Poverty and Inequality Worsening
Informal workers are becoming more vulnerable to poverty, which could widen income inequality.
Informal workers are becoming more vulnerable to poverty, which could widen income inequality. The Covid-19 pandemic, which has caused changes in behavior and economic activities, will cause further change by increasing the number of poor people.
JAKARTA, KOMPAS — It is feared that the Covid-19 pandemic will increase poverty as well as widen income inequality. The disparity in the labor market and education is believed to widen further by the end of this year.
The government’s policies should promote the use of the information and communication technology (ICT). ICT has played an important role in many aspects of life in Indonesia during the public health crisis.
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People in the upper and middle classes are able to continue to work with the support of ICT. In contrast, people of the lower and middle classes continue to face obstacles in benefiting from the technology.
According to data from Statistics Indonesia (BPS), Indonesia’s poor population in March 2020 comprised 26.42 million people. This figure reflects an increase of an additional 1.63 million poor people from 24.79 million people in September 2019, and an additional 1.28 million poor people from 25.14 million people in March 2019. Indonesia’s poverty rate in March 2020 was 9.78 percent, after falling below 10 percent for the first time in March 2018.
The BPS defines the poor as monthly expenditure per capita that averages below the poverty line. In March 2020, the poverty line was Rp 454,652 per capita per month.
Meanwhile, inequality is measured by the Gini ratio on a scale of zero to 1, with Gini ratios closer to 1 indicating greater inequality.
Indonesia’s Gini ratio in March 2020 was 0.381, an uptick of 0.001 from 0.38 in September 2019. Year on year, however, the figure is 0.001 lower than 0.382 in March 2019.
In fact, the World Bank reclassified Indonesia as an upper-middle-income country as of 1 July 2020, an upgrade from its previous classification as a lower-middle income country. The new classification derives from Indonesia’s 2019 gross national income (GNI) per capita, which reached US$4,050.
Economist Teguh Dartanto of the University of Indonesia business school’s Institute for Economic and Social Research (LPEM) said in Jakarta on Wednesday (15/7/2020) that the economic difficulties Indonesia was facing amid the current pandemic were different from those it faced during the 1998 economic crisis. In 1998, the poverty rate rose, but income inequality saw a declining trend.
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"The Covid-19 pandemic has not only caused income inequality to widen, but also the poverty rate to rise. The condition is influenced by a gap in ICT access between the upper and lower classes," Teguh said.
Teguh said that people of the lower economic class could not capitalize on the opportunities that had emerged during the Covid-19 pandemic, because most economic activities in the informal sector required physical presence and could not be carried out online.
The policies and systems for alleviating the spike in the poverty rate would not have a significant impact if they were hampered in their implementation.
The widening inequality would complicate the ongoing efforts to lift people out of poverty. The policies and systems for alleviating the spike in the poverty rate would not have a significant impact if they were hampered in their implementation.
Informal workers
BPS head Suhariyanto said at a press conference on Wednesday that the number of poor people had increased because many people categorized as near poor had again descended into poverty.
The near-poor population comprised 19.91 million people in March 2019, or 7.5 percent of the Indonesian population. Of this figure, around 61.03 percent worked in the informal sector.
"The majority of near-poor people work in the informal sector and are not protected by the social safety net. So they are extremely vulnerable," said Suhariyanto.
BPS data as of February 2020 show that as many as 56.99 million people, or 43.5 percent of the nation’s workforce, were employed in the formal sector, while the remaining 74.04 million people (56.5 percent of the population) worked in the informal sector.
Suhariyanto said that the government’s safety net program was unable to cope with the economic impacts of the Covid-19 pandemic on household incomes. In addition, the pandemic had caused changes to people’s behavior and economic activities, as well as caused a decline in income, all of which had contributed to the increase in the poverty rate.
Social Affairs Minister Juliari P. Batubara said that the integrated social welfare data would be updated starting in 2021. He confirmed that the database had not been verified or validated since 2015. Data verification and validation is the responsibility of local administrations, while the ministry was in charge of integrating the national database.
"It should be acknowledged that the data is no longer relevant, but it is the most complete data we have, as it covers the poorest 40 percent of the total population," Juliari said on Wednesday during a hearing with the Budgetary Committee of the House of Representatives (DPR).
The government plans to update and expand the integrated social welfare database’s coverage from 40 percent to 60 percent of the population.
Business activities
Indonesian Hotel and Restaurant Association (PHRI) chairman Hariyadi Sukamdani said separately that businesses had limited intervention capacity to help mitigate the rise in poverty, as almost all business sectors were sluggish due to a shortage of demand.
"The condition is so difficult and the business sector cannot do much. If demand grows again, employment will increase again " he said.
The National Development Planning Agency (Bappenas) projects Indonesia’s poverty rate to range between 9.7 percent and 10.2 percent by the end of 2020, or between 26.2 million and 27.5 million poor people, an increase of 3.9 million people from earlier figures this year. The increase in the poverty rate is calculated on projected economic growth of minus 0.4 percent to 1 percent.
The Covid-19 pandemic and the large-scale social restrictions (PSBB) have increased people’s vulnerability to poverty. People in vulnerable groups have a 55 percent risk of descending into poverty, while poor people have an average risk of 55 percent in becoming chronically poor.
Bappenas deputy head for population and employment Pungky Sumadi said that in addition to social assistance, efforts to alleviate poverty were being made through improving human resource quality and increasing the role of micro, small and medium enterprises in contributing to the economy. (KRN)