| Statement by the
Representative of the Asian Development Bank on
Poverty and Vulnerability
I. Introduction
We are pleased to be here and participate in this session on Poverty at the Consultative
Group Meeting on Indonesia.
Poverty is one of the central elements of any development plan and of development
assistance. To underscore this, the Asian Development Bank's President has last year set
poverty reduction as the overarching goal of the ADB: all our programs and projects should
be designed to have the maximum impact on long-term poverty reduction.
As part of that we have conducted, with the participation of the Government and elements
of civil society an assessment of the poverty in Indonesia. This assessment is available
for you as well as the detailed statistical data assembled.
This poverty assessment was conducted not simply to count the poor, although an accurate
count of the poor and the extent of their poverty is crucial to designing and implementing
antipoverty programs.
Equally we feel that only by understanding the complex nature of the economic and social
situation facing the poor can we truly fashion effective anti-poverty programs. It is in
this spi6t that we undertook our poverty analysis.
II. The Nature of Poverty in Indonesia
Indonesia's record in reducing poverty in the two decades preceding the crisis is
exceptional. From a country with widespread poverty it rose to the ranks of a middle
income country in two decades. The incidence of poverty fell from 40 percent in 1976 to 11
percent in February 1996. Indonesia's rapid economic growth thus proved to be effective in
reducing poverty, even if the crisis in 1997 revealed unsustainable elements in this
pattern of development.
The crisis in 1997 had an immediate impact on the poor and near-poor. Although the sharp
increase in the incidence of poverty has receded with the economic recovery and
macroeconomic stabilization, the surge in poverty during the crisis left a very heavy
social burden and has left a large segment of the population in a depleted and vulnerable
state.
There is, moreover, a wide dispersion of the incidence of poverty across regions. While
the largest number of absolute poor live an Java, the share of the population below the
poverty line is far greater in the outer islands. The three provinces with the largest
number of poor are West Java, Central Java, and East Java- together they comprise 53
percent of the population and 54 percent of all poor. These are not the provinces with the
highest incidence of poverty. The three poorest provinces are Irian Jaya, Maluku, and NTT.
Together they comprise 4 percent of the total population yet because of their high poverty
incidence they compose 8 percent of the total poor. Different approaches are needed for
areas with large numbers of poor and areas with high concentrations of poor.
In some areas, social tensions and outbreaks of sectarian or political violence have
aggravated the impact of the crisis on the poor. Most notably the independence of East
Timor has left an unsettled peace and order situation in West Timor. The poor are often
the first and abiding victims of social upheaval, with few resources to resettle
themselves or to restart their lives.
That the worst social tensions occur in regions that benefited relatively less from the
significant social improvements of the past decade merely repeats the pattern seen in
other countries-a lack of economic and social development feeds and in turn is fed by a
lack of political stability.
Poverty is not just the lack of income, poverty is a matter of a lack of access to social
services, to housing, and to social protection. In these broader aspects of poverty,
Indonesia has also made significant progress. Yet clear challenges remain. In education,
there is the urgent need to improve quality at all levels and to ensure access to the
poor-children must not only be able to enter school, they must be enabled to complete
their schooling. In health there are also concerns related to service provision,
particularly in relation to maternal mortality. There are also specific needs to focus
attention on poverty-related problems such as malnutrition- Since the economic crisis,
local governments are finding it not only difficult to expand infrastructure service
coverage, but also often cannot adequately maintain existing physical facilities. This is
causing water and sanitation entities to reduce the service levels as facilities
deteriorate.
The indicators of human development vary by region. They do not always coincide with the
incidence of income poverty. There is a need for measures that specifically address the
differential provision of public services across regions.
III. The Lessons Learned from Poverty Analysis
There are at least ten lessons we can learn from our poverty analysis:
1. Prudent stabilization policy guarding against inflation is important to protect the
poor against sharp changes in real disposable income. Cautious fiscal and monetary policy
must be maintained, in support of the recovery and development expenditures, particularly
for the social sectors.
2. Agriculture remains important for many of the poor. Productivity and real wages need to
be raised through rural sector development, including fresh technology, crop
diversification, improving security of land tenure, supporting infrastructure, and
reducing the sector's vulnerability to drought and pests.
3. Manufacturing and services are the main engine for pro-poor growth but workably
competitive markets need to be encouraged. The potential for SME growth to provide
income-earning opportunities for the poor must be realized. This will demand a dearer
focus, coordination of existing programs, and innovate programs to have some effect.
4. Infrastructure investment is needed to unblock the potential of the
rural and outer island areas. At the household level access to basic services such as safe
water supply, sanitation, and electricity is limited.
5. Microfinance has proved an effective tool for poverty reduction in Indonesia. The best
models link NGOs and financial institutions to extend the access of the poor to financial
services and savings mobilization--integrating microfinance with the overall financial
system. Experience to date shows flexible terms and simple procedures are more important
than subsidized credit.
6. The poor tend to be powerless. The approach for decades had been to treat the poor as
objects of development not partners in the process although there have been clear changes
in the last decade with the Government adopting more inclusive participatory mechanisms.
Public institutions need to be responsive to the poor which likely demands changes in the
incentive systems for public officials.
7. Social protection is essential to protect the vulnerable. The poor and near poor are
vulnerable to poverty from local or systemic shocks such as drought, flood, political
turmoil, commodity price changes, or inflation. Under increasingly liberal market
conditions the poor and near poor are exposed to more and different types of risk, The
lessons from the social safety net operations during the recent crisis should be studied
and built into strengthening a national system of social protection.
8. Improvements in social and public service delivery are crucial for long-term human
development. Education, health services, and safe drinking water can make the difference
in the potential for individual and community development, and for mitigating the
disadvantages faced by the children of poor families.
9. An effective poverty monitoring system is needed to track groups of people that may
fall in and out of poverty over time. Experience so far suggests that some combination of
geographic and individual targeting as well as the use of local knowledge will be most
effective in reaching the poor. Of concern is the reduction in the coverage of the family
income surveys. The implication of this for effective poverty monitoring must be
considered.
10. Significant initial steps have been taken to improve governance, including in the
areas of corruption, decentralization, public expenditure management, legal and judicial
systems, and market competition. All promote pro-poor growth.
IV. The Need for a Strategic Approach, for Effective Coordination, and for Solid
Implementation
The lessons for national development from our poverty assessment are not new. The
essential elements are, for instance, found in the PROPENAS. But to be effective, there
must also be a strategic vision acting to channel public action and encourage private
investment.
In particular, it is important not to mistake a collection of projects for a strategy-a
set of guiding principles that will allow decision-makers over time to act in a
consistent, collectively reinforcing fashion to meet the goal of reducing poverty. The
tasks are many and aggregate costs large. The absence of a strategy risks the diffusion of
efforts. The Government's statement today provides considerable encouragement towards
meeting the need for an effective strategy.
It is also important not to mistake a strategy for action--no one is lifted out of poverty
by the publication of a report. The strategy must be given shape in public actions. To
this end, the Government must indicate who will have the policy making, directing, and
monitoring responsibility for the program of poverty reduction.
Implementation issues are also crucial. Too often in the past, vast sums of public
resources have been devoted to solving critical problems only to be diverted away from the
intended goals.
One critical element in improving effectiveness will be a greater degree of flexibility;
in project design and in administration. This is consistent with the need to be a full
partner in the ongoing process of decentralization, to target assistance to the needs of
the beneficiaries with their widely diverse problems and capabilities. The ADB will work
with the Government to ensure that our own business practices meet the needs for
flexibility.
More broadly, improvements in governance are as important as anything else I have
mentioned and the subject of much of our discussion today and tomorrow.
Thank you for your attention |