Indonesia - Poverty and wealth

At independence, Indonesia was an extremely poor country, and it was not until after the change in governments in 1965 that any progress was made in lowering the rate of poverty. In the 2 decades prior to 1996, Indonesia saw consistent growth, with the official poverty rate falling from 60 percent to 15 percent. However, not all groups and regions have benefitted equally, and Indonesia has a highly uneven distribution of income. The poorest fifth account for just 8 percent of consumption, while the richest fifth account for 45 percent. Average income today is about US$650 a year.

GDP per Capita (US$)
Country 1975 1980 1985 1990 1998
Indonesia 385 504 603 778 972
United States 19,364 21,529 23,200 25,363 29,683
China 138 168 261 349 727
Malaysia 1,750 2,348 2,644 3,164 4,251
SOURCE: United Nations. Human Development Report 2000; Trends in human development and per capita income.

Poverty rates have always been higher in the outer islands. The rise of manufacturing disproportionately benefitted Java, Bali, and Sumatra due to the better infrastructure of the inner islands. Economic disparity and the flow of natural resource profits to Jakarta has led to dissatisfaction and even contributed to separatist movements in areas such as Aceh and Papua (Irian Jaya). While the new laws on decentralization (moving more economic and political decision-making to the outer islands) may partially address the problem of unequal growth and satisfaction, there are many obstacles to putting this new policy into practice.

The financial crisis of 1997 had social ramifications by reversing many of the income-distribution gains made over the previous decades. Though the enormous informal economy and family-support networks helped soften the impact of higher unemployment rates, social effects were nonetheless profound. In a few parts of the outer islands, the devaluation meant higher prices abroad for export crops such as cloves, nutmeg, cocoa, and vanilla, but overall, Indonesians suffered from rising poverty, surging unemployment, reduced schooling and public services, worsening health and nutrition, more crime and violence, and increased social stress and fragmentation. While some 15 percent of the population was below the poverty line before the crisis, an additional 40 million

Distribution of Income or Consumption by Percentage Share: Indonesia
Lowest 10% 3.6
Lowest 20% 8.0
Second 20% 11.3
Third 20% 15.1
Fourth 20% 20.8
Highest 20% 44.9
Highest 10% 30.3
Survey year: 1996
Note: This information refers to income shares by percentiles of the population and is ranked by per capita income.
SOURCE: 2000 World Development Indicators [CD-ROM].

Household Consumption in PPP Terms
Country All food Clothing and footwear Fuel and power a Health care b Education b Transport & Communications Other
Indonesia 47 3 6 5 14 3 22
United States 13 9 9 4 6 8 51
China N/A N/A N/A N/A N/A N/A N/A
Malaysia N/A N/A N/A N/A N/A N/A N/A
Data represent percentage of consumption in PPP terms.
a Excludes energy used for transport.
b Includes government and private expenditures.
SOURCE: World Bank. World Development Indicators 2000.

people (20 percent of the population) may have since fallen into poverty.

Inflation has been a particular burden to Indonesia's poorest citizens. During the late 1990s, the price of rice, the staple food for most people, leapt from Rp1,000 per kilogram to Rp5,000. In 1998 the Ministry for Food and Horticulture estimated that about 80 million individuals were facing food shortages. In Central and East Java alone over 30 million people were able to afford only 1 meal per day. Eastern Indonesia, hard hit by drought as well as economic problems, experienced widespread famine. Due to the rising costs of imports, medicine ran short and prices doubled or tripled. The International Labor Organization estimated that the number of Indonesians using public health services would double in 1998, to 68 percent of the population, even as the government was under pressure to spend less money on such health-related public services. It was reported in the press that the number of women dying in childbirth shot up from 22,000 per million to 35,000 per million in the space of 1 year, due to the lack of money to transport women to health facilities and to increased anemia levels in pregnant women.

In 1998 education accounted for 14 percent of household expenditures. Rising school costs and falling family incomes forced many poor students to drop out of school. Roughly 5 percent of students did so in 1999 alone, according to official estimates. Enrollments in junior high schools in Jakarta declined disproportionately in the case of girls (19 percent), as did enrollment in poorer rural areas. In July 1998 the government launched a scholarship program for the poorest students. However, to help pay for this program it had to cut funding for high schools and colleges.

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