The Two Main Causes of Poverty in Indonesia and the Need for Further Progress

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JAKARTA — Indonesia is one of several developing countries that achieved remarkable economic growth after escaping from colonial rule at the end of the World War II. Under Suharto’s government, which ruled from the mid-1960s to 1996, the country experienced a significant decline in poverty and growth in GDP. Nevertheless, approximately 10.9 percent of the population still lives below the poverty line, amounting to almost 26 million.

Moreover, the national poverty line defined by the Indonesian government is a monthly per capita income of only $26.60, which is noticeably low even by Indonesian standards. If Indonesia applies the poverty threshold set by the World Bank, which is $1.25 per day, the percentage is likely to rise. Here are the two main causes of poverty in Indonesia:

1. Corruption

Corruption in Indonesia is rampant across various sectors, including the judicial system, public administration and the police force. Among them, corruption in the public services sector has an especially significant influence on poverty. According to the Global Corruption Barometer’s report in 2017, 25 percent of Indonesians reported having paid a bribe to obtain identification documents, and one in seven reported having paid a bribe to the utility services in the past twelve months.

These problems impede the development of Indonesia’s public infrastructure, including electricity generation and provision of clean water. Moreover, regulatory and transparency problems do not only create a more difficult environment for businesses to flourish but are also a concern for foreign investors, hindering Indonesia’s economic growth.

2. Unstable food prices

Another cause of poverty in Indonesia is the price stability of food, especially that of rice. The Indonesian population spends a large portion of its disposable income on rice; a typical low-income family spends about 27 percent of its monthly salary to purchase the rice subsidized by the government. While Suharto’s government was successful at keeping the price of rice stable for the duration of its 30-year rule, the stabilization efforts during the subsequent period of democratization and reform generate mixed results. For example, Indonesia’s inflation rate in 2015 was above 6 percent, while its GDP growth was merely 5 percent.

The World Bank economist Ndiame Diop, who claimed that unstable food prices were the main cause of this high inflation, says that food prices in Indonesia are difficult to be handled for two reasons. First, Indonesia has significantly low farm productivity because of the use of outdated technology and a lack of progress in new crop development. Second, Indonesia cannot immediately accept more imports if there is a shortage of food supplies.

These are the main causes of poverty in Indonesia. The current President Jokowi’s key campaign promises were to eradicate institutional corruption and increase transparency in government, and the administration has been carrying out various policies to fulfill these commitments. However, further progress is still needed.

Minh Joo Yi

Photo: Flickr

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