Urban Poverty and Social Safety Net in Indonesia - Global ...

Average Per Capita GDP (in 1999 PPP$)*- Indonesia- East Asia & Pacific- South AsiaInfant Mortality (per 1,000 live births)- Indonesia- East Asia & Pacific- South Asia- Low & Middle Income CountriesLife Expectancy at Birth (years)- Indonesia- East Asia & Pacific- South Asia- Low & Middle Income CountriesPrimary Gross Enrolment Ratio (%)**- Indonesia- East Asia & Pacific- South Asia- Low & Middle Income CountriesSecondary Gross Enrolment Ratio (%)**- Indonesia- East Asia & Pacific- South Asia- Low & Middle Income CountriesAdult Illiteracy (% of people aged 15 and above)***- Indonesia- East Asia & Pacific- South Asia- Low & Middle Income CountriesNotes: * Figures are three-year averages, centered on the year shown.** The most recent data pertain to 1997, instead of 1999.*** M=male, F=femaleSource: Balisacan et al. (2002).19709408751,05119809055119865565546010711177962944272213(M), 27(F)13(M), 29(F)41(M), 66(F)22(M),39(F)20002,8824,4132,21619994235745966696364113119100107566949599(M),19(F)8(M),22(F)34(M),58(F)18(M),32(F)Table 2 Inequality in Income Distribution in Selected Countries/Group of Countries: 1970s to mid-1990sCountry/Group of CountryGini Coefficient (average per year)Newly Industrialized Countries (NICs)-Hong Kong-South Korea-Taiwan-Singapore1970s 1980s 1990s0.410.330.280.410.370.390.280.410.450.340.310.39Chinana0.320.38ASEAN-Indonesia-Malaysia-Thailand-Philippines0.330.500.430.490.330.510.430.460.340.480.520.45South Asia-India-Bangladesh-Pakistan-Sri Lanka0.300.360.300.380.310.390.320.420.300.280.310.30

OECDTransition counties (East Europe)Middle East & North AfricaAfrican Sub-SaharaLatin America & Caribbeannanananana0.330.250.410.440.500.340.290.380.470.49Source: BPS (SUSENAS) various issues, and Deininger and Squire (1995, 1996).Table 3 Gini Coefficient of Consumption Expenditure in Indonesia by Urban and Rural: 1965-2002Year Urban Rural National1965 0.34 0.35 0.351970 0.33 0.34 0.351976 0.35 0.31 0.351978 0.38 0.34 0.401980 0.36 0.31 0.341981 0.33 0.29 0.331984 0.32 0.28 0.331986 0.32 0.27 0.331987 0.32 0.26 0.321990 0.34 0.25 0.321993 0.33 0.26 0.341994 0.34 0.26 0.341995 0.35 0.27 0.351996 0.35 0.27 0.361997 0.35 0.26 0.371998 0.33 0.26 0.321999 0.34 0.26 0.332002 0.35 0.26 0.34Source: BPS (SUSENAS) various issues.Figure 1 Percentage of Total Population Living Under the Poverty Line, 1976-200245403530252015105040.133.328.624.221.623.417.417.719 18.4 18.4 17.615.1 13.71976 1978 1980 1981 1984 1987 1990 1993 1996 1998 1999 2000 2001 2002Source: BPSWith the continued economic growth and hence increase in real income per capita, there were correspondingimprovement in other social indicators during the New Order period. Almost universal entry into primary education wasachieved in the early 1980s, and the net enrollment rate has been maintained at nearly 95% at the primary level since then(Jones et al., 2000). World Bank (2001) reports that life expectancy at birth rose from 55 years in 1980 to 65 years in 1997,

and the estimated proportion of children dying before reaching their fifth birthday fell from 125 per 1,000 for those born in1980 to 52 per 1,000 for those born in 1998.When economic crisis occurred in 1997/1998, poverty in Indonesia increased again sharply. Studies conducted sincethe 1998 economic crisis, such as ADB (2000), Suryahadi et al. (2000) and Skoufias (2000), all confirm that. In December1998, BPS has carried out a small survey of household expenditure, and its results suggests that the proportion of poorpeople rose from about 17.7% in 1996 to 24.2% in 1998. However, Daly and Fane (2002) argued that much of theapparent rise was due to an increase in the poverty line. Relative to the former poverty line, the HC rate rose from 11% in1996 to 17% in 1998. Relative to the new poverty line, the rate increased from 18% in 1996 to 24% in 1998 and thendeclined slightly to 23% in 1999. 1The significant increased of poverty during the crisis period was deemed by Dhanani and Islam as crisis-inducedtransient poverty, that is, people moving in and out of poverty in a relatively short period of time. They argued that it isparticular important to highlight the phenomenon of transient poverty in the case of Indonesian crisis which wascharacterized by a deep recession as well as an inflation shock. It is the latter that holds the key to understanding transientpoverty in Indonesia.In order to see this phenomenon of transient poverty, Dhanani and Islam (2000) argue that there is a need todistinguish between the overall incidence of poverty (OP) and the severity of poverty (SP). The first one can be capturedby the headcount (HC) ratio, but this ratio is unable to distinguish between those who are hovering just under the povertyline and those who are located well below. The second one (SP) can be measured by estimating whether inequality amongthe poor has worsened. If the latter occurs, then this implies that the very poor have become worse off compared to the lesspoor. 2 According to their estimate, the HC poverty incidence increased from an estimated 30% in February 1997 to justunder 45% in September 1998. Poverty incidence stabilized at around this level until February 1999. Food prices began todecline thereafter, leading to a rapid improvement in transient poverty, which stood at 36% in August of the same year.Nevertheless, as shown in the figure, the HC poverty incidence was still higher than before the crisis. Data from BPS alsoindicate a rapid rise in HC poverty incidence, from 19% to 27% between February 1996 and February 1999, peaking at37% in September 1998, when food prices were at their highest level and declined to their pre-crisis level by August 1999.The year 1998 also saw the increase of SP, indicating that economic crisis not only increased the number of peoplefalling below the poverty line substantially, but also increased extreme poverty. Data compiled by BPS as well asestimates from Dhanani and Islam (2000) show that the number of people below 65% or 80% of the total poverty line, orbelow the food poverty line, increased faster than the overall number of poor people between February 1996 and February1999. As shown in Table 4, while extreme poverty rose more rapidly in urban areas, due to the low number of poor in thepre-crisis period, the number of people below the food poverty line rose by 8 million in rural areas, compared to 4 millionpeople in urban areas.1 Daly and Fane (2002) argued that measured poverty after the onset of the crisis may have slightly overstated real poverty because the anti-poverty programs thatprovided benefits in kind, i.e. subsidized rice, scholarships and subsidized health care and nutrition, would not have affected the expenditure-based measures of poverty,even though they reduced real poverty, because their benefits were not included in measured expenditure.2 The need to distinguish between the overall incidence of poverty and the severity of poverty in assessing changes in poverty was emphasized for the first time by Sen(1976). He showed that the two may not behave in an identical fashion.

Table 4 Population below selected poverty line: 1996-1999 (millions of people, HC ratio method)BPS poverty lineDhanani and Islam’s poverty lineFeb.’96 Feb.’99 Change Feb.’96 Feb.’99ChangeBelow 65% of poverty lineUrbanRural5.631.803.839.363.116.25million. %3.73 661.31 732.42 6316.812.0514.7629.036.2822.76million %12.22 734.23 1077.99 54Below 80% of poverty lineUrbanRural17.865.0612.8026.338.9817.358.473.924.5547783634.865.9728.8956.9514.7242.2322.088.7513.336314746Below total poverty lineUrbanRural37.6611.0926.57Source: cited from Table 5 in Dhanani and Islam (2000).55.7819.1236.6518.128.0410.0848733865.1212.6752.4494.8626.6268.2429.7413.9515.794611030Just as the economic contraction in 1998 caused a sharp increase in poverty rate, the rebound of the country’seconomy in the following two years, albeit modest, led to a drop again in percentage of the population deemed poor, but itis still higher than its lowest level ever reached, i.e. 15,1% in 1990. Data from BPS show that incidence of povertydeclined from 24.2% in 1998 to 23.4% in 1999, and in 2002 the rate was 18.20% (Table 5). Recent information shows thatin 2003 the poverty rate is 17.4%. So, the major thrust of the evidence is that the worst is indeed over and that theincidence of nation-wide poverty is apparently moving back towards pre-crisis levels, suggesting that a social recoveryfrom the crisis seems to be in progress. But, overall, the poverty rate in Indonesia is still high as compared to its lowestlevel of 15,1% in 1990. Even, data from the National Family Planning Agency (BKKPN) show that in 2001 the percentagerate of poor families in Indonesia reached around 50.07, that was more than half of total families in the country.If the post crisis period (1999-2002) is taken as a case study, then it shows that the average rate of growth of povertyin urban areas is about 1.15%, while than in rural areas as well as total declined to respectively 7.28% and 6.70% onaverage. This indicates that since the crisis, urban poverty has become a serious problem rather than total poverty inIndonesia.With this evidence, Suryahadi et al. (2000) and Balisacan, et. al. (2002) argue that poverty in Indonesia responds quitestrongly and relatively quickly to large shocks. Whereas, Dhanani and Islam (2000) explain the evidence by arguing thatthe Indonesian crisis was characterized not just by a deep recession, but also by an “inflation shock” in 1998. In the firstyear of the crisis, inflation increased by 100%, while nominal wage went up by less than 20%, so eroded the purchasingpower of the nominal wage to just 60% of its pre-crisis value. Food prices rose faster than the overall inflation ratethroughout 1998 following the depreciation of the rupiah against the US dollar. More importantly there was a substantialrise in the price of rice by 180% while non-food items increased by almost 80% between February 1996 and February1999 (World Bank, 2000a). Nominal wage increases were unable to keep pace with the rising cost of food and other basicneeds during that period. There is evidence that those in extreme poverty actually faced a higher inflation rate than others.A study made by Levinsohn et al (1999) estimated that the bottom 10% of households actually experienced a higherinflation rate than the top 10% of households during the crisis period, particularly in urban areas. In addition, theunemployment rate went up, as many companies especially in the manufacturing and construction sectors, as well as bankscollapsed following the crisis. The crisis was further compounded by the drought affecting mainly eastern part of the

country and also some parts in Java and Sumatra, leading to loss of agricultural incomes (ILO/UNDP, 1998 and ILO,1999).Source: BPSTable 5 Poverty Line, Number and Percentage of Population Living under the Poverty Line: 1976-2001Year Poverty Line (Rp/capita/month) Poor People (%) Number of Poor People (million persons)Urban Rural Urban Rural National Urban Rural National197619781980198119841987199019931996199819992000200120024,5224,9696,8319,77713,73117,38120,61427,90542,03296,95992,40991,632100,011na2,8492,9814,4495,8777,74610,29413,29518,24431,36672,78074,27273,64880,382na38.830.829.028.123.120.116.813.413.621 .919.414.69.814.540.433.428.426.521.216.114.313.819.925.726.022.125.021.140.133.328.626.921.617.415.113.717.724.223.419.018.418.210.08.39.59.39.39.79.48.79.617.615.612.18.513.344.238.932.831.325.720.317.817.224.931.932.325.228.625.154.247.242.340.635.030.027.225.934.549. 548.037.337.138.4IV Urban Poverty in IndonesiaIV.1 Recent TrendPoverty has no geographical boundary: it is found in rural as well as urban areas. But, for certain aspects the urbanpoor and rural poverty are different. The first and perhaps most significant distinction is that the urban poor depend mainlyon a cash income for survival. Security is another serious problem for urban poor. Crime, violence, alcoholism,prostitution, and AIDS are all frequent social problems in the urban context. Among the urban poor, women and childrensuffer more from environmental problems in poor settlements. Low income, substandard sheltering, crowding airpollution, insufficient or contaminated drinking water, inadequate sanitation and solid waste disposal services, vectorbornediseases, industrial waste, increased motor vehicle traffic, stress associated with unemployment, are all suffered bythe urban poor.Data from SUSENAS show that number of poor people in urban areas declined by 15% from 10 million people in1976 to about 8.5 million people in 2001, or from 38.8% to almost 9.8% of total population, but increased again in 2002 to13.3 million people or 14.5% of total population in that year (Table 5). Further, as presented in Table 6, transient povertyincreased in both urban and rural areas according to data from BPS and estimates of Dhanani and Islam (2000). However,this increase was more marked in urban areas, where poverty incidence increased by more than 100%, while in rural areasrose by 45%. Both the magnitude of change in OP and SP in urban areas are consistent with the significant increase in theshare of household incomes devoted to purchasing food. In their study, it is shown that the household food budget shareincreased from 50% to 56% in urban areas, and 67% to 73% in rural areas.Table 6 Transient Poverty: 1996-1999 (% population)

Feb.’96 Feb.’97 Feb.’98 Sep.’98 Dec.’98 Feb.’99 Aug.’99BPSUrbanRuralNational15.621.319.2------32.440.237.221.925.324.220.024.722.915.120.218.2Dhanani and IslamUrbanRuralNational18.041.933.3Source: BPS and Dhanani and Islam (2000).16.237.629.723.648.639.330.252.243.629.851.142.833.055.046.325.643.336.3IV.2 Poverty in Jakarta: Results of the SurveyPoverty profile in Jakarta is presented in Table 7 showing some important aspects of poverty such as in relation to typeof occupation, employment status, sex, and education. Further, the result of poverty mapping conducted by SMERUResearch Institute is given in Figures 2, 3 and 4, showing the distribution of poverty in the city by district, subdistrict, andvillage 3 .As summarized in Table 8, it can be seen that poverty in Jakarta is concentrated in Western and Eastern parts ofthe city as shown by their higher poverty headcount ratios.Table 7 Poverty Profile of JakartaDescription 1999 2000 2001 2002Poverty as a percentage of total population in Jakarta3.99(2.43) 1(19.41) 24.96(3.38)(14.60)2.95(2.88)(9.79)3.42(2.15)(14.46)Poverty Gap Index (P1) (%)0.58(4.33) 30.82(3.51)0.43(3.42)0.39(3.01)Distributionally Sensitive Index (P2) (%)0.14(1.23) 30.22(1.02)0.09(0.97)0.07(0.79)Poverty by sex as a percentage of total population in particularsex category in Jakarta:-Male-Female4.15(23.42) 4(0.80) 53.98(23.31)(0.78)0.53(19.07)(1.17)4.70(18.83)(1.06)2.98(18.37)(0.67)2.91(18.42)(0.66)3.52(17.49)(0.82)3.34(17.66)(0.78)Poverty by education as a percentage of total poverty n Jakarta:-No formal education/never finish elementary school-Elementary school graduate-Junior high school graduate-Senior high school graduate31.62(48.11) 645.58(35.69)14.03(8.83)7.55(6.74)21.99(47.38)37.56(35.78)19.27(9.12)19.20(7.12)17.38(48.98)25.98(36.83)17.10(7.96)26.60(5.49)18.47(44.56)46.32(38.8416.50(9.76)17.35(6.24)3 The method used in this poverty mapping basically involves a two-step procedure. First, a model of consumption determination is estimated using the data fromhousehold survey. In the second step, the parameters estimated in the first step are then transferred to the data from the population census to stimulate the consumptionlevel of each and every household enumerated in the population census. The simulated household consumption is then used as the basis for calculating poverty and otherwelfare indicators. For further information about this model and its application, see Suryahadi, et al. (2003).

-Tertiary/college/university graduate1.22(0.63)1.97(0.59)12.94(0.74)1.36(0.60)Poverty by occupation/sector as a percentage of total poverty inJakarta:-No work-Agriculture-Industry-Service25.19(8.47) 71.75(54.19)9.54(12.65)63.53(24.68)21.71(9.26)0.32(51.73)22.09(13.84)55.89(25.17)14.21(6.33)0.19(62.99)14.93(11.86)70.68(18.82)18.02(8.61)1.83(57.75)15.10(12.53)65.18(21.22)Poverty by employment status as a percentage of total povertyin Jakarta:-No work-Self-employed-Employee with family/hired workers-Employer/worker-Family worker25.19(8.37) 843.57(27.19)2.77(36.07)28.48(27.56)0.00(0.81)21.71(9.26)30.09(28.06)11.82(34.78)36.06(27.03)0.32(0.87)14.21(6.28)28.97(18.55)11.01(46.34)45.20(27.89)0.60(0.93)18.02(8.54)30.47(23.26)6.17(37.75)45.47(29.99)0.00(0.57)Notes:1= % of total urban poverty in Indonesia2 =% of total urban population in Indonesia3 =at national level (Indonesia).4 =% of total population by particular sex category in Indonesia5 =% of total poverty by particular sex category in Indonesia6 = % of total poverty by particular education category in Indonesia7 = % of total poverty by particular occupation category in Indonesia8 = % of total poverty by particular employment status category in IndonesiaTable 8 Poverty Map of Jakarta-District LevelDistrictPoverty Headcount Ratio- South, East, and CentralJakarta- North Jakarta- West JakartaSource: Suryahadi, et al. (2003).0.0211 to 0.03240.0346 to 0.03670.0367 to 0.0409Figure 2 Poverty Mapping in Jakarta by District

Notes: Jakarta Barat = West districtJakarta Utara = North districtJakarta Pusat = Central districtJakarta Selatan = South districtJakarta Timur = East districtFigure 3 Poverty Mapping in Jakarta by Subdistrict

Figure 4 Poverty Mapping in Jakarta by Village Level

As explained before (see methodology), for this study, one subdistrict of the city have been selected as the surveyareas for this study, i.e. Tambora in West Jakarta. The selection of this area was based on the results of field verification inrelation to the poverty mapping conducted by Suryahadi et al. (2003), which indicate that West Jakarta is the poorestdistrict in the city. Their results show that Tambora has a 7.8% poverty rate.West Jakarta consists of eight subdistricts with 56 villages. Based on the poverty mapping results, the population ofthis district as of mid 2001 was about 1.5 million people. The population-density was 124 people per hectare, and so it isthe second most densely populated part of the city after Central Jakarta. Of the eight subdistricts in West Jakarta, Tamborais known as the most densely populated subdistrict with 493 people per hectare.The people of Tambora in general are considered middle-or low-income earners. Most people in this subdistrictworking in very low income activities such as petty traders and ojek (motorcycles or bicycles used as informal publictransport) driver. This latter type of low income activity is common in Tambora. In general, poor people do not havepermanent jobs, easily change their jobs and found in informal low-income economic activities. This phenomenon is veryevident in Tambora.Another important characteristic of poverty in Tambora is that this subdistrict has no space available for developmentof new houses or estates. Shacks occupied by many people, such that they have to take turn to sleep, are common inTambora. One shack is sometimes occupied by two or three shifts. Due to the limited space, poor households have toarrange the schedule or activities of their family members to determine who stay in the shack.

In Tambora, one kelurahan or kampung (village) was selected, namely Kampung Kalinjar for an indepth study.According to local government officials, this kampung is the poorest of total of 11 kelurahan in Tambora. The area isabout 33 hectares and about 29,555 people are living there, or almost 90,000 people per km 2 . The majority of inhabitantswork in the informal sector such as garment makers, silk-screeners, small shop owners, food vendors, cigarette vendors,potable water suppliers, workers in car or motorcycles repair workshops, ojek and taxi drivers.The residents’ houses are crowded together and built on state or tenured land. They are not permanent houses, butmost of them are two-story houses so they can shelter more people. In addition to serving as a place of residence, many ofthese houses are also used for small-scale business activities, such as stalls, workshops, and garment and silk-screeninghome industries. The village is divided in two by the three-meter wide asphalt road, and both sides of the road areclustered with many stalls selling basic necessities and food, cigarette vendors, motorcycles repair workshops, and avariety of home industries. This crowded road as a large market place can also be found in many narrow alleyways withinthis kampung. Most of these alleyways also function as a playing ground for children and a place to wash and dry laundryand even cook.Most of the houses of the families (respondents) were cramped houses, and many of them were occupied by more thanone family with a total of more than 10 persons: father, mother, their unmarried children as well as their married childrenwith their own children. Their houses did not meet health and safety standards, and this was a general condition of most ofthe houses in kelurahan Kalianjar. Only a small number of houses visited have their own bathroom and laundry facilities.One family of the sample, whose head of the family works as a security guard of a big company in Central Jakarta, and hiswife takes care a stall in front of their house, selling some basic needs. From their 5 children, only two of them were still inschool (primary), while the remaining three aged 10 to 12 years old were not anymore. Instead, they are also familyincome earners by selling newspapers/magazines in crowded main roads in the city. The married son is a ojek driver, andhis wife helps her mother in law in managing the shop. Their 4 children aged 1 to 6 years old, and only the 6 years old girlwas in school. But as the mother said, when she finishes her primary school, she will not continue her school, simplybecause no money for that. The mother did not have yet idea what her daughter should do after that.In the sample, there was also a two-story house, occupied by three related families of a total of 9 mature persons andthree small children Two of them (father and his oldest son) work as taxi drivers in the same company, and other threemarried sons all work as ojek drivers. The other three persons have no permanent work; they just do everything that canearn some money, from selling cigarettes to part-time helpers in motorcycle repair workshop owned by their neighbor.Two children were still in school, while the oldest one just finished his primary school last year, but he could not continuehis school due to lack of money. Instead, he became a cigarette vendor.In general, the findings of the survey are given in the following tables. First, the characteristics of the respondents withrespects to marital status, age, and education are presented in the following three tables. In Table 9, it is shown that 92.9%of the respondents are married. The selection of poor families as respondents for this study with the procedure as explainedbefore in the methodology has resulted only three divorced women in the group. Table 10 shows that the majority of therespondents are within the age of 26-50 years or constituted 64.3% of the total families interviewed. Therefore, themajority of the respondents are middle-aged people. In Table 11, it reveals that the majority of the respondents are

graduated from high school. Only about 13% of the respondents have no education and never finish their elementaryschool, and they are mainly from the age category of 41 and older. So, this may suggest that one main factor behind theirpoverty is because of low level of education.MarriedDivorcedTable 9 Marital Status of RespondentsNumber of RespondentsMaleFemale65-23Total %Distribution65592.97.1TotalSource: survey67370100.0Table 10 Age Distribution of RespondentsFrequency% DistributionLess than or equal 2526-4041-5051-60More than 60TotalSource: survey1030151057014.342.921.414.31.1100.0Table 11 Education of respondents by age categoryAge structure≤25 26-40 41-50 51-60 >60No education/never finish elementary schoolElementary graduateJunior high school graduateSenior high school graduateTertiary-253--31017-5413224-4-2--3-Total %Distribution9131630212.918.622.942.92.8TotalSource: survey10301510570100.0Next two tables show economic condition of the respondents. As can be seen in Table 12, half of the respondents havebeen found to have main sources of income in formal sector, while the other half in informal economic activities. In theformal sector, the majority of them work in low-income generated jobs such as construction daily workers, taxi and publicbus drivers and security guards. In the informal sector, most of the respondents work on very low income-generated areas,such as petty traders and ojek drivers. These kinds of activities do not provide a stable monthly income, it depends onmarket competition and how creative are they to find customers. From total respondents of 70 families, 11 of them havebeen found to have no work (unemployed). Whereas in Table 13, it shows that the majority of the respondents fell in themonthly income category of 500.000 rupiah or less.Table 12 Distribution of respondents by main source of income (occupation)Age structure≤25 26-40 41-50 51-60 >60Total %Distribution

Formal- civil servant- construction daily worker- taxi driver- public bus driver- security guard- others12-11--105-521-222-1-----------31273824.317.110.04.311.42.9Informal- petty traders- small shop owner- household industry- ojek driver2--33--332-1232-----1052714.37.12.910.0Unemployed-22251115.7TotalSource: survey10301510570100.0Table 13 Distribution of respondents by monthly income (head of the family)Frequency% DistributionRupiah0 – 100.000101.000 – 200.000201.000 – 300.000301.000 – 500.000501.000 – 1000.000>1000.000117151522-15.710.021.421.431.40.0Source: survey70100.0Finally, during the survey the respondents have been questioned about their survival strategy or what special effortsthey have undertaken in copying with their poverty and especially during the economic crisis in 1997/1998. As generallymight be expected, the finding presented in Table 14 shows that their main effort as their survival strategy isdiversification of sources of income by family members. Many of them have been found to have sent their children, whowere mainly still at junior high school, to work, after school hour, such as afternoon newspapers, cigarettes, or mineralwater drink vendors. In this group, there were some families whose head incomes were very low, so they could not affordto keep financing further education of their children after graduated from high school. Instead, they sent their high schoolgraduated children to work, such as ojek drivers or construction daily paid workers (son) or helping their mothers inmanaging their small shops or working in restaurants (girl).Table 14 Family survival strategy of respondentsFrequency% Distribution- Diversification of income sources- Borrow money from e.g. neighbor/relative- Overwork- Sell household items- Reduce monthly expenditure on basic needs- No answerTotalSource: survey404105657057.15.714.37.18.67.1100.0

This evidence seems largely to confirm the luxury axiom which asserts that households send their children to workonly when driven to do so by poverty. In other words, child nonwork (typically schooling and leisure) is a luxury good forpoor household. Such household whose head incomes are very low cannot afford to keep children out of some productiveactivities. Only when head incomes begin to rise do household take children out of the labor force. Implicit in thisassumption is an altruistic view of the household: parents do not like to make their children work unless compelled bycircumstances (Basu and Tzannatos, 2003). In other words, if parents are too poor to meet the necessary expenditures ofthe household and cannot borrow against the future earnings of their children, dissavings in the form of child labor may benecessary for survival (Humphries, 2003).The role of poverty has been the cornerstone of much of the thinking about child labor, and evidence such as this froma small sample in Jakarta is also found in many other poor countries, where child labor is widespread. 4 Results of a recentstudy by Nagaraj (2002) of the beedi industry in Tamil Nadu and Karnataka, India, show that the number of children aged5-14 attending school rises as monthly household per capita incomes, presented by consumption expenditures, rise.Further, at a more macro level, country case studies from India and China (ILO, 1996) and Thailand (Tzannatos, 2003), forinstance, show a clear relationship between household income and child labor: as nations become richer, the incidence ofchild labor tends to fall.V Main Cause of PovertyAlthough many factors may have contributed, no doubt that the most important cause of increasing urban poverty inIndonesia is poverty or economic backwardness in rural areas. But, this is not specific Indonesian story; it is a generalphenomenon in many other developing countries. Since rural economy in Indonesia, which is much less developed than inurban areas, is dominated by agriculture, so the main source of rural poverty is in the agricultural sector. Official data ondistribution of poor families by occupation in Indonesia indicate the vast majority of poor families are in agricultural work,predominantly on farms (Table 15).Table 15 Distribution of Poor Families by Occupation, 1999-2002 (number of heads of families in 000 persons)1999 2000 2001 2002UnemployedAgricultureIndustryServices4.06325.9976.06911.8403.56020.1095.3809.7842.34923.3754.4016.9843.07220.6054.4717.571TotalSource: BPS47.96938.83337.10935.719Land is the most important store of wealth in agrarian societies, and in Indonesia it is typically distributed veryunequally. This fact challenges the common presumption that the majority of urban poverty emerges from the poorest farmhouseholds. Data from agricultural census which indicates that Indonesian agriculture is dominated by large and increasingnumber of small-scale family farms. As shown in Table 16, recent agricultural census indicates that in 2003 there were4 See e.g Jayaraj (1993), Ray (2000a,b), Edmonds (2001), Admassie (2002), Nagaraj (2002), Wahba (2002), Grootaert and Patrinos (1999, 2002).

25.437 million land-using farmers, 13.663 million or almost 57% of which were marginal farmers with less than 0.5 ha ofland under their control. In 1993 the number of land-using farm households was 20.518 millions or grown by 1.8% peryear, whereas the number of marginal farmers was 10.804 million or increased by 2.6% per year during the 1993-2003period. In Java, the number of land-using family farms and the marginal farmers increased by respectively 1.5% and 2.4%per year.Table 16 Number and growth rate of land-using farms and marginal farmers in Indonesia: 1993-2003Category1993 2003Java Outside Indonesia Java Outside Java IndonesiaJavaNumber (million)- Marginal farmers- Land-using farms- Agricultural households8.067(69.8)*11.56411.6712.737(30.6)8.9549.11610.894(52.7)20.51820.7879.989(74.9)13.33613.9643.674(33.9)10.84111.47213.663(56.5)24.17625.437Growth rate per year, 1993-2003 (%)- Marginal farmers- Land-using farms- Agricultural householdsNote: * = % of land-using farmsSource: BPS2.41.52.03.42.12.62.61.82.2The average land size per farmer will continue to decline in the future especially in Java where the majority ofpopulation and poverty in the country are located. The reason is that, while, total agricultural land in Indonesia stillcontinued increasing, in Java it has been declining with an increasing rate since early 1990s. This decelerating trend oftotal agricultural land in Java is fairly reasonable. On one hand, potential agricultural land for new land expansion rightnow (and in the future) is only available in outside Java, particularly in the eastern part of the country. On the other hand,agricultural land conversion to other functions will continue accelerating at an increasing rate, as a direct effect ofindustrialization, population growth and urbanization.This problem has been aggravated since the Indonesian government has gradually reduced its supports for agriculturaldevelopment since mid 1980s, and since the economic crisis the government has reduced or stopped its input subsidies(fertilizers, seeds). This policy has resulted in increasing production cost, which can bee seen from the declining of paddyfertilizerprice ration as shown in Table 17.Table 17 Development of farmers terms of trade in Java (1983-100) and paddy-fertilizer price ratio, 1974-2002Year Terms of trade in JavaPaddy-fertilizer price ratioUreaTSP1974197519761977197819791980198119821983--84.988.287.489.488.785.990.4100.01.010.901.021.101.161.461.681.871.831.821.481.561.601.471.321.471.641.851.821.88

19841985198619871988198919901991199219931994199519961997199819992000101.5100.9105.3107.3110.0104.3105.0104.999.8101.4103.0106.5107.2108.6107.6104.0102.6Source: BPS, quoted from Simatupang, et al. (2004).1.821.811.601.501.731.491.311.391.351.241.311.471.261.181.591.190.911.821.731.461.471.791.461.191.251.181.031.101.020.960.901.210.870.64So, from the above evidence, it is easy to understand why so many people keep coming from rural to urban or bigcities, despite that in cities like Jakarta it is also very difficult to find jobs with reasonable incomes especially for thosewho have no education or only primary and secondary education.VI Poverty Alleviation PoliciesThe importance of good policy and initial favorable conditions has been identified as the main factors contributing topoverty reduction during the pre-crisis period in Indonesia. There were four main important policies and programs devisedby the new order government (1969-1998). First, the rice policy, which subsequently led to Indonesia’s attainment of “riceself-sufficiency” in 1984, was one of the important factors that had a lasting impact on alleviating poverty. Second, duringthe oil boom in the 1970s, the government made substantial allocations to the social and human resource developmentsectors, as well as to transport infrastructure. It was during this period that the government implemented the expansion ofprimary school (SD INPRES) and health centers (PUSKESMAS) to ensure wide access to these basic social services. Alsoduring this period the government established the INPRES funding system, which allows direct grants from the center tothe regions. Third, the government ensured that particular social sectors were protected within the development budget,primarily by utilizing the INPRES mechanism. Fourth, labor intensive projects, which have long been part of thegovernment’s efforts to stimulate employment and income during tough economic times.The Indonesian experience with the reversibility of the sharp increase in poverty during the crisis period in 1997-1998again indicates that government intervention had an important role to play. An anti-inflation strategy combined withexchange rate stability that brought the ‘inflation shock’ of 1998 under control in combination with the SSN programshave managed to reduce poverty, or at least to keep it from becoming worsened. This two-track policy undertaken by thegovernment, i.e. one focusing on aggregate price stability and the other on subsidizing the price of key goods and servicesconsumed by the poor, was deemed as a good strategy, since an anti-inflation strategy pursued within a macroeconomicframework cannot on its own adequately protect the poor from the ravages of inflation. The point is that poor and non-poor

households do not face a uniform inflation rate or suffer to the same extent from a surge in prices. The success stories withthe implementation of SSN programs as discussed above suggest that a fiscally sustainable social protection policy that isable to reinforce household coping mechanisms and social capital of the poor should become part of Indonesia’s mediumtermstrategy for fighting poverty.But, as agreed that inflation in the Indonesian context was a primary determinant of short-run increase in poverty, itfollows that controlling inflation is not a suitable instrument for battling poverty in the long term. Similarly, as theyprimarily focus on transient poverty engendered by adverse shocks, the SSN programs cannot be a fitting long-term policyinstrument for reducing poverty. A successful strategy in battling poverty in the long run is that focusing on employmentgeneration. As a study of ILO (1999) notes the economy of Indonesia will have to grow over 5% per annum simply toabsorb new entrants into the labor market and to clear the current shock of the unemployed and underemployed.Development of agriculture is also a fitting long-term strategy of poverty alleviation, as in Indonesia over 60% of thecountry’s population lives in rural areas, and the majority of them make a living in agricultural activities. The mostimportant component of policies towards development of agriculture is policy on the distribution of land. This is central toany assessment of poverty and income inequality. So, there is also a need to have policies that improve the functioning oflabor and land markets in rural areas. The growth of rural factor markets may generate overall income growth and reducerural as well as rural-urban inequalities, and so it may also reduce urban poverty.It is generally agreed that employment-friendly economic growth is the main important way for reducing poverty inthe long run. However, the success of this strategy depends on the work capability of the poor, which in turn depends oneducation and health condition of the poor. So, the continued commitment of the government to the provision of publicgoods especially basic health and education is a must. Such provisions make the poor productive and hence increase thereturns of their services. The major current issue in Indonesia is the government’s capacity to maintain its pro-poorcommitment towards basic health and education, given that since the crisis the government has been facing a huge fiscaldeficit. The government has been using huge resources for financing recapitalization and reform of the banking sector andservicing external indebtedness.The National socio-economic survey (SUSENAS) data provide information about health condition in Indonesia. In1993, about 50 per cent of all persons when they were ill never sought medical help in a hospital, clinic or other formalhealth care services. They relied on traditional healers and self-treatment instead. In 1997 the level improved to 37 percent, and was expected to stay in that level in the following two years (Dhanani and Islam, 2000). Nearly 50 per cent ofhouseholds surveyed did not have a doctor or midwife present during childbirth. In 1995, life expectancy at birth stood at63, while the infant mortality rate stood at 45 per thousand. In 1999, about 30 per cent of all children under the age of fivewere malnourished, declined from 35 per cent during the crisis period, or 36 per cent in 1993, or 44 per cent in 1990.The SUSENAS data also provide information on educational condition in Indonesia. In 1999 about 35 per cent of thepopulation aged 10 and above have no education or less than primary school, compared to 45 per cent in 1993. This levelvaried between rural and urban areas; in urban areas it stood at 22 per cent in 1999 downed from 30 per cent in 1993,while in rural areas stood at 44 per cent in 1999 compared to 54 per cent in 1993. At the national level, the proportion ofthe population who was illiterate stood at 10 per cent in 1999, declined from 14 per cent in 1993. In urban areas, it was 7

per cent in 1993 and improved to 5 per cent in 1999, while in rural areas 13 per cent in 1999 compared to 18 per cent in1993.Ultimately, however, as argued by Islam (1999), the long –run battle against poverty has to depend on the regenerationof sustainable, labor-intensive, and hence employment oriented, growth buttressed by pro-poor commitments to publicspending in health and education. This is a major policy challenge that the coming new government of Indonesia after thepresidential election in 2004 will face.VII Social Safety NetVII.1 ObjectivesSince the new order government led by former President Soeharto, efforts to protect the poor people in Indonesiahave been focused on three areas: (a) expanded labor-intensive public works programs to provide purchasing power to thepoor; (2) actions to ensure the continued availability of key goods with subsidized prices; and (3) programs to maintainaccess to basic education and health.The experience with an extremely high inflation rate and its severe impact on poverty during the economic crisis in1998 led the Indonesian government to introduce social protection policy or widely known in Indonesia as social safety net(SSN) program. This program is aimed at minimizing the deterioration of social welfare and sustaining key humanresource investments. It is also aimed at safeguarding, to the extent possible, advances made by Indonesia during theSoeharto period before the crisis in poverty reduction and human development. In the context of countries such asIndonesia going through adjustment programs after hit by the crisis, SSN schemes take an even more important role, sincethey also become a political buffer for the government that has to implement the reform measures (UNSFIR, 1999).VII.2 DevelopmentOne of the features of the SSN program was the Special Market Operation (OPK) that aimed to provide cheap rice topoor households. It was introduced partly in response to the economic crisis and partly in response to the drought thataffected many parts of eastern Indonesia in 1997-98. It was therefore targeted at poor villages and to those in droughtaffected areas, which was mounted in mid-1998 in the wake of food riots and increasing food prices. In early 1999, thistargeted rice subsidy program reached approximately 50 million people, almost equivalent to the entire populationofficially recorded as poor by the end of 1998 (Dhanani and Islam, 2000). 5The government originally intended that each of the 8 million households in the poorest group, as indicated by datafrom BKKPN, should receive 20 kg of medium quality rice per month at substantially subsidized process of Rp1,000/kg,when the market price was Rp2,500-3000/kg (Sumarto, et al., 2001). The benefit per household was therefore aboutRp15,000-20,000 per month, or about 15% of the total consumption expenditure of a household of four persons at theofficial poverty line. 6 The target allocation per household was later doubled to 20 kg per month and the entitlement was5 According to Sumarto et al (2001), the size of ‘potentially eligible’ group for subsidized rice is all 50.4 million Indonesian households.6 Separate official poverty line are used for urban and rural areas in each province. In 2000, the average for urban areas was Rp92,000 per person per month. In ruralareas, the average was Rp74,000 per person per month. The average size of all Indonesian households in 2000 was 4.0 people (Daly and Fane, 2002).

extended to include the 9.4 million households in the second poorest group, as indicated by the BKKPN data. In April2000 the allocation was changed again, to between 10 and 20 kg per household per month (Daly and Fane, 2002).In terms of central government expenditure, data from National Planning Agency (BAPPENAS) indicate that the OPKprogram is the most important Indonesia’s targeted schemes providing rationed benefits in kind. In the first year, theexpenditure on this program was 3.70% of total central government expenditure, and declined to 3.14% and 1.22%respectively in the following two years. As a percentage of total anti-poverty spending, the share of the OPK programstood at 41.5% during the fiscal year 1998/1999-1999/2000, and declined to 21.6% in 2000.Other programs are interventions in education, health and nutrition, and employment. The principle goal of the SNNscholarship program was to protect students from poor households from dropping out as a result of the negative effects ofthe economic crisis 1997/98. 7 Other scholarship programs existed before this program started, such as Gerakan NasionalOrang Tua Asuh (National Movement of Foster Parents), smaller government programs and other, mainly privateinitiatives, but none of these was comparable in size with the SSN scholarship program (Sparrow, 2003).The SSN scholarship program provided scholarships or school grants to children thought to be most at risk of droppingout, while schools in poor areas received budgetary support in the form of block grants to help them maintain quality ofeducation. The distribution was planned as follows: 6% of pupils in the senior three grades of primary school, 17% ofthose in lower secondary (junior high) school and for 10% of those in upper secondary (senior high) school. 8 The monthlyvalue of the scholarships was Rp10,000 for primary students, Rp20,000 for lower secondary students and Rp25,000 forupper secondary students.To put the number in respective, according to Sparrow (2003), monthly household expenditures on education perstudent during the crisis period (1997/98) were Rp9,562 for primary school, Rp27,682 for junior high school, andRp53,242 for senior high school. In 1998, monthly educational expenditures from the poorest 20% of the population wereRp4,826, Rp15,725 and Rp31,549 per student for primary, junior and senior high schools, respectively. So, thisinformation indicate that the scholarships of this SSN educational program was quite significant contribution to monthlyincome of the poorest households and covered a large part 9 if not all) of their monthly education expenses.Although the program followed a design whereby allocation of scholarships was decentralised to district and schoolcommittees, the grants themselves were given in cash directly to the selected students through the post office, and theywere freely to decide by themselves how to spend the funds. An important characteristic of this program was that thosewho were selected as the targeted students were to keep the scholarships for the whole learning period of their stay in aspecific school. So, if a first grade junior high school student was selected to get the scholarship, he/she would continue toreceive the fund until his/her graduation from third grade.The program was to span 5 years, from 1998/1999 to 2002/2003, after which the crisis was expected to be over. Forthe first year, almost 4 million scholarships were available per year to 1,800,000 primary school students, 1,650,000 juniorhigh school students, and 500,000 senior high school students. In 2001/2002 the number who received grants from this7 The economic recession in the late 1980s had been associated with a decline in school enrollments and there was official concern during the 1998 crisis that this shouldnot be repeated. Therefore, before the beginning of the school year in late August 1998, the government together with the World Bank and the Asian Development Bank(ADB), assisted by other external donors including the Australian Agency for International Development (AusAID), hastily assembled the Scholarships and SchoolGrants Program, which was designed to prevent a fall in school enrollment.

program started to decline and the last scholarships were disbursed in March and April 2002. In 2001, a new scholarshipprogram of similar design (but different in its funding and objectives), the Special Assistance for Students (BantuanKhusus Murid – BKM) started. This program was meant to complement and later on to replace the SSN Scholarshipprogram (Sparrow, 2003).As with the OPK program, in terms of expenditure the scholarship program is also a very important Indonesia’stargeted scheme providing rationed benefits in kind. In the fiscal year 1998/99, the expenditure on this program was 1.06%of total central government expenditure, and declined to 0.84% in the next fiscal year, and further to 0.75% in 2000. As apercentage of total anti-poverty spending, the share of the scholarship program recorded at 11.4% in 1998/1999-1999/2000, and increased to 13.2% in 2000.The health care and nutrition program that was introduced as part of the social safety net in 1998 included a mix ofdirect funding to individual households and block grants to service providers, such as hospitals, clinics and familyplanning services (World Bank, 2000b). Health care cards that entitled holders to free health care from designatedproviders were allocated to districts on the basis of the BKKPN estimates of the number of very poor or poor householdsin the district. A separate nutrition program, which operated from 1998 until 2000, provided supplementary food andvitamins for infants and pregnant women (Daly and Fane, 2002). 9In terms of expenditure, data from BAPPENAS show that in the fiscal year 1998/99, the spending on this program wasnearly 1.0% of total central government expenditure, and rose to 1.16% in the next fiscal year, and then went down toalmost 1.0% in 2000. As a percentage of total anti-poverty spending, the share of the scholarship program recorded at13.3% in 1998/1999-1999/2000, and increased to 17.6% in 2000.The employment program related to the SSN program was introduced during the financial year 1998/99, known as theKecamatan Development Program (KDP) and financed by a World Bank loan. This scheme aimed to create jobs forunskilled workers, and it has two components: the first provides grants for the development of infrastructure; the secondprovides loans for business activities. 10 Each village can submit maximum two proposals, and the choice of good proposalsis made at the subdistrict level. The loans for business activities are made to groups at market rates and are supposed to berepaid within 18 months (NMC, 2000).Additional job creation and infrastructure development schemes were developed in response to the crisis. In somecases, known as padat karya (labour-intensive) programs, low-skilled workers, including those who were laid off fromindustry manufacturing, construction and banking as many companies in these three sectors were bankrupted caused by thecrisis, were employed to build or repair public infrastructure. In other cases, the government provided grants to localcommunities to finance loans to community groups, or to small and medium enterprises, to fund labour-intensive projects.Daly and Fane (2002) refer to all these schemes not just the padat karya programs, but as ‘job creation schemes’.8 In Sumarto et al (2001), it is estimated that the size of ‘potentially eligible’ group for this program is the following: 29.7 million children enrolled in primary school;10.4 million in lower secondary school; and 6.4 millions in upper secondary school.9 Sumarto et al (2001) estimated that the size of ‘potentially eligible’ group for the health care program is 27.6 million individuals and for the nutrition program is 20.0million individuals in the group ‘pregnant women and children under 3 years old.10 This scheme has some similarities to the IDT program (Inpres Desa Tertinggal, Presidential Instruction for Underdeveloped Villages), Indonesia’s first anti-povertyprogram, which commenced in the financial year 1994/95 and ended at the close of 1997/98

VII.3 EffectivenessAs pointed out in Daly and Fane (2002), there have been three phases in the development of Indonesia’s anti-povertyprograms: the pre-crisis period, the crisis, and the subsequent period of slow recovery. In the pre-crisis period, Indonesiaspent very little on anti-poverty programs, although their importance gradually increased since the fiscal year 1994/95. Theimportance of these programs increased significantly in 1998, when the SSN program was introduced in response to fearsthat the economic crisis might cause poverty to climb back to the levels of the 1980s, or even the 1970s. 11 In terms ofexpenditure, as shown in Table 18, total spending on anti-poverty programs was increased significantly from Rp1.98trillion in 1997/98 to Rp14.24 trillion, or in terms of GDP from 0.29% to 1.39%, and then reduced subsequently, althoughit still far exceeds the pre-crisis level.Table 18 Expenditure on Anti-poverty Programs as a Percentage of Total Central Government Expenditure:1994-200094/95 95/96 96/97 97/98 98/99 99/00 2000Cash transfers0.11Benefits in kindSubsidized rice (OPK)Health care and nutritionEducation0.490.160.330.690.340.365.733.700.971.065.143.141.160.842.961.220.990.75Job creation (including infrastructure and loans)0.611.371.211.273.941.872.58Total0.611.371.701.969.677.015.65Total anti-poverty programsRp trillion% of GDP0.430.111.070.231.540.281.980.2914.241.3913.951.2310.351.05Source: quoted from Table 1 in Daly and Fane (2002).World Bank provides an interesting fact on costs and benefits comparison between fuel subsidies, bank restructuringprogram, and the SSN program for 1999/2000. As can be seen in Figure 5, the cost share of authorized budget allocationwas much higher for fuel subsidies and bank restructuring than the part of it for the SSN program. While, with respect tobenefits, as shown in Figure 6, fraction of benefits of the SSN program that went directly to the bottom 20% of thepopulation was significantly higher than of these subsidies and bank restructuring.Figure 5 Authorized Budget Allocation for Fuel Subsidies, Bank Restructuring and the SSN Program,1999/2000 (Rp trillions)3025201510511 Evans (1998) made predictions that about 50% of the country’s population would be in poverty by the end of 1998.0F. subsidies B. restruc. SSN

Source: World Bank (2001).Figure 6 Benefit Incidence Comparison of Fuel Subsidies, Bank Restructuring and the SSN Program, 1999/20000.30.250.20.150.10.050F. subsidies B. restruc. SSNSource: World Bank (2001).Further, Table 19shows that the relative importance of three broad types of anti-poverty programs varied in the threephases. Job creation, infrastructure and loans schemes accounted for more than 75% of all spending on anti-povertyprograms in the pre-crisis period. In response to the crisis, each broad types of anti-poverty program received an increasedshare of total central government budget allocation, and the relative importance of job creation, infrastructure and loanschemes declined to that of benefits in kind schemes, especially to the OPK program.Table 19Share of Individual Broad Types of Programs in Total Anti-Poverty Spending (%):1994/95-200094/95-97/98 98/99-99/00 2000 94/95-2000Cash transfers0.00.01.90.5Benefits in kindSubsidized rice (OPK)Health care and nutritionEducation22.80.09.713.266.241.513.311.452.421.617.613.257.932.013.912.1Job creation (including infrastructure and loans)77.233.845.641.6TotalSource: BAPPENAS100.0100.0100.0100.0Admittedly, the SSN program has been much criticized both for its poor design and for being a source of waste anddownright corruption. Evaluations conducted by various studies show that effectiveness of the program is very uneven andvaries enormously from location to location and from program to program. However, a comprehensive evaluation of theOPK shows that it was generally effective in achieving its goals. Such as Islam (1999), Rachman et al. (1999), and Taborand Sawit (1999) arrive at the following conclusions:• The OPK program reached 44.2 million people in 1998 and peaked at approximately 50 million people in early1999 (virtually the entire population recorded as poor in December 1998).• It is highly cost-effective

• In its absence, the poor would have suffered an 11% income reduction and the very poor a 22% decline in income.The poor would have reduced their calorie consumption by about 8% and protein consumption by about 15%• The OPK program has made an important contribution to price stability of rice• Since the introduction of the OPK program, there has been a pronounced absence of food riots.• The OPK program should be part of Indonesia’s long-term toolkit of social protection measures.In addition, a comprehensive study has been undertaken by Sumarto et al. (2001) from SMERU, and the summary ofsome of their principal findings is shown in Table 20Two indicators to measure ‘targeting’ are presented in this table.First, the ratio of a program’s coverage of the poorest 20% of the population, as measured by household expendituresurvey, to its coverage of the remaining 80% of the population. Second, the ratio of its coverage of the poorest 20% of thepopulation to its coverage of the richest 20%. 12 Their estimates in Table 20ndicate that only about 53% of those in thebottom 20% of the expenditure distribution received subsidized OPK rice, and only 40% of those in the poorest 20% morelikely to benefit from the scheme than the rest of the population. Nevertheless, as shown in column 5 of Table 20 thescheme was relatively accurately targeted away from households in the richest 20% of the population.Table 20 Coverage and Targeting of the SNN Programs: August-February 1999*)ProgramSubsidized ricePrimary scholarshipsLower secondary scholarshipsUpper secondary scholarshipsHealth careNutritionJob creationCoverage of target group by program (%)Poorest 20%(1)52.65.812.25.410.616.58.3Poorest 40%(2)49.45.311.25.28.916.67.6Whole 100%(3)40.14.08.53.86.415.95.6Poorest 20%/80%(4)1.41.61.61.62.01.01.7Targeting ratiosNotes: *) Column (4) = [4 x column (1)]/[5 x column (3) – column (1)]. Coverage of the richest 20% = column (1)/column (5).Source: Sumarto et al (2001). 13Poorest 20%/richest20% (5)Kusumastuti et al (1998), also from SMERU, conducted a field study in 21 urban areas and 19 rural areas in fiveprovinces, and they concluded that the OPK program is reaching needy people, but not all needy people received OPK,and information was covered concerning wastage, resale, corruption or malfeasance. They stated that one reason why thetarget household typically received less than their full monthly allocation of subsidized rice was that many villagecommunities insisted on allocating some rice to every household, rather than providing all the benefits to those that metthe official criteria. Another reason for not selling all the subsidized rice just to those who met the official criteria is that itwas often difficult for poor households to accumulate the Rp20,000 needed to purchase their monthly allocation It wasfound that many rice remained unsold, and some was sold to households who were outside the original target group.According to Sumarto et al (2001), another problem encountered in the distribution process of this scheme was relatedto delays in distribution to remote areas. In 1999, another survey was conducted by Hardjono (1999), also from SMERU,targeted at around 450 poor households in North Java and said that: there is no doubt that the OPK rice programme has2.22.82.52.83.41.23.312 Coverage in Table 20 is number covered/size of potentially eligible group. The definition of the number covered and the size of the potentially eligible group varyfrom scheme to scheme and are given below for the national coverage estimates in column (3). The definitions for the other expenditure quintiles are exactly analogous.13 Their estimates are derived from the special module on the SSN programs that was included in the SUSENAS conducted by BPS in February 1999 and that coveredthe preceding 6 months.

assisted the poorer members of the community in hamlets where 10 kg of rice was provided three or four times (p.28). But,he also pointed out that coverage of the program has been insufficient or inadequate due to remoteness and presumablylimited resources. Nevertheless, they both agree that this program has lessened burden of the poor.Dhanani and Islam (2000) have counted that the direct income transfer due to the subsidized rice program and thescholarship program may have made a difference of up to 15 per cent in the total income of a poor household. A familyable to purchase 20 kg of subsidized rice per month at Rp 1,000 per kg, compared with the prevailing market price ofRp2,500 per kg in 1998, could save Rp30,000 per month. Add to this the value of a primary school scholarship ofRp20,000 per month, and a family of four members living in the neighborhood of the BPS poverty line in rural areas ofRp76,000 per capita or Rp304,000 per household per month in early 1999, could have increased its income by 16 per centif registered in both these programs. Further, their calculation shows that the OPK program alone could have added around10 per cent to the income of a poor rural household, compared to the estimation of 9 per cent by Tabor and Sawit (1999).As pointed out in Dhanani and Islam (2000), depending on their participation in either or both programs, this added 10 percent is equivalent to preventing around 7 to 12 per cent from falling below the poverty lineWith respect to education program, as shown in Table 21, the 1998 and 1999 SUSENAS survey data from BPSindicate that school attendance rates at all three levels were maintained during the crisis. This suggests that the scholarshipprogram may have prevented large number of poor school children from dropping out of school. Based on his survey inNorthern Java, Hardjono (1999) states that …..the children who were granted scholarships very largely come fromgenuinely poor families; unlike most government programmes, the scholarship programme received almost universalpraise from respondents, with only two complaining that their child was passed over in favour of better-off neighbours(p.31), and he also notes that The scholarship programme…displays a positive bias towards poor households and at thesame time has given very tangible assistance to a relatively large number of beneficiaries (p.32).Table 21 Educational Attainment, Literacy Levels and School Attendance: 1996-1998(% of total population aged 10 and more)Urban Rural NationalPrep-crisis Crisis Pre-crisis Crisis Pre-crisis CrisisEducational attainment-less than primary school-primary school-junior-senior school & above93 96 97 98 99 93 96 97 98 99 93 96 97 98 9930281725252816312328183123281831222719315432864935974536118453611844361194531111340321315373314163733141635331517% illiterate7665518161414131413111110Still attending school (%)-aged 7-12 (primary)-aged 13-15 (jun. school)-aged 16-18 (sen. school)Source: BPS968453978766988867988968968869916130936934947236947136947438936943947648957849957749957951But, the implementation of the program was not without some critical notes, especially with respect to the actualcoverage achieved in 1998/99, which was found much lower than the targets. According to the estimates prepared by

Sumarto et. al. (2001) as shown in column (3) of Table 20, the coverage was 4.0% at the primary school, 8.5% at the lowersecondary level and 3.8% at the upper secondary level.In paper, the program was well designed, whereby allocation of the funds was decentralized to district and schoolcommittees. Poor districts and school received more scholarships. Allocation to districts was based on geographicaldifferences in poverty and the estimated impact of the crisis, while allocation to schools and students relied heavily onlocal knowledge and community participation on the premise that local authorities are more capable of identifying thepoorest. School committees were supposed to select children based on socio-economic background (such as families livingin poverty, single parents and large households, and BKKBN prosperity status), travel distance from schools, and childrenwith a history of dropping out (Sparrow, 2003). But, in practice during the implementation there were many problems thatmake the effectiveness of the program in question.For this study, a visit has been conducted to some villages (kampung) in West Jakarta which were also targeted for theSSN scholarships. During the visit many poor families have been found to have not received the grants, though they meetthe socio-economic characteristics as adopted by the program. These families complained that many grants have gone tomore wealthy households. This complain was also supported by main conclusion from a forum discussion organized forthis study with some non-government organizations (NGOs) and individual researchers who have been assessing theeffectiveness of the SNN scholarship program. Also findings from several studies 14 suggest that there is considerableleakage of the grants to the more wealthy households, with the extent of this leakage varying greatly across districts.To some extent, this leakage was caused by “corruption practices” in the process of identifying the poor families byschool committees and local authorities by applying their own criteria, so that scholarships have gone either to their ownfamilies and relatives or to the benefit of schools and not necessarily students. This problematic of accountability of schoolis also stressed by Sparrow (2003): While school committees appear to have followed the guidelines to a large extent,there is some evidence that they have applied their own criteria, or at least to place priority on some of the criteria (page19).Usefulness of the BKKBN criteria as the main allocation criteria of the program’s guideline was also an importantreason for the leakage. The criteria had very little influence on the allocation process, because many other factors, whichare important for allocation, such as basic living conditions and the main source of the family’s income, were notmentioned in the guidelines. Basic living conditions are not always the same as families living in poverty, single parents orlarge households do not always mean they are poor. Even those who were categorized as poor families but the heads(fathers) have permanent jobs as a low-rank civil servant or a public bus driver in principle were less vulnerable thanfamilies with the fathers as a ojek driver.A lack of reliable data or poor information used in identifying poorest districts was also a factor causing the leakage.Many studies argued that the program failed to identify the poorest districts or the areas hit hardest by the economic crisisin 1997/98 due to a lack of reliable data on regional poverty profiles. 1514See, amongst others, Jones and Hagul (2001), Cameron (2002), Dhanani and Islam (2002), and Sparrow (2003).15 See, among others, Lanjouw and Ravallion (1999), Suryahadi et al (1999), Pradhan and Sparrow (2000), Cameron (2002), Pritchet et al (2002), and Sparrow (2003).

Suryahadi et al (1999) found that targeting of primary and junior high students was more effective than senior highschool students. For the latter, the bulk of the funds ended up with the middle quintiles. They also found that to reach themost chronically poor families was not easy, because only children actually in school were eligible, while children not inschool are most likely to come from the poorest families. They also found that some school (often small private andIslamic schools in poor districts) were not eligible for the program due to limited school size or poor administration.Cameron (2002) identified another problem, namely the transition phase from primary to junior high school is notincluded in the program design. When students supported by the scholarships move on to a higher school level, their grantsended, while in practice this transition phase is where most drop-outs occur.Despite problems mentioned above, there is however some evidence that the allocation of the SSN scholarships hasimproved overtime. The allocation in 2002 is much better than that in 1999. In 1999, about 60% of the grants have gone tohouseholds in the two poorest family per capita consumption expenditure quintiles. In 2002, this share increased to justover 70%, while, the share of scholarships went to the richest quintile declined from 6% to 3% during the same period.Sparrow (2003) gives some reasons for this improvement. One reason is that the regional targeting has also beenimproved. As the available data on the geographic variation on poverty improved, the regional allocation measures wereadjusted. Another possible reason is the improved performance of allocation committees. Initial complaints concerning thefunctioning of school committees in allocating the funds have led to some changes in guideline and the composition ofthese committees in the second year of the program.Overall, the evidence presented so far suggests that some social protection measures taken by the Indonesiangovernment to protect the poor from adversely effect from the crisis have been relatively effective. However, as argued byDhanani and Islam (2000), it is necessary to take on board the views of those who have criticized the SNN programs fortheir poor design and for being a source of waste and corruption. An evaluation by SMERU (Suryahadi et al., 1999) foundthat the effectiveness of the OPK and other SSN programs had been very uneven and varied enormously from location tolocation and from program to program.The discussion of the effectiveness of the SNN programs or other government intervention in protecting the poor willbe incomplete unless the relative importance of other explanatory variables in understanding the transient nature of thecrisis-induced increase in poverty is also taken into consideration. As quoted from Dhanani and Islam, It is possible toargue that the reason why the social impact of the crisis was muted, and apparently short-lived, is rooted in the copingmechanism of households. Certainly, both the ‘old’ poor (those who were poor pre-crisis) and the ‘new’ poor (those whodescended into poverty as a result of the crisis) have tried to cope with the pressures of a recession-cum-inflation shock in1998 in a number of ways. Thus they sold assets, reduced consumption of micro nutrient-rich food, cut down on ‘nonessentialexpenditure’, sought refuge in the agricultural sector and the informal sector and migrated overseas (p.18).VIII Some Concluding Remarks

This paper began with an examining of the evidence on poverty trend in Indonesia since the new order government orthe pre-economic crisis period and period after that. The evidence shows that sustained rapid economic growth since the1970s up to mid-1990s led the poverty incidence to drop significantly. When economic crisis occurred in 1997/1998,poverty in Indonesia increased again sharply, and when the country’s economy rebounded in the following two years, thepercentage of the population deemed poor declined, but it is still higher than its lowest level ever reached, i.e. 15,1% in1990. But, the evidence also shows that since the crisis, urban poverty has become a serious problem, and this problem isnot only a result of the crisis but also as an accumulation effect of increasing rural-urban inequality and stillunderdevelopment of agriculture in the country.This paper also gave some important evidence obtained from a survey of poor families in Jakarta which shows thatsending children to work in the informal sector is an important way of diversifying their sources of income. This evidenceseems largely to confirm the luxury axiom which asserts that households send their children to work only when driven todo so by poverty.Another important implication of this evidence is that, although many families in the sample depend on formal sectoras their main source of income, no doubt that the informal sector is very important for them, at least as a secondary or acomplementary source of income.This paper also tried to examine main causes of urban poverty in Indonesia. It can be concluded that the mostimportant cause of increasing urban poverty in the country is poverty or economic backwardness in rural areas. Since ruraleconomy in Indonesia is dominated by agriculture, so the main source of rural poverty is in the agricultural sector, as thevast majority of poor families are in agricultural work, predominantly on farms, and most of them are marginal farmers.This problem has been aggravated since the Indonesian government has gradually reduced its supports for agriculturaldevelopment since mid 1980s, and since the economic crisis the government has reduced or stopped its input subsidies(fertilizers, seeds).So, the above evidence provides some important policy implications for poverty alleviation in Indonesia. First, SSNprograms must not be adopted as a long-term poverty alleviation policy. Instead, improvement of labor productivity anddistribution of agricultural assets, including land, development of physical as well as social infrastructure in rural areas,and more access for the poor to better education and health facilities must be given as the first priority in long-termpoverty alleviation policies. Second, these policies should be combined with employment-friendly economic growthpolicies. No doubt, the poor are better off when the government gives more focus on these long-term development aspects.ReferenceADB (2000), “Assessment of Poverty in Indonesia”, paper, Manila: Asian Development Bank.Admassie, A. (2002), “Exploring the High Incidence of Child Labor in Sub-Saharan Africa”, African DevelopmentReview, 14, p.251-75.Balisacan, Arsenio M., Ernesto M. Pernia and Abuzar Asra (2002), “ Revisiting Growth and Poverty Reduction inIndonesia: What do Subnational Data Show?”, ERD Working Paper No.25, October, Manila: Asian Development Bank.

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