5 - Patterns of regional poverty in the new Indonesia

Summary

INTRODUCTION

Poverty in Indonesia has fallen markedly since 1976, although there have been significant differences in rates of reduction between regions. In the wake of the Asian financial crisis of 1997–98, and the accompanying financial, economic, social and political upheaval, Indonesia entered a new democratic period known as reformasi. Shortly afterwards, Indonesia implemented in a relatively short period one of the largest-scale decentralizations ever seen, bypassing the provincial level of government to transfer substantial power and resources to the districts. Since then, the economy has recovered and continues to perform strongly, with average annual growth in GDP of 5.6 per cent, a stable currency and inflation record, and continued reductions in poverty. This new economic expansion has been achieved in part by riding a (largely Chinese-driven) boom in global commodity prices.

As Hill, Resosudarmo and Vidyattama (2008: 408) note, ‘Development dynamics are a long-term phenomenon, involving decades rather than years’. It is now over a decade since Indonesia recovered from the crisis, implemented its decentralization reforms and embarked on a period of renewed economic expansion, meaning that only now has sufficient time elapsed for us to take a look at long-run patterns of regional poverty in Indonesia, with a detailed examination of the decentralization period. We update the provincial analysis to cover the two decades from 1993 to 2012, while also offering some initial analysis on district-level poverty performance since decentralization.

We ask two main questions. First, what are the patterns of regional poverty in the periods immediately before and after reformasi? Have trends in poverty reduction remained much the same, or did the crisis, reformasi and decentralization mark a structural break in patterns of provincial poverty reduction? Second, has decentralization led to faster poverty reduction, as many had hoped? Have the winners and losers with respect to poverty among the districts remained the same, or changed? And what role has the fragmentation of districts – the process of districts splitting to form new ones, known in Indonesia as pemekaran – played in poverty reduction and district development?

Section 5.2 provides an overview of poverty at the national level since 1976, along with a brief summary of the literature on regional poverty in Indonesia. Section 5.3 examines provincial poverty trends during three periods: 1993–96, 1996–2003 and 2003–12.