Dewi Rahmawati Nur Aulia

Researcher of Social Affairs at The Indonesian Institute, Center for Public Policy Research (TII)

Overview of Poverty Data in Indonesia

After the COVID-19 pandemic faced the world, Indonesia became one of the countries that struggled to recover its economy. This is important due to the fact that pandemic has a very significant impact on the increase in the relative poverty rate that occurs in almost all levels of society.

In 2023, the World Bank has noted that 40% of Indonesia’s population will fall into the poor category. According to Finance Minister Sri Mulyani Indrawati, the World Bank’s poverty line calculation model through the purchasing power parity (PPP) measure will make people fall into a new type of poverty standard, namely poverty and extreme poverty (cnbcindonesia.com, 10/5/2023). According to the World Bank, the standard poverty measurement, namely purchasing power parity (PPP), is calculated below US$1.9 per day (cnbcindonesia.com, 10/5/2023).

Data released by the Central Statistics Agency (Badan Pusat Statistik/BPS) shows that the percentage of poor people in March 2023 was 9.36 percent, a decrease of 0.21 percentage points against September 2022 and a decrease of 0.18 percentage points against March 2022, which means that the number of poor people in March 2023 was 25.90 million people, a decrease of 0.46 million people against September 2022, and a decrease of 0.26 million people against March 2022 (BPS, 2023).

In both data presented by those institutions, different measurement standards are used. BPS as an institution authorized by law to calculate and map the poverty rate in Indonesia calculates the poverty line using the basic needs fulfilment approach. The poverty line is measured based on the minimum expenditure or income to obtain (i) a certain amount of food to fulfill certain calorie needs; and (ii) minimum non-food expenditure to live properly (TNP2K.go.id, 2020). In contrast, the World Bank calculates the poverty line using purchasing power parity.

Furthermore, although poverty data shows a decline, according to the national survey by National Census Survey (Badan Pusat Statistik/BPS) eastern Indonesia regions such as Papua, West Papua, East Nusa Tenggara, and Gorontalo still occupy the highest percentage of the highest number of poor people in Indonesia (cnbcindonesia.com, 22/11/2023).

The Relationship between Income Inequality and Poverty

Inequality of income and poverty have an interrelated relationship. Income inequality in a region also reflects the amount of wages that people receive each month. The greater the range of community income earned in a region, the more it illustrates the level of the community’s ability to not only fulfill its basic needs but also to carry out its social role as an individual in society (well-being).

Based on the results of research conducted by Maskur, et al. (2023) on “The Effect of Income Inequality, Unemployment, and Human Development on Poverty in Indonesia for the 2017-2021 Period” using panel data regression analysis and secondary data sourced from the Central Statistics Agency and Transparency International, income inequality has a significant positive effect on poverty. In addition, the higher the income inequality that occurs among the population, the higher its implications for increasing the percentage of poor provinces in Indonesia.

The distribution of income is a reflection of the even or unequal level of income and this can be a major determinant of poverty. Poverty is determined by the average per capita expenditure of the population that is below the poverty line (Maskur, et al., 2023). Therefore, an increase in income inequality caused by a decrease in the level of labor income indirectly pulls the population group that initially had an average expenditure above the poverty line to an average expenditure below the poverty line.

McKay (in GSDRC, 2013) explains that inequality is related to the overall distribution of wealth.  In addition, inequality can be seen as over what, for whom, and over what period. Inequality is essentially a ‘relational difference’, a denial of the fair and equal enjoyment of rights, and the existence of unfair differences in value, status, dignity, and freedom. Inequality is not just about income, it can encompass all social aspects such as education, health or nutrition.

Stewart (in GSDRC, 2013) also mentioned that there are two types of inequality faced by individuals/society. These are vertical inequality and horizontal inequality. Vertical inequality is inequality among individuals and households that is focused on income or consumption, while horizontal inequality occurs among groups that share a common identity and often has dimensions of economic, social, political and cultural status. De Barros, et al. (in GSDRC, 2013) explained that the perspective of inequality can be seen in two forms, namely as a result of differences in education levels and as a result of differences in the background such as inequality of opportunities in obtaining economic/employment access.

In the measurement context, indicators of social and economic income inequality in Indonesia can be measured through the Multidimensional Poverty Index (MPI). The Multidimensional Poverty Index, used in the Human Development Report, measures acute global poverty by starting at the person or household level. The index measures overlapping deprivation using ten indicators in three dimensions (health, education and living standards) and summarizes an individual or household’s poverty profile with a weighted deprivation score. If more than three of the ten indicators fall below the relevant poverty threshold, they are identified as multidimensionally poor (in GSDRC, 2013).

Figure 1. Three dimensions of poverty with ten measurement Indicators

Source: Poverty and Equality, 2016.

The Prakarsa (in Economic Policy Working Paper 2013) assesses that in the context of MPI implementation in Indonesia, there are several indicators that can be modified and moderated. This is because the implementation of MPI in Indonesia has constraints on data and the fulfillment of indicator standards. Until now, the data used in calculating MPI in Indonesia is the National Socio-Economic Survey (Susenas) data conducted by the Central Statistics Agency (BPS). Several components of questions in Susenas lead to MPI and MDGs. Susenas is also an activity that is routinely carried out by BPS.

The Prakarsa as a research institute that examines the issue of multidimensional poverty, moderates the global measurement tool (MPI) by changing the nutrition indicator to child immunization in the health aspect and adding indicator elements, especially in the education aspect, namely the level of reading literacy (literacy).

The importance of moderating the global inequality measurement standard in the Indonesian context is due to the bias in the interpretation of these aspects to be implemented such as the concept of quality of life. Quality of life is not only shown in the indicators that have been listed (such as fuel for cooking, sanitation, clean water, sources of lighting, and the condition of the floor of the house). Quality of life can be translated as other forms of things that are acceptable despite living in deprivation such as the existence of a living environment, safety, comfort, ability to enjoy leisure time, personal social interaction, togetherness, gratitude, and others.

Analysis of Causes

The causes of multidimensional inequality, especially income, can stem from uneven development. Indonesia as an archipelago is not only surrounded by oceans and islands but also filled with various sources of social conflict vulnerability such as ethnicity, customs, culture, religion, and so on. For example, inequality of employment opportunities among people with disabilities. Based on data said by data.co.id in 2020, 28.37% of workers with disabilities decided to work alone and as many as 20.68% worked as laborers/employees/employees. Then as many as 18.76 percent were family workers, 5.36% percent worked in free agriculture, 3.96% worked in free non-agriculture and 3.08 percent workers trying to be assisted by permanent workers (Tempo.co.id, 22/12/2023). This shows that people with disabilities are still not part of the development process.       

Indonesia’s huge territory with demographics and abundant resources can encourage social envy and conflicts, especially in the distribution of natural resource management results. Indonesia’s large and diverse geographical area means that infrastructure development is relatively uneven. This situation will also be challenging for the community to carry out economic activities. The importance of physical infrastructure, in addition to stimulating economic activity, is also an initial capital resources to provide community services in other fields such as health and education.

Furthermore, the different geographical structures and sources of welfare in Indonesia have an important impact on the inequality. For example, coastal communities with access to welfare sourced from marine products will certainly be different from plantation communities that depend on plantation products for their livelihoods, including the management of their resources. Therefore, although the geographical structure of Indonesia is diverse, improving the quality of human resources through health and education is essential.

The Socio-Economic Inequality Study in the Coastal Area of Labakkang District, Pangkep Regency by Muhammad Rizal Rahman, et al. (2020) states that there is a moderate level of inequality in Pundata Baji Village. The results of this study state that there is an income gap between people living in coastal areas. Meanwhile, the development of coastal areas on the socio-economic conditions of the community is influenced by educational factors and infrastructure facilities. The policy of developing facilities by the Regional Government of Pangkep Regency greatly impacts or influences children to attend school. The improvement of education facilities greatly contributes to the improvement of education in Pangkep Regency by supporting community welfare through the education of their children. The improvement of education facilities in coastal areas in Pundata Baji Village also has a strong influence on the community to continue higher education.

The results of this study can explain that although the socioeconomic conditions of coastal communities are income inequality, it does not make the children of the coastal areas lag behind, especially in obtaining the results of education in the region. The development strategy used by the government through educational facilities has succeeded in increasing the number of children living in the area to be able to continue their education to a higher level.

Economic Growth Strategies and Inclusive Alleviation Programmes to Reduce Income Gaps

Income inequality and multidimensional poverty can be addressed by using an inclusive development strategy (Penabulu.org.id,22/12/2023). According to Kim Eric Bettcher,  related to economic context,  an inclusive economy refers to equal opportunities for every member of society to access opportunities to engage and participate in the economic activities of a country, whether in the capacity as workers, entrepreneurs, consumers or as ordinary members of society. All individuals from different social strata should have the opportunity to participate in economic activity and reap the benefits of their participation. Fundamentally, the characteristics of inclusion   

require unfettered access to markets, resources and opportunities (Sudarmono et al, 2021).

This is an approach to economic development that involves the participation of all parties in order to include interests of all parties related to the policy issues. An inclusive development approach strategy is also part of the principles of good governance. The implementation of this approach can also increase the legitimacy of the policymakers and the policies that are produced through the participatory processes.

This development paradigm considers that all individuals in society regardless of background (children, adults, race, religion, disability, including other marginalized groups) can equally contribute to increasing economic growth according to their potential. This development approach optimizes the potential of the community with all its limitations and aims to reduce the number of poor people through employment opportunities, access to economic opportunities, and obtaining social safety nets. This community-based development creates a community that can be empowered independently.

There are several community-based development good practices in Indonesia. For example, Paras Taro stone craftsmen in Bali are thanks to BRI’s Empowerment Programme (Republika.co.id, 22/12/2023).  In this community of Taro Paras Stone craftsmen, can certainly grow on the initiation of the community assisted by the government through the form of capital and business assistance which eventually developed.

The strategy of economic growth through empowerment program activities can be a powerful means of getting out of the situation of poverty, ignorance, and backwardness towards a situation that can increase the degree of a better standard of living (prosperous) together. In addition, in this context, the community places a position as an actor/manager of development and involves little intervention from other parties such as non-governmental organizations and the government (Hart, 2013). The task of the government and institutions is to a facilitator who only encourages, motivates, and raises the awareness of the community to be able to help themselves in realizing self-reliance (Nam & Pardo, 2011).  By positioning the community as actors, it is ideally expected that the community economy can grow and develop and can stand on its own feet.

To conclude, an inclusive development approach and good governance principles are crucial to support effort to address income inequality and alleviate poverty. This strategy is also important to promote rights-based development which is participatory, empowering, accountable, transparent as well as impactful in achieving development goals in Indonesia.

References

Ebook

Hart, R. A. (2013). Children’s participation: The theory and practice of involving young citizens in community development and environmental care. Routledge.

Nam, T., & Pardo, T. A. (2011). Conceptualizing smart city with dimensions of technology, people, and institutions. In Proceedings of the 12th annual international digital government research conference: digital government innovation in challenging times (pp. 282-291). ACM.

Sudarmono et al. (2021). Inclusive Economic Development in Indonesia: Opportunities and Challenges. Putra Surya Santosa.

Journals and Reports

Adji Ardi, et al. (2020). Poverty Line Measurement in Indonesia: A Theoretical Review and Proposed Improvements. National Team for the Acceleration of Poverty Reduction. Accessed on 15 December 2023 at 10.00 WIB from https://www.tnp2k.go.id

Maskur et al. (2023). The Effect of Income Inequality, Unemployment and Human Development on Poverty in Indonesia in the Period 2017-2021. Journal of Economic Development Progress (JPEP), Volume 8, Number 1 of 2023. Page: 82-95. e-ISSN: 2052-5171

Rohwerder, B. (2016). Poverty and Inequality: Topic guide. Birmingham, UK: GSDRC, University of Birmingham.

Budiantor, Setyo et al. (2013). Multidimensional Poverty Index (MPI): Concept and Measurement in Indonesia. Perkumpulan Prakarsa.

Rahman, Muhammad Rizal. (2020). Study of Social Economic Inequality in Coastal Area of Labakkang District Pangkep Regency. ISSN 2656-8705URSJ 2(2): 46-53,Juni 2020

Websites

BPS. (2023). “Poverty Profile in Indonesia March 2023”. Accessed on 15 December 2023, at 10.00 WIB from https://www.bps.go.id/id/pressrelease/2023/07/17/2016/profil-kemiskinan-di-indonesia-maret-2023.html.

Rachman, Arrijal (2023). “40% of Indonesian People Become Poor, Here’s the World Bank’s New Calculation!”. Accessed on 15 December 2023, at 10.00 WIB, from https://www.cnbcindonesia.com/news/20230510062952-4-435987/40-orang-ri-jadi-miskin-begini-hitungan-baru-bank-dunia.

Putri, Aulia Mutiara, (2023). “10 Poorest Provinces Dominated by Eastern Region, Papua Number 1”. Accessed 22 December 2023 at 10.00 WIB from https://www.cnbcindonesia.com/research/20230815120846-128-463069/10-provinsi-termiskin-didominasi-wilayah-timur-papua-nomor-1.

Never okay project. (2022). “Disability labour discrimination”. Accessed on 22 December 2023, at 15.00 WIB from https://koran.tempo.co/read/info-tempo/476403/diskriminasi-pekerja-disabilitas.

Amanda, Gita. (2023).”Paras Taro Stone Crafters Cluster in Bali is Growing Thanks to BRI Empowerment”. Accessed on 22 December 2023, at 16.00 WIB from https://ekonomi.republika.co.id/berita/s50x04423/klaster-perajin-batu-paras-taro-di-bali-semakin-berkembang-berkat-pemberdayaan-bri

Penabulu.org.id. (2023)”Inclusive Development”. Accessed on 22 December 2023, at 15.00 WIB from https://penabulufoundation.org/pembangunan-inklusif/