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Under SBY, Indonesia grapples with the issue of poverty

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In Brief

Recent years have seen Indonesia achieve significant political reforms with consequent international recognition. A lesser known achievement of the Susilo Bambang Yudhoyono (SBY) administration has been its concerted efforts to reduce poverty and disadvantage.

This quiet revolution has immense significance for future generations, providing a counterweight to Indonesia’s frequent natural disasters and their debilitating effects for the poor.


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Consequently, the 2010 Indonesia Update conference) takes as its theme ‘Employment, Living Standards and Poverty in Contemporary Indonesia’.

There are big challenges for tackling both the ‘hard core poor’ (those people little touched by development programs), as well as mass poverty. Given per capita incomes of around US$1000, those below the national poverty line (around $1.50 a day) account for around 13-15 per cent of the population. Many more are vulnerable to minor shocks, let alone major disruptions such as the GFC. Nearly half of the population survive below a $2 a day international standard and are likely to remain vulnerable for some time, given less–than-stellar economic growth rates (recently 4-6 per cent p.a.). By contrast, higher growth rates reduced mass poverty significantly under Soeharto.

The task is daunting. Indonesia lags well behind China on a range of welfare indicators. Even countries with lower per capita incomes, such as Vietnam, are now ahead on many basic measures of poverty; Indonesia’s maternal mortality rate of around 300 per 100,000 live births is still amongst the world’s highest.

It is promising then, that innovative, direct approaches to alleviating poverty having their genesis in the Asian Financial Crisis (AFC) of 1998, are being rolled out. Under Soeharto, the main focus was on growth and the national spread of infrastructure, education and health. Crisis management during the AFC sought to deliver free and subsidised food, medicines and school facilities direct to the poor, even if somewhat haphazardly.

These crisis-staving efforts have created a second generation of policies as attention moves to the supply side. The second-generation programs have ensured services are able to meet newly subsidised demand from the poor. They include compensatory cash handouts, and have involved the decentralisation of rural infrastructure and the giving of micro credit to sub-districts throughout the country, under the national community empowerment program. Wasteful free health services and schooling subsidies for the poor have been renovated.

Drawing on international experience (and with some support from international agencies, such as the World Bank and AusAID), Indonesia is now introducing a third phase of ‘conditional’ cash transfers (CCT) aimed especially at hard core poverty. This scheme makes cash handouts to the poorest households (with greater female participation) conditional on their children continuing to participate at school, and also depends upon their making regular use of basic health care services.

While CCT are still in their infancy, they are already in operation in over half of all provinces and a fifth of all districts. CCT are placing greater pressure on habitually recalcitrant district governments, who are now responsible for the bulk of spending. These councils have been forced to allocate more funds for social development.

The central government has further committed 20 per cent of the total budget to education, and has made significant steps forward in participation in secondary schooling, after universal primary attendance had all but been achieved a decade earlier. Both this and the rural infrastructure programs target mass poverty more broadly.

There are some major problems. ‘Leakages’ occur at low but damaging rates. Because of Indonesia’s historically dismal performance in rural infrastructure, cost of delivery and access are high. The quality of services remains a major issue. And the plight of the poor in small island communities, such as Maluku, or in isolated villages in the highlands of Papua, remains deeply problematic. Paradoxically, the province with the highest rate of poverty (over 30 per cent) is resource rich Papua.

A final difficulty relates to ensuring cheap rice in periods of national food scarcity. Such periods are a recurring problem following the AFC. There is a high level of distrust in some political circles of a policy framework that guarantees systematic recourse to imports of rice in times of need. In this context, current trends towards rising global food prices once again augur badly for the poor in Indonesia.

Nevertheless, despite muddle-headedness over the importance of low rice prices for the poor, the new approaches appear broadly successful. Poverty rates declined in almost all provinces for the third year in a row to just over 13 per cent, according to the national yardstick. This is a far greater fall than in earlier in the decade. Targeting has also improved, with programs directed at the poor attaining success rates of frequently over 50 per cent. A concerted effort is now being made to improve program success by establishing a unified database and a national targeting system.

Support from the top is crucial. The recent creation of the National Team for Poverty Reduction chaired by the Vice-President is an indication of the government’s determination. Unlike other hotly contested areas of public policy, there is a widespread consensus to move forward on poverty programs, with strong Presidential support.

Chris Manning is Joint Head of the Indonesia Project at the ANU.

The 28th Indonesia Update Conference on ‘Employment, Living Standards and Poverty in Contemporary Indonesia’ will run on September 24-25 at the ANU.

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