Poverty Depth and Severity

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As discussed in Chapter 1 the poverty gap and the squared poverty gap are

used frequently to measure the depth and severity of poverty, respectively.

Table 3.4 shows calculations of poverty gap and severity indices by the

SMERU Research Institute.

Table 3.2 Headcount poverty rate and poverty numbers by islands and regions, 1996–99

Headcount poverty rate Number of poor

(%) households (million)

Group of Islands 1996a 1999 % change 1996a 1999 % change

1996–99 1996–99

Sumatra 15.46 19.81 28.14 6.3 8.6 36.51

Java and Bali 16.32 23.34 43.01 19.3 28.9 49.74

Kalimantan 15.01 19.87 32.38 1.6 2.2 37.50

Sulawesi 19.19 21.10 9.95 2.6 3.1 19.23

Other islandsb 38.54 43.51(43.57) 12.90 4.7 5.6(5.2) 19.15

Western Indonesia 16.10 22.42 39.25 25.6 37.5 46.48

Eastern Indonesiab 24.42 28.21(27.87) 15.52 8.9 10.9(10.5) 22.36

Indonesia 17.65 23.51(23.43) 33.20 34.5 48.4(48.0) 40.29

Notes:

a Based on the 1996 SUSENAS database, applying new (1998) standard.

b The numbers in parentheses are fi gures without East Timor.

Source: BPS, Statistics Indonesia (2000, 2001).

Table 3.3 Headcount poverty by sector and contribution to total poverty

Feb 1996 Feb 1999 Changes

in the

Sectoral Share of Sectoral Share of headcount

headcount poverty headcount poverty rate,

poverty (%) poverty (%) 1996–99 (%)

Sectors rate (%) rate (%)

Agriculture 26.29 68.54 39.69 58.38 50.97

Other 13.29 0.10 32.00 0.27 140.78

Mining and quarrying 15.34 1.01 29.81 1.00 94.33

Construction 14.04 5.42 28.97 5.52 106.34

Transport and communication 8.85 3.32 24.02 5.58 171.41

Manufacturing industry 10.69 5.71 22.92 7.71 114.41

Trade, hotel, restaurant 7.96 8.10 17.63 11.13 121.48

Electricity, gas, water 6.10 0.16 14.18 0.17 132.46

Civil, social, and private services 5.73 5.72 13.13 7.36 129.14

Finance, insurance, leasing 1.24 0.06 5.23 0.23 321.77

Receiving transfera 6.58 1.86 15.57 2.65 136.63

Total 9.75 100.00 16.27 100.00 66.87

Note: a Individuals that earn incomes from transfer.

Source: Pradhan et al. (2000).

Table 3.4 Poverty gap and severity indices, SMERU calculation, 1996–99

Poverty gap Squared poverty gap

Year Urban Rural Total Urban Rural Total

1996 0.5 2.1 1.6 0.1 0.5 0.4

1997 0.3 2.7 2.3 0.1 0.8 0.6

1998 1.4 7.0 6.0 0.4 2.7 2.3

1999 1.5 3.6 2.8 0.4 1.0 0.8

Source: Suharyadi et al. (2000a).

The SMERU poverty estimates show that before the Crisis, the poverty

gap had declined in urban areas but had worsened in rural areas. During

the Crisis, all indices in both areas show a signifi cant jump between 1997

and 1998, with those for urban areas increasing more rapidly than for rural

areas. It is interesting to note that between 1998 and 1999 the rural poverty

gap and severity index declined, while they remained relatively unchanged

in urban areas, further evidence that the economic crisis was an urban

phenomenon. However, in absolute terms, the poverty gap (and its relative

change) in rural areas remained much greater than in urban areas.

Another way to illustrate the depth and severity of poverty is to calculate

the incidence of chronic poverty. A household is considered to be in a state

of chronic poverty – sometimes also referred to as ‘structural poverty’ – if

the level of consumption is well below the poverty line. This segment of the

poor does not possess adequate access to economic resources.9 Sen (1999)

defi nes such a condition as ‘capability deprivation’, which is more serious

than just income or wealth deprivation.10

Suryahadi and Sumarto (2001) show that more than half of the increase

in poverty between 1996 and 1999 was due to an increase in chronic poverty.

The proportion of chronic poor within the total population increased from

3.2 per cent to 9.5 per cent during this period. Unlike transient poverty,

improvements in general macroeconomic performance might not have a

signifi cant infl uence on the living conditions of the chronic poor. This

means that the benefi ts of economic growth and the control of infl ation

may not affect the poorest segment of society. As a consequence, specifi c

targeted interventions are required to tackle the problems of chronic

poverty. Sumarto and Suryahadi (2001) also revealed that the Crisis not

only increased poverty incidence, but it also signifi cantly increased the

number of Indonesian households with a high vulnerability to poverty, in

the sense of a high probability of falling below the poverty line in the face

of adverse shocks. They estimated that the proportion of households that

were statistically not poor, but faced a relatively high probability of falling

below the poverty line, increased from 6.8 per cent in 1996 to 18.4 per cent in

1999, an increase of more than 170 per cent over the pre-Crisis fi gure. This

increase in vulnerability can be partially attributed to dis-saving on the part

of the poor. As their savings diminished, this group became more exposed

to future economic shocks. Adjustments to their pattern of expenditure

have also increased the vulnerability of poor households, especially where

they have been forced to reduce their spending on investment in education

and health in favor of basic needs.

In summary, after signifi cant improvements in poverty in previous decades

in the late 1990s the number of households living below the poverty line

increased substantially after the Crisis, as a result of lower real incomes

and the absence of an effective social safety net. The magnitude of the

impact of the crisis on poverty underlined the need for a comprehensive

set of measures that would provide some level of special assistance for

those families and individuals worst affected. Consequently, it suddenly

became more crucial than ever for the government to identify as accurately

as possible the most deserving sections of the community, and to make

decisions about how to target assistance, so that this was delivered in an

effi cient and timely manner. The effective targeting of anti-poverty programs

became an issue of national importance with the introduction of a package

of social safety net measures in 1998.