Working Paper: March 2003

The Evolution of Poverty during the Crisis in Indonesia

Asep Suryahadi, Sudarno Sumarto - The SMERU Research Institute

Lant Pritchett* - Kennedy School of Government, Harvard University

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Table of Content

Abstract
I. Introduction
II. Defining "Real" Expenditures
III. Sensitivity of Poverty Rate to the Poverty Line
IV. Methods for Estimating the Change in Headcount Poverty
V. A Consistent Set of Poverty Estimates during the Crisis
VI. Conclusions
References

Abstract

The economic crisis caused a clear deterioration in the welfare of the Indonesian people. In this paper, we examine the appropriate method to compare the change in poverty rates over time. We then piece together a consistent series of estimates of poverty rates during the crisis from various sources, covering a period from February 1996 to February 2002. The reconciliation of these various estimates paints a very reasonable picture and neatly tracks events. The poverty rate increased from the lowest point of around 15 percent at the onset of the crisis in the mid of 1997 to the highest point of around 33 percent nearing the end of 1998. This maximum increase in poverty rate during the crisis of 18 percentage points implies that around 36 million additional people were pushed into absolute poverty due to the crisis. After the peak point, the poverty rate started to decline again and reached the pre-crisis level of around 15 percents at the end of 1999, implying the lost time in poverty reduction due to the crisis was around two and a half years. However, the poverty rate after this point appears to have fluctuated. During 2001 until early 2002, poverty was on the rise again.

Keywords: poverty, crisis, welfare, measurement, Indonesia

* We would like to thank Menno Pradhan and Emmanuel Skoufias for their comments and suggestions, Wenefrida Widyanti for research assistance, and BPS and UNICEF for providing access to the data. Errors and weaknesses of this study are ours.