During the coronavirus pandemic (COVID-19), Indonesia like many other countries, experienced an economic shock, making it a challenge to alleviate poverty. Indonesia’s Central Bureau of Statistics (BPS) takes surveys on poverty twice a year-in March and September respectively. Before COVID-19, the surveys recorded the poverty rate at 9.22 percent on September 2019, 0.44 percent lower from the previous year, and 0.19 percent lower than March 2019. Despite succeeding in lowering poverty in previous years, efforts in alleviating poverty remain a complicated task in Indonesia as a middle-income country.
Indonesia experienced slower economic growth due to the COVID-19 pandemic, with recent data by BPS showing negative 5.32 percent growth for the second quarter of 2020 compared to the same quarter in 2019. With restrictions on movement, economic activities in sectors such as tourism have declined. Unemployment and poverty are expected to rise as jobs in the labour market reduce. How does the pandemic impact poverty in Indonesia? Can policies aimed to tackle poverty cope with the current situation?
Poverty Amidst COVID-19 in Indonesia
The COVID-19 pandemic has created a global health and economic crisis. Supply and demand shocks have been precipitated by factors such as restricted movements, decreased productions, pay cuts, and job losses. These factors will also affect poverty and economic growth rates of several countries, including Indonesia.
The World Bank has projected that COVID-19 will drastically slow down Indonesia’s economic growth and put millions of people into poverty this year. It projects that Indonesia’s growth rate will reach 2.1 percent this year (down from its initial estimation of 5.1 percent) or even less if the situation does not improve.
A study by the Social Monitoring and Early Response Unit (SMERU) Research Institute, an independent institution focusing on research and public policy studies in poverty and inequality, estimated the impact of COVID-19 on Indonesia’s poverty rate based on five forecasts of the 2020 economic growth, specifically economic growths at 4.2, 3, 2.1, 1.2, and 1 percent respectively.
Projected impact of COVID-19 outbreak on Indonesian poverty rate and number of poor people
The forecasts are divided into three severity levels: mild, moderate, and severe. The mild forecast is when Indonesia’s growth rate is 4.2 percent, followed by 2.1 percent for the moderate and 1 percent for the severe. The mild forecast projects that the poverty rate will increase to 9.71 percent by the end of 2020 from its baseline at 9.22 percent in September 2019, which means an additional 1.3 million people will become poor. The moderate scheme estimates the poverty rate will reach 11.42 percent, or an additional 6 million people living below the poverty line. Finally, the severe forecast shows that the poverty rate will reach 12.37 percent, implying 8.5 million new poor people.
Policy Responses to Poverty Amidst COVID-19
In handling the socioeconomic impact of the pandemic, the government has initially allocated 110 trillion rupiah. The allocation of funds has continuously increased till date as the socioeconomic impact of COVID-19 has not slowed. These funds are for social safety-net programs such as social assistance, pre-employment card acceleration (training and cash incentives for the unemployed), and electricity bill discounts. These programs aim to stimulate demand in the economy, to recover from the demand shock and support economic growth. However, Indonesia still lacks an accurate database of individuals and corporations, depriving some eligible individuals of benefits. Moreover, substantial funding is needed to provide aid through these programs which could increase Indonesia’s national debt. Consequently, these programs are restrained from running optimally.
Policy Recommendations
The study by SMERU Research Institute, mentions that the rise in poverty rate due to the COVID-19 pandemic ought to receive major attention from policymakers at the central and regional levels. It states that the Indonesian government should focus on providing social safety net programs for society, particularly to those living below the poverty line during COVID-19. Moreover, a policy note by the institute indicates that the government should create a precise mechanism in directing and distributing social assistance, and regulate the pre-employment card incentives to be primarily targeted to those in the medical sector and the jobless caused by COVID-19. Additionally, the target of electricity assistance needs to be broadened, and the sustainability of micro and small enterprises needs to be ensured as to save them from permanent closure.
From 1999 to 2019, Indonesia’s poverty rate has reduced by more than half. The projection of poverty rate at 12.37 percent is similar to that in 2011, implying that Indonesia will need further efforts to alleviate poverty in the new normal of COVID. Some steps that can be taken are by adapting to new market prospects through potential sectors of the economy such as the agriculture and digital sector, thus creating new employment opportunities. As the government’s headway in lowering poverty in the past decade can potentially go back to its initial starting point, Indonesia needs much preparation to alleviate poverty in the face of COVID-19.
