDP has also produced two additional measures. One is the gender-related development index. If there were no gender discrimination then the GDI would be the same as the HDI.

In fact in 2002 while the HDI was 66 the GDI was only 59 largely because women had fewer years of schooling and had a smaller share of earned income. The second index is the gender empowerment measure (GEM) which measures women's representation in parliament and in managerial roles. In this case there has been a slight improvement in recent years -- and Indonesia has a higher GEM than other countries in the region, including the Philippines, Malaysia, Japan, Thailand, and the Republic of Korea. Nevertheless the report points out that Indonesia still has a long way to go.