Trends in Poverty and Inequality in

Decentralising Indonesia
Riyana Miranti, Yogi Vidyattama, Erick Hansnata,

Rebecca Cassells and Alan Duncan

NATSEM, University of Canberra

Presentation to the Working Party on Social Policy Meeting,

OECD, Paris 29-30 November 2012

Acknowledgement

Dr Michael Forster, Dr Ana Llena-Nozal and Laura Quintin of the

OECD who has invited me and arranged my visit here and also
Michael and Ana and other OECD staff for their useful and
extensive feedback on this report.

Research Reference Groups useful feedback and comments, Dr

Sonny Harmadi from the Demographic Institute, University of
Indonesia, Dr Evi Arifin from ISEAS, Singapore and Dr Asep
Suryahadi from SMERU Research Institute, Indonesia.
My acknowledgement also goes to my co-authors who are not
here today.
Framework of the Presentation Today
Map of Indonesia
Decentralisation in Indonesia
Economic and Employment Indicators
Indonesia vs other Countries
Trends in Poverty and Inequality
Regional Disparity
Characteristics of People Vulnerable to Poverty
New Estimates of GEP and IEP
Conclusion and Summary
Map of Indonesia

Kalimantan Papua and

Maluku

Sumatra
Sulawesi

Java

Australia

Source: ArcGIS Map Service, World_Topo_Map, http://services.arcgisonline.com/arcgis/services and CV. SPATIAL DIGITAL
MAPPING, Peta Dasar Indonesia, http://spatial-mapping.blogspot.com.au/2011/12/download-peta-dasar-indonesia.html
Decentralisation in Indonesia

Big bang decentralisation

Substantial delegation of authority from the central to
local/regional government
Decentralisation Laws No 22/1999 and 25/1999
Crucial context in terms of poverty and inequality discussion
Some consequences: inspiration to form their own regional
area and therefore create several new Provinces and Districts.
In 2010 there were 33 provinces in Indonesia from a previous
26 and 491 Districts from a previous 293.
 Macro Indicators Decentralisation (1)
growth in sectoral GDP
Prior to Crisis Recovery Early Stage Full Entire
the Period Period Decentralisation Implementation Decentralisation
crisis (1997- (1999-2002) (2001-2004) (2005-2010) period (2001-
(1990- 1998) 2010)
1996)

7.2 -13.1 4.0 4.8 5.7 5.4

GDP
5.3 -14.3 2.5 3.0 4.1 3.7
GDP per capita
9.9 -11.4 4.2 5.7 3.9 4.6
Manufacturing GDP
3.9 -1.3 1.9 3.4 3.7 3.5
Agriculture GDP
5.2 -2.8 3.1 -1.6 2.4 1.1
Mining GDP
8.8 -3.8 2.5 4.5 6.3 5.6
Service GDP

Economic growth lower during the decentralisation period

Agricultural growth relatively stable, prior and after the crisis
while service sector grew the strongest compared to the other
sectors after the crisis.
 Employment Indicators Decentralisation (2)
growth and shares in employment by sector
Agriculture, Forestry & Manufacturing Services
Growth episodes Fisheries
Employment Average Share Employment Average Share Employment Average Share
Growth of Total Growth (per of Total Growth (%p.a.) of Total
(per cent Employment cent p.a.) Employment (per Employment
p.a.) (per cent p.a.) cent p.a.) (per cent p.a.)

Prior to the crisis -1.9 49.6 5.8 11.6 5.9 34.1

(1990-1996)

Crisis Period 6.4 41.9 -12.9 11.9 -0.4 39.8

(1997-1998)

Recovery Period 1.9 44.1 1.7 13.1 -1.2 37.6

(1999-2002)

Early Stage 0.7 44.4 -2.9 12.6 2.3

Decentralisation
37.2
(2001-2004)
Full Implementation
(2005-2010) -0.2 40.9 3.5 12.4 4.8 40.2

Entire Decentralisation
period 0.5 42.3 1.5 12.5 3.3 39.0
(2001-2010)
Indonesia vs EEs and ASEAN countries

Poverty rate at $1.25 a day (PPP) (% of population)

80 Poverty rate at $2 a day (PPP) (% of population) 70
70 Gini index 68.7
60
60
50

Gini Inequality Index

53.3
Poverty rate (%)

50 46.1
43.4 40
40
29.8
32.7 31.3 30
30
22.8
20
20 18.1 16.9
13.1 13.8
10.8
10 6.1
10
4.6
0.9 1.9 0.0 0.1 0.4
0 0
Argentina

Brazil*

Cambodia**

China**

India

Indonesia

Federation *

South Africa *

Thailand*

Vietnam**
Russian
Trends in poverty official BPS data

Total Rural Urban

Revised Total Revised Rural Revised Urban
45

Early stage
40

Full implementation
35
30
Per cent

25.7
25
24.2
20 21.9

15 16.6
13.3
10 9.9
5
0
1976
1978
1980
1981
1984
1987
1990
1993
1996
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year

Overall poverty rate have been decreasing

More gradual decline in terms of poverty rate during the decentralisation
period than prior to the crisis
There is gap between rural and urban over time.
Trends in Inequality
Gini Coefficient
Urban Rural Total
0.40
0.37 0.38
0.35 0.37 0.37
0.33 0.34 0.35 0.32
0.30 0.33 0.32 0.31 0.30 0.30 0.29
0.28
Gini Coefficient

0.25 0.26
0.29 0.25
0.20 0.24 0.24
0.15
0.10
0.05
0.00
1999 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year

A general pattern of rising inequality over the last decade

Rural inequality lower than urban inequality reflecting large
increases in urban populations in recent years
Regional Disparity Poverty Rates (%)
Regional Poverty Number of Poor (000s)
Characteristics of People Vulnerable to Poverty
selected indicators
Labour force participation rates for persons aged 15-64 years
are very similar across the distribution.
Almost 60 per cent in the bottom quintile work in the primary
sector of agriculture and related industries. This contrasts to
only 12 per cent in the top quintile.
Only 18 per cent in bottom quintile work as formal
employment compared with almost 56 per cent in the top
quintile.
This suggest that poverty risks depend less on whether an
individual work or not but rather in what industry and
whether the person work in formal employment
Educational attainment still varies with many adults in the
bottom and second quintiles not having any education.
Estimating the Impact of Consumption Growth and
Inequality on Poverty during Decentralisation Period

To explore the direction and strength of associations between

poverty, inequality and growth over the main development
periods in Indonesia.
Extending previous work (Miranti 2007; 2010) now 2002-
2010
Examines the consumption growth elasticity of poverty during
the fourth major decentralisation period, again taking into
account changes in inequality.
Has the decentralisation period been pro-poor? To what
degree has the change in the degree of inequality offset the
alleviating impact of growth in consumption on poverty?
Estimation Results:
Consumption Growth and Inequality Elasticity of Poverty in
Indonesia

Period GEP IEP

First liberalisation period (1984-1990) -2.00 0.50

Second liberalisation period (1993-1996) -2.33 0.93

Recovery period (1999-2002) -2.29 0.92

Decentralisation period (2002-2010) -2.46 1.13

All periods (average) -2.28 0.86

Quantifying the Contribution to Poverty Change

Total poverty
Contribution to poverty change
change (percentage (percentage
Period points ) points)
Inequality
Growth Change
First liberalisation period
-3.54 -0.61 -4.15
(1984-1990)
Second liberalisation period
0.54 0.79 1.33
(1993-1996)

Recovery period (1999-2002) -4.84 0.99 -3.85

Decentralisation period
-5.71 1.88 -3.83
(2002-2010)
All periods (average) -13.55 3.05 -10.50
Conclusion and Summary
Decentralisation brought significant change in the Indonesian
political structure and consequently economic and social
development of the nation.
Continued improved performance in terms of poverty rate
however inequality increases
Poverty risks depend on what industry a person works and
whether the person work in formal employment
Regional disparities are still a major issue
New estimates of GEP and IEP in this report suggest that rising
inequality has been strengthening the offsetting positive
benefit of consumption growth on poverty.
 Terimakasih (Merci)

riyana.miranti@natsem.canberra.edu.au
Alternative Wellbeing Indicators
Human Development Index (HDI)

0.8

0.7
0.598 0.607 0.613
0.572 0.579 0.591
0.6
0.527 0.543
0.5
Global HDI

0.4

0.3

0.2

0.1

0
1995 2000 2005 2006 2007 2008 2009 2010
Year
Indonesia Medium human development East Asia and the Pacific World
Alternative Wellbeing Indicators
Selected MDGs, Areas of Concern

17
Population proportion consuming below 1400 kcal/capita/day 14
9
64
Population proportion consuming below 2000 kcal/capita/day 62
35
39
Maternal Mortality Ratio (per 10,000 live births) 23
10
47
Contraceptive use: married women aged 15-49 (per cent) 57
0
38
Household access to improved water sources (per cent) 48
69
51
Improved water access - urban 50
75
32
Improved water access - rural 46
66
25
Households access to basic sanitation: total (per cent) 51
62
54
Improved sanitation: urban 70
77
11
Improved sanitation: rural 34
56
21
Proportion of urban population living in slums 12
6
0 20 40 60 80 100
Baseline Latest data MDGs Target 2015
Clusters of Poverty Reduction Strategy
Government Strategy in Poverty Alleviation
(Central Social Assistance (SA) Expenditures)

Cluster II : Cluster I : Cluster III :

Community Empowerment Basic Needs and Social Protection Microfinance

National Program for Microcredit /

Rice to the Poor
Community Development Kredit Usaha
(Raskin)
(PNPM Mandiri) Kecil (KUR)

Health Service and

Insurance (Jamkesmas)

Education and School

Assitance (BOS & BSM)

Family Hope Program

(PKH)
Issues and Challenges
Mistargeting issue remain as a major challenge for government
authorities to make the programs more effective and thus accelerate
poverty reduction. For example, RASKIN

Proportion of household
recipient by quintile Distribution across quintiles
Targeting (per cent) (per cent)
Quintile 1 (most disadvantage) 80.6 30.4
Quintile 2 72.4 27.3
Quintile 3 58.8 22.2
Quintile 4 38.8 14.6
Quintile 5 (least disadvantage) 14.7 5.5
Total 53.1 100

Access to the program sometimes too limited - costs to access the services
are too high for people in rural areas

Supply side constraints such as inadequate service provision and perceived

low service quality.