Poverty Eradication and Unemployment Reduction Below Target in Indonesia
After Indonesia's outlook for economic growth in 2014 was revised down from 6 percent to between 5.8 and 6 percent, the government also revised targets of poverty and unemployment reduction. In the 2014 State Budget (APBN 2014), the government set the targeted poverty rate at 9.0 to 10.5 percent of Indonesia's total population. However, the government revised down this poverty rate to between 10.54 and 10.75 percent, which is also far below the target that was set in the National Medium Term Development Plan (RPJMN) at 8 to 10 percent.
A revision was also made to the targeted reduction in the number of unemployed Indonesians. In the 2014 State Budget, the government targets an unemployment rate of between 5.7 and 5.9 percent. However, the government has revised this target to an unemployment rate of 5.7 to 6 percent.
| 2014 | 2013 | ||||
| RPJMN |
State Budget |
Outlook | State Budget | Realization | |
| Poverty | 8-10% | 9.0-10.5% | 10.54-10.75% | 9.5-10.5% | 11.47% |
| Unemployment | 5-6% | 5.7-5.9% | 5.7-6.0% | 5.8-6.1% | 6.25% |
The revision of the country's poverty target is caused by a number of factors: slowing economic growth, a higher inflation rate and the recent natural disasters (ranging from floods to volcano eruptions). Minister of National Development Planning (Bappenas) Armida Alisjahbana admits that inflation is still the biggest obstacle to reducing poverty. Higher inflation at the start of 2014 was caused by flooding (amid a peak of the rainy season) leading to the disruption of distribution networks, as well as last year's depreciating rupiah which resulted in imported inflation. In the 2014 State Budget the inflation target was set at 5.5 percent. However, the government now estimates that inflation will be around 5.4 to 5.7 percent.
A study of Bappenas indicated that Indonesia's poverty rate will accelerate above 10 percent if inflation reaches 6 percent in 2014.
Simulation Projection Indonesia's Poverty Level in 2014:
| Economic Growth | Inflation | National Poverty Level |
| 5.5% | 5.0% | 10.43-10.66% |
| 5.5% | 10.68-10.86% | |
| 6.0% | 10.88-11.15% | |
| 5.8% | 5.0% | 10.34-10.56% |
| 5.5% | 10.58-10.75% | |
| 6.0% | 10.79-11.05% | |
| 6.0% | 5.0% | 10.29-10.56% |
| 5.5% | 10.54-10.77% | |
| 6.0% | 10.76-11.10% |
Source: Bappenas
Meanwhile, the lower unemployment rate is influenced by slowing economic growth and increasingly lower elasticity of employment as data from Bappenas show that economic growth does not necessarily translate into job creation.
Referring to Bappenas data, economic growth in 2011 reached 6.49 percent while the open unemployment rate was recorded at 6.56 percent in the same year and 1.5 million new jobs were created. This implies that for every 1 percentage growth of economic expansion, around 225,000 jobs are created. In 2012, economic growth was 6.23 percent, the unemployment rate at 6.14 percent and 1.1 million new jobs. Thus, for every 1 percent of economic growth, 182,000 new jobs were created. In 2013, economic growth reached 5.8 percent. However, job creation was in fact negative at -0.01 million. Negative job creation in 2013 was caused by layoffs amid a slowing (global) economy.
Alisjahbana said that one of the factors that led to a decrease in employment elasticity is the impact of minimum wage increases in labor-intensive industries.
| Year | Economic Growth |
Job Creation (million people) |
Poverty Rate |
| 2011 | 6.49% | 1.462 | 6.56% |
| 2012 | 6.23% | 1.129 | 6.14% |
| 2013 | 5.78% | (-)0.01 | 6.25% |
| 2014 | 5.8 - 6.0% | 1.2 - 1.3 | 5.7 - 6.0% |
Source: Statistics Indonesia