The Impact of the Crisis on Poverty and Equity

Abstract

This article serves three purposes: (1) it reviews the evidence on trends in urban and rural poverty in Southeast Asia in recent years; (2) it examines the available estimates of increases in poverty in Indonesia, the most severely affected economy; (3) in the light of this evidence, it looks at possible policy interventions, specifically for Indonesia, but also draws some more general conclusions for the ASEAN region. Introduction It is clearly premature to analyse the impact of the crisis on poverty or on the distribution of income and wealth in any of the severely affected ASEAN economies. Household income and expenditure surveys in most parts of the region are carried out only every two or three years, and their results can take at least another year to be published. Analysts are unlikely to have reliable household survey data for 1998 (the first year in which the full impact of the crisis will be felt) until at least the latter part of 1999. Where household surveys are not due until 1999, the data will not be available until 2000 or 2001. Although several studies are already predicting very substantial increases in numbers below the poverty line in both Indonesia and Thailand, such estimates, however carefully they have been made, must be treated with caution. While few serious commentators doubt that there will be a sharp fall in household incomes in both these economies, for reasons which I discuss in more detail below, it is far from clear how the decline will affect different regions, and different socio-economic groups. Given these constraints, the main purposes of this article are three-fold. The first part of the article reviews the evidence on trends in urban and rural poverty in Southeast Asia in recent years. The second part examines the available estimates on increases in poverty for Indonesia, the most severely affected economy in ASEAN. Although all these estimates are to some extent conjectural, important lessons can be drawn from them about the impact of the crisis on poverty in Indonesia. On the basis of the Indonesian evidence, the third part of the paper looks at possible policy interventions, again paying particular attention to the Indonesian case but also drawing some more general conclusions about appropriate policy responses in other parts of the ASEAN region. Urban and Rural Poverty in ASEAN It has frequently been argued that, in spite of the relative neglect of the agricultural sector in recent years, the fast-growing ASEAN economies have all experienced a rapid decline in numbers below the poverty line, in both urban and rural areas.1 Certainly the available data indicate a sustained decline in both the headcount measure of poverty and the numbers below the poverty line in Thailand, Malaysia and Indonesia between 1985 and 1995 (Ahuja, Bidani, Ferreira and Walton 1997, p. 6). The extent to which this decline is due to declines within rural areas, as distinct from declines in urban areas and intersectoral population shifts, is more controversial. The issue is made more complicated by debates about appropriate urban and rural poverty lines. In Indonesia, the official poverty estimates have consistently used a much higher poverty line in urban than in rural areas; in many years the urban line has been at least 50 per cent higher. This has been criticized by several analysts, who argue that such a large differential cannot be justified by differences in prices (Asra 1998, pp. 22-24). Of course the higher poverty line in urban areas gives a higher headcount measure of poverty, relative to that in rural areas. The higher headcount measure coupled with the fact that urban populations were growing much faster meant that, in the years from 1976 to 1987, the absolute numbers of poor in urban areas scarcely changed in Indonesia; almost the entire decline in numbers below the poverty line over these years was due to the fall in rural areas (Central Board of Statistics 1992, Table 3. …