POVERTY DYNAMICS IN INDONESIA, 2008–20101

Abstract

Although official figures show that poverty in Indonesia has declined, it remains one of the key
development issues. The current static poverty approach in assessing poverty changes has not been sufficient
to design effective and strategic policies for poverty reduction. This study analyses the dynamics
of poverty in Indonesia using the 2008–2010 panel data of the Survei Sosial Ekonomi Nasional
(Susenas), the National Socio-Economic Survey. This study uses a sequential transition matrix to depict
the dynamics of poverty that are shown by the magnitude of changes in poverty status (especially transient
and chronic poverty). The matrix indicates that the incidence of transient and chronic poverty
for the period 2008–2010 was 23.2 per cent, much higher than the figure of 13.3 per cent derived
by using the static poverty approach in 2010. This suggests that the magnitude of the poverty problem
in Indonesia is indeed much higher than the common perception that is based on the usual poverty
indicators. The results of a multinomial logistic model reconfirm the importance of investment in
education, improvement in the agricultural and non-agricultural sectors, and reduction of dependency
ratios to help cope with transient and chronic poverty. To help develop poverty alleviation policy and
to design intervention programs, using the statistics of chronic poverty and the Human Development
Index, there are eight provinces that could be considered as the core focus area. These provinces are
Nangroe Aceh Darussalam, Lampung, East Java, East Nusa Tenggara, Central Sulawesi, South East
Sulawesi, Maluku, and West Papua, and all need immediate intervention and accelerated poverty
reduction programs.

Keywords: Geographical targeting, Multinomial logistic, Poverty dynamics, Transient and chronic
poverty, Sequential transition