Poverty in Indonesia

When people escape (near) poverty it effectively means their purchasing power strengthens, and therefore they can start consuming more products and services (or higher-quality products and services). This consequently means that more has to be produced in the local economy amid strengthening demand. This not only creates new business opportunities for entrepreneurs (ranging from micro-entrepreneurs to the big multinationals), but automatically also creates jobs. And those who get a (new) job typically enjoy more income, hence they can consume/spend more. And so, it turns into an (upward moving) virtuous circle that drives overall economic growth that (ideally) pushes many people out of (near) poverty, into the middle-class.

Poverty in Recent Indonesian History

Between the mid-1960s and 1996, when Indonesia was under the rule of Suharto's New Order government (1966-1998), the country witnessed a significant decline in poverty - both urban and rural - due to robust economic growth and effective poverty eradication programs (including the family planning program). During the Suharto period, the number of Indonesians who lived below the poverty line eased from around 60 percent of the total population in 1970 to a low of 11.3 percent in 1996.

However, when the Asian Financial Crisis rocked the financial foundations of Indonesia in 1997-1998 it had a devastating impact on poverty alleviation, causing the poverty rate to slip back from 11.3 percent to 19.9 percent in late-1998, meaning that much of the New Order's good work had been undone.

Chart A; Indonesia’s Poverty Headcount Ratio at National Poverty Line (% of the Population):

Chart A also shows two milder peaks in poverty in Indonesia, namely in 2006 (when subsidized fuel price reforms, imposed in 2005, caused significant inflationary pressures) and in 2020-2021 (when the COVID-19 crisis did unprecedented damage to the Indonesian economy). Meanwhile, during 2013-2015 the reduction in poverty was near zero as, again, subsidized fuel price adjustments triggered inflation (albeit the damage was not too big this time as global crude oil prices were relatively low at the time).

What is also visible in chart A is that the downward trend in poverty became increasingly flat after 2012. At play here is the problem that it becomes increasingly difficult for the government to push the bottom poor out of poverty (whereas it was less difficult to push those who lived not far below the poverty threshold out of poverty in earlier years/decades). As such, poverty eradication is expected to continue at a slow pace in the future.

It is important to inform here that Indonesia's Statistical Offie (Badan Pusat Statistik, or BPS) and the World Bank use different parameters for poverty (this is discussed in more detail below), which explains why data in chart A may differ from most other data used on this page (as these data are obtained from BPS).

Latest Developments

As mentioned above, there is structural reduction in Indonesian poverty (with a few hiccups) but the pace of reduction in poverty now goes at a slow pace. Based on the latest data from BPS, there were 25.22 million people living below the poverty threshold in Indonesia in 2024, which is 9.03 percent of the national population.

The following table provides poverty and inequality figures - both relative and absolute - for the population of Indonesia (for an analysis of Indonesia's Gini ratio please scroll to the bottom of this page).

Indonesian Poverty and Inequality Statistics:

	2019	2020	2021	2022	2023	2024
Relative Poverty (% of population)	9.22	10.19	9.71	9.57	9.36	9.03
Absolute Poverty (in millions)	24.78	27.55	26.50	26.36	25.90	25.22
Gini Coefficient/ Gini Ratio	0.380	0.385	0.381	0.381	0.388	0.379

	2013	2014	2015	2016	2017	2018
Relative Poverty (% of population)	11.47	10.96	11.13	10.70	10.12	9.66
Absolute Poverty (in millions)	28.55	27.73	28.51	27.76	26.58	25.67
Gini Coefficient/ Gini Ratio	0.406	0.414	0.402	0.394	0.391	0.384

	2007	2008	2009	2010	2011	2012
Relative Poverty (% of population)	16.6	15.4	14.2	13.3	12.5	11.7
Absolute Poverty (in millions)	37	35	3.25	31.0	30.0	28.7
Gini Coefficient/ Gini Ratio	0.35	0.35	0.37	0.38	0.41	0.41

^{Source: Badan Pusat Statistik Indonesia (BPS)} 

Different Definitions Lead to Different Outcomes

What is interesting is that BPS uses a low poverty threshold, which makes the poverty statistics of Indonesia look better than they actually are. The threshold BPS uses is set at IDR 582,932 (or approx. USD $36.0) per capita, per month. This equals (roughly) USD $1.19 per day.

Even by Indonesian standards, that is quite a low standard. For comparison, the World Bank defines “extreme poverty” as those who live on less than USD $2.15 per day. And so, if we would apply the World Bank’s standard, Indonesia’s poverty statistics are bound to deteriorate quite significantly. Perhaps dozens of millions would then fall in the poverty group as Indonesia has a large group of people who live just above BPS' poverty line.

Threat of Food Price Inflation

Food price stability (rice in particular) is vital for Indonesia in terms of poverty eradication as Indonesians spend a large proportion of their disposable incomes on rice (between 22-26 percent of disposable incomes). Other important food commodities consumed by the (near) poor are chicken eggs, chicken meat, instant noodles, sugar and bread.

So, rice price pressures (for example due to bad harvests) can have serious consequences for those who are poor or near poor. In fact, modest inflationary pressures can push a significant number of near poor people into full-blown poverty.

Indonesian Poverty and Geographical Distribution

One remarkable characteristic of Indonesian poverty is that there is a major difference in terms of relative and absolute poverty in relation to geographical distribution.

While in absolute terms over half of the total Indonesian poor population lives on the island of Java (located in the more populous western half of Indonesia), in relative terms the provinces of eastern Indonesia show far higher numbers of poverty. The table below shows the top five of Indonesian provinces regarding highest incidences of relative poverty. All these provinces are located outside the more developed western-located islands of Java, Sumatra and Bali.

Indonesian Provinces with Highest Relative Poverty (in 2024):

Province	Poor People¹
Highland Papua	32.97%
Central Papua	29.76%
West Papua	21.66%
East Nusa Tenggara	19.48%
Southwest Papua	18.13%

^{¹ as percentage of total provincial population
Source: Badan Pusat Statistik (BPS)}

These eastern provinces of Indonesia, where farmers lead a largely subsistence existence, contain very high rates of rural poverty. In these regions, indigenous communities have been living on the margins of development processes and government (or international) programs. Migration to urban areas is often the only way to find employment and - thus - escape poverty.

However, contrary to relative poverty in eastern Indonesia, the table below shows that absolute poverty in Indonesia is mainly clustered on the islands of Java and Sumatra. These two islands are the most populous islands in Indonesia.

Indonesian Provinces with Highest Absolute Poverty (in 2024):

Province	Poor People  (in millions)
East Java	3.98
West Java	3.85
Central Java	3.70
North Sumatra	1.23
East Nusa Tenggara	1.13

^{Source: Badan Pusat Statistik (BPS)}

Rural and Urban Poverty in Indonesia

Just like the trend around the world, Indonesia has been experiencing a process of rapid and structural urbanization for many decades. Ever since the mid-1990s the number of Indonesians living in the rural areas has been declining. Today, more than half of Indonesia's total population lives in urban environments (whereas in the mid-1990s approximately one-third of Indonesia's population lived in urban societies).

With the exception of a few provinces, the rural populations of Indonesia are poorer than the urban ones (in relative terms). Indonesia's rural poverty rate (percentage of the rural population living below the rural poverty line) dropped to around 20 percent in the mid-1990s but suffered at the hands of the Asian Financial Crisis that ravaged the country between 1997 and 1998, causing the number of poor people in the rural areas to rise again to 26 percent. When the recovery from the Asian Financial Crisis kicked in, a significant decline in rural poverty in Indonesia emerged, although - just like the overall poverty rate - the pace of decline goes increasingly slow.

Rural Poverty in Indonesia:

	2020	2021	2022	2023	2024	2025	2026
Rural Poverty¹	13.20	12.53	12.36	12.22	11.79
Urban Poverty²	7.88	7.60	7.53	7.29	7.09

	2013	2014	2015	2016	2017	2018	2019
Rural Poverty¹	14.42	13.76	14.09	13.96	13.47	13.10	12.60
Urban Poverty²	8.52	8.16	8.22	7.73	7.26	6.89	6.56

	2006	2007	2008	2009	2010	2011	2012
Rural Poverty¹	21.8	20.4	18.9	17.4	16.6	15.7	14.3
Urban Poverty²	13.5	12.5	11.6	10.7	9.9	9.2	8.4

^{¹ % of people living below the rural poverty line
² % of people living below the urban poverty line
Source: Badan Pusat Statistik (BPS)}

The urban poverty rate is the percentage of the urban population living below the national urban poverty line. Urban poverty in Indonesia shows a similar pattern as Indonesia's rural poverty rate, namely an increasingly slow pace of reduction as it becomes increasingly difficult to push the poorest urban residents out of poverty.

Widening Inequality in Indonesia?

The Gini ratio (or coefficient), which measures income distribution inequality, is an important indicator to assess the degree of 'righteousness' in a country (although this indicator does have its flaws). A Gini coefficient of 0 indicates perfect equality, while a coefficient of 1 indicates perfect inequality.

It is interesting to note that a sharp rise in income distribution inequality occurred in Indonesia in the post-Suharto era. Thus, the period of democracy and decentralization in the post-Suharto era created an environment that allowed for rising inequality in Indonesian society: while in the 1990s Indonesia's Gini ratio stood at an average of 0.30, it rose to an average of 0.39 in the 2000s, and remained stable at an average of 0.395 in the 2010s before easing to 0.38 in the early 2020s.

Therefore, it is actually painful that growing inequality in Indonesia emerged during a period when the Indonesian economy expanded from a USD $140 billion economy (GDP, current prices) into a USD $1.37 trillion economy in 2023 (World Bank data). The Gini ratio data from BPS also suggest that the 2000s commodities boom (which gave the Indonesian economy great momentum) triggered an increase in inequality in Indonesia (as the richer segments of society benefited more from high commodity prices than the poorer segments).

However, the methodology of the Gini coefficient can be questioned as it divides the population in five baskets, each containing 20 percent of the population: from the 20 percent richest to the 20 percent poorest. Subsequently, it measures the (in)equality between those five baskets. The problem when using this coefficient for Indonesia, however, is that the country is characterized by extreme inequality within each basket, making the outcome of the Gini coefficient less in tune with reality.

Asian Countries with the Highest Average Gini Ratio:

Country	Gini Ratio in  the 1990s	Gini Ratio in  the 2000s	Difference
China	0.34	0.45	+0.11
Indonesia	0.30	0.39	+0.09
Laos	0.32	0.38	+0.06
India	0.34	0.39	+0.05
Vietnam	0.37	0.37	0.00
Cambodia	0.39	0.38	-0.01
Philippines	0.45	0.44	-0.01
Malaysia	0.49	0.47	-0.02
Thailand	0.46	0.41	-0.05

^{Source: World Bank}

In Indonesia the Gini ratio is also closely related to the movement of commodity prices. The rising trend of the nation's Gini ratio in the 2000s came amid the commodities boom, while the Gini ratio stabilized after commodity prices collapsed in 2011. Therefore, one could argue that rising (or falling) commodity prices particularly affect the top 20 percent of the Indonesian population (lower commodity prices weakens this group's incomes and purchasing power).

A high degree of inequality in society is a threat because it not only jeopardizes social cohesion but it also jeopardizes political and economic stability. Moreover, research conducted by the World Bank shows that countries with more equal wealth distribution tend to grow faster and more stably compared to those countries that exhibit a high degree of inequality.

Besides overall nationwide inequality in Indonesia, there also exists a high degree of inequality among the various regions within the country. For example the island of Java, particularly the Greater Jakarta region, contributes nearly 60 percent to the total Indonesian economy. Direct investment realization has also been concentrated on this island (thus facilitating rising inequality between Java and the outer islands). Only recently do we see a more balanced spread between direct investment on and outside Java.

What can the government do to combat income distribution inequality in Indonesia? Key strategies would be to increase employment opportunities for Indonesians by encouraging the development of labor-intensive sectors (particularly the agriculture sector and manufacturing industry). To achieve this, it is important to attract direct investment in these labor-intensive industries (implying the government needs to continue its focus on improving Indonesia's investment environment).

Meanwhile, the government needs to focus on the development of new economic growth centers outside the island of Java in order to reduce inequality (structurally) among the various regions. Infrastructure development in the remote regions is one strategy to achieve this (which will cause the so-called multiplier effect). Lastly, education and health should also be improved nationwide as higher education and healthy lifestyles tend to lead to higher incomes. Moreover, if we return to poverty, key reasons why people are poor include lacking access to education, healthcare and infrastructure. And so, the government needs to continue its focus on these areas, making sure existing programs become increasingly effective.

Concluding Remarks

Although Indonesia has shown decent progress in terms of poverty eradication over the past couple of decades, it is now going at a slow pace as it is the bottom base of Indonesia's poor who now need to be alleviated (which is a more complicated affair). However, the problem is that with the current pace it will take decades before poverty is errased altogether across Indonesia. And that's a tough prospect for the many millions of poor people.

Last update: 14 July 2024

For a more in-depth analysis of poverty in Indonesia we refer readers to our latest poverty in Indonesia report (link below).

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