Regions and Countries

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p. 4 of 33 BACK | NEXT I. Current Development Trends and Issues A. Political Setting B. Economic Growth C. Poverty D. Governance and Institutional Capacity E. Private Sector F. Gender Assessment G. Environment H. Regional Cooperation I. Development Constraints II. The Government's Development Strategy III. ADB's Development Experience IV. ADB's Strategy V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2006-2009 (Draft for Consultation): Indonesia : I. Current Development Trends and Issues

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C. Poverty

13. The ADB Country Poverty Analysis (CPA)¹¹ shows that the poverty incidence has returned to pre-crisis levels in 2004. Poverty increased dramatically from 17.6% to 23.4% of the population from 1996 to 1999, the peak years of the crisis (see Figure 3). By 2004, it was once again down to 16.7%. However, the magnitude of poverty is still very high at 36 million people, and a great deal more are vulnerable to poverty. Given that many people are clustered at the bottom of the income distribution, small changes in the poverty line can mean a substantial difference in the population identified as poor. In 2002 the population living below the international poverty line of $1/day (in 1993 purchasing power parity terms) was just 7.5%. In stark contrast, the population below $2/day was 52.4%. There is therefore a very large group of near-poor in Indonesia who are highly vulnerable to shocks at all levels – micro/household (such as an illness in the family), meso/local (for example a natural disaster), and macro/national (such as an increase in fuel prices). Unfortunately, shocks are all too common.

14. The Government’s Poverty Reduction Strategy Paper (PRSP) counts access to health, education, safe water, housing and sanitation services among 10 basic rights that remain unfulfilled for the poor. A lack of access to key basic services is thus among the causes of poverty in Indonesia. Poverty is also caused by a lack of economic opportunities, which is related to the lack of infrastructure in isolated areas with difficult geography and poor market linkages. This type of location poverty is common: nearly 1 out of 5 rural villages is inaccessible even by 4-wheel drive vehicles for part of the year. In sum, the causes of poverty in Indonesia can be summarized as a lack of access of 5 types of capital: human, physical, natural, financial, and social.

15. Poverty reduction is a major priority of the Government, as seen in the new targeted programs that were rapidly designed and implemented in 2005 under the PKPS-BBM program. On the policy side, while economic growth will always be an important driver of poverty reduction, human capital development (health and education) is now recognized as a key dimension in the rights-based approach enshrined in the PRSP. The PRSP was incorporated in its entirety into the Medium Term Development Plan 2004–2009. The stated objectives of the PRSP process were to (i) establish Indonesia’s commitment to poverty reduction, (ii) build consensus on poverty reduction issues, (iii) underscore commitment to achieving the MDGs, and (iv) synchronize poverty reduction activities. Poverty reduction strategies are becoming increasingly localized as local governments are encouraged to set up local poverty reduction committees and develop their own local poverty reduction strategies. Capacity development at the local government level will be key to their success. Most recently, the Government has announced that community-driven development (CDD)¹² and conditional cash transfer (CCT)¹³ programs would become the cornerstone of Indonesia’s poverty reduction efforts.

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