Beware of Rising Poverty

KOMPAS/A PONCO ANGGORO

A portrait of poverty in Kobamar village, Aru Utara district, Aru Islands regency, Maluku Province.

The poverty rate decreased in March 2022. After March however, inflation shot up, especially affecting food, which is what the poor mostly spend on.

JAKARTA, KOMPAS – This year’s efforts to reduce poverty have been overshadowed by rising prices for basic necessities, which continue to increase over time. Without serious intervention in the targeting and reach of social aid distribution, poverty is expected to rise again, especially in rural areas.

The poverty rate in March 2022 published by Statistics Indonesia (BPS) on Friday (15/7/2022) did show a decline compared with the previous year. This was accompanied by economic recovery, increasing control of the pandemic as well as achieving national economic growth of 5.01 percent in the first quarter of 2022.

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BPS noted that in March 2022, the poverty rate was 9.54 percent of the total population or 26.12 million people – a 0.17 percent decrease compared with September 2021 when the poverty rate was 9.71 percent or 26.50 million people. Though the annual figures have decreased, the number of people in poverty as of March 2022 is still higher than before the pandemic. As a comparison, prior to the pandemic in September 2019, the poverty rate was 9.22 percent or 24.68 million people.

However, this recovery has been hindered by challenges posed by the global food and energy crisis, which have impacted rising prices for various basic necessities.

BPS head Margo Yuwono explained that the reduction in the poverty rate showed that post-pandemic economic recovery was still ongoing. However, this recovery has been hindered by challenges posed by the global food and energy crisis, which have impacted rising prices for various basic necessities.

The rapid upwards trend in inflation mainly affects the poor, who are most vulnerable to economic shocks. “The increase in the prices of several commodities that are consumed by the public of course adds to the burden of spending for the poor,” said Margo in a virtual press conference in Jakarta.

In March 2022, the prices of food commodities that the poor mostly consume include broiler eggs (up 31.55 percent compared with September 2021), bulk cooking oil (up 10.34 percent), garlic (up 7.7 percent) and chicken (up 7.31 percent).

Eroded by inflation

Center of Reform on Economics (CORE) Indonesia executive director Mohammad Faisal said the decline in the poverty rate in March 2022 was expected along with a more controlled pandemic and the revival of the economy.

Despite the increase in inflation, the situation is not as severe as after March 2022. In March 2022, inflation was recorded at 2.64 percent annually and 1.2 percent year-on-year (yoy).

KOMPAS/ANGGER PUTRANTO

Agriculture Minister Andi Amran Sulaiman (second left) speaks with farmers on Thursday (23/5/2018) in Ledok Ombo village, Jember, East Java. The ministry has just launched a poverty welfare improvement program in an effort to reduce the poverty rate among farming households.

However, great challenges stand in the way of efforts to reduce poverty in the future. This is because inflation has continued to rise sharply after March 2022. As of June 2022, annual inflation reached 4.35 percent and for the current year it stands at 3.19 percent.

“In just half a year, inflation has doubled compared with during the pandemic [in 2020]. In the latter half of the year, inflation of 5 percent is very likely to occur. Even though it is still relatively moderate compared with inflation in other countries. This will really impact the purchasing power of the people,” said Faisal.

Moreover, the highest inflation has hit food, which dominates the spending of the poor. Food inflation in June 2022 reached 9.57 percent annually. “People’s income and mobility may be increasing, but in reality, their income will be eroded by increasing inflation,” he said.

Social aid reach

If social aid distribution is not accurately targeted and reaching rural communities, then poverty is expected to increase. As of March 2022, the poverty gap index showed a decline from 1.668 percent in September 2021 to 1.586 percent.

The higher the poverty gap index, the further away from the poverty line a population is. This means that people would find it increasingly difficult to get out of poverty.

The poverty gap index is much higher in rural areas (2.125 percent) compared with urban areas (1.187 percent). According to Faisal, this also deserves attention because although the government has now increased the budget and value of social aid programs, their reach to villages is still limited.

“In terms of social aid, although its value has increased, most of it only covers people in the city, where it is easier to distribute social aid. But in fact, there is a lot of extreme poverty in rural areas, which are usually remote locations that are difficult to access,” he said.

For the government to expand the reach of social aid to rural areas, the social protection budget allocation should not only focus on the nominal value of social aid but also its distribution budget so that it can reach more remote areas.

Amid limitations of the current state budget, spending on social aid programs and subsidies that are not well-targeted will only worsen the state’s financial condition.

Meanwhile, improving data on social aid targets remains a typical issue that needs to be addressed. Amid limitations of the current state budget, spending on social aid programs and subsidies that are not well-targeted will only worsen the state’s financial condition.

Meanwhile, Institute for Development of Economics and Finance (Indef) executive director Tauhid Ahmad assessed that the current momentum in economic recovery had been more favorable to the upper-middle class economic group than the lower-middle. This can be seen from the Gini coefficient, which increased in March 2022.

KOMPAS/TOTOK WIJAYANTO

Dwellers of semi-permanent buildings along the railway tracks in Kampung Bandan area, North Jakart, with the background of multi-storied residential buildings on Tuesday (23/5). The poverty rate per September 2016 reached 27.76 million people, or 10.70 percent of the total population. This year, the government targets the poverty will decline to 10.5 percent. To accelerate reduction in the economic inequality pace, the government will raise and empower 40 percent of the poor population.

BPS reported that the Gini coefficient in March 2022 was 0.384, an increase from September 2021, where it was 0.381. The closer the value is to 1, the wider the inequality gap. On the other hand, the closer to the value is to 0, the closer it is to perfect equality.

“The solution to this must be more progressive. Don’t let the current recovery conditions be enjoyed only by a handful of middle- and upper-class people, while leaving out the poor,” he said. (AGE/COK/VIO).

(This article was translated by Kesya Adhalia)