The World Bank (WB) is dreaming of a world free of poverty. Of course, it would be a delusion if the WB believes in its dream as there is no such world as long as people are still homo economicus (profit maximixing behavior agent) and homo homonilupus (predator). By defining poverty as the income level below one dollar per day per person in 1985 prices, the WB came up with these figures

Table. Percentage of Poor People

 Source. The World Bank . World Development Report, various issues

For 1999, adjusted using 1993 prices, the figure for Indonesia dropped down to 7.7 percent. This is according to data published by UNDP in their famous annual report Human Development Report for the year 2001.

Let’s spend a little time on the above table and assume, for a time being, we are interested in examining the poverty reduction during the period. There are a number of interesting observations that we can draw. First, comparing the percentage of poor people in Malaysia and Indonesia today is absolutely not relevant since we started from two different points.  The same is also true with Thailand. But if we compare Indonesia with Philippines and China, our country was far better.

Now let’s take a relative comparison. Poverty in Malaysia downed 94 %, from 17 to 1 %. Thailand successfully reduced its poverty by 88%, from 8 to 1%. And perhaps to our surprise, Indonesia decreased it by 83%. By a quick glance, we were better than China and Philippines. So far is so good. We were on the right track until 1995, although of course we had enormous corruption activities.

But, when it comes to number, the issue of poverty becomes a matter of measurement rather than what to do and how to attack the problem. Everyone will try to propose his own measurement method. Unfortunately, various methods could lead to an incredibly huge gap. One example. According to the WB, the poverty ratio in Indonesia went up to 20% in 1998, while the government declared that it was as high as 40%. But the International Labour Organization (ILO) claimed that 48% of Indonesians were poor at the end of 1998 and quite shockingly, ILO further claimed that the number jumped to 67% at the end of 1999.  It was a 60% different compared with the number released by UNDP.

The Indonesian government is using the calorie requirement method to measure poverty. It fixes 2100 per day calories as the minimum requirement. To find its monetary value, it simply adds the expenditures on foods that can supply the 2100-calorie energy requirement. In 1998, the government improved the standard by adding expenditures on transportation, housing and other basic needs. With the standard, the government sets the amounts of Rp90 and Rp 70 thousands per month as the poverty lines for people living in urban and rural areas in 1999.

Is this valid? Which agent should we believe? The WB or Indonesian government? Is one dollar per day too high? Is Rp90 thousand per month enough to live in Jakarta? I don’t know. But we can try to use our own judgment and observation.

It’s certainly not about validity but rationality and reality. They are both correct and to some extend they are rational. So, here, we are not trying to argue their measurement methods, rather we want to offer our real observations pertaining to the two methods.

Let’s take the WB definition of poverty line which is one dollar per day. This suggests that the definition is very sensitive to exchange rate fluctuations. Since the latter are influenced by political, economic and financial market conditions of a country, the number of poor people will be indirectly determined by the stability of those three conditions. If suddenly rupiah decreases to 20 thousand per one US dollar, and the incomes of people in the country are constant, the number of poor people would double.

A buck (dollar) per day is equivalent to $30 or $31 per month, or $365 per year. For those who live in the US, Western Europe, Japan and other developed countries, those amounts are of course laughable, even after adjusted with purchasing power parity.  But consider this. In July 2000, I happened to employ a number of fresh graduated workers in Jakarta. They were from top public universities. The salary for each was equivalent to $75 per month in today’s currency rates. Some people already mentioned to me at that time that the amount was a little bit too high for non-experienced workers. And the salary for academic graduates was about two-third of it or $50 per month.

Keeping in mind that the amount was fairly above the average (since I heard information that big companies pay less than that) and the place we are talking is Jakarta, the monthly salary is very close to the poverty line. We can fairly assume that majority academic graduates and lower are living below poverty line. How can we expect high productivity in such environment?

We now briefly examine the government version. While the calorie requirement is fixed, the method is highly sensitive to any movement in prices. Therefore, an increase in the prices of oil and fuselage, that would certainly trigger an increase in the prices of other goods, will increase the number of poor people.  That’s why the amounts for poverty line were higher in 1998 when prices were skyrocketing due to serious political and social chaos. They were Rp97 and Rp73 thousands per month.

Ninety thousand rupiah per month is equivalent to Rp3 thousand per day. If you live in Jakarta or any other major cities in the country, the amount is only enough to buy a plain food for lunch. The government version says that the Rp3 thousands include the expenditures on housing, transportation, health and etc. I do not know how the government officials came up with the amounts. I suspect they do not live in any part of the country.

In both cases, the number of poor people can decrease and increase depending upon economic, financial and political situation. But how likely does the number decrease due to this factor? It’s certainly very slim since prices in general always increase and the rupiah seems just stay weak. Consequently, it can only decrease due to improvements in the three conditions above.

Some may ask, is poverty the main issue? They point that corruption, the absence of law enforcement and etc., are the main issues not poverty. It’s also true. But my main point is when an activity produces an anti-symmetry result we should concern first on the negative side. Our focus should not predominantly occupied by concern on why people are getting richer, but we should be more concern on why people keep getting poorer and poorer. If it turns out that the former is indeed caused by the latter, then the claims could be justified.

What is the definition of poor people, anyway? Certainly, there are many. But let’s sum them up in this line.

Poor people are the ones who live without basic freedoms of action and choice that the better-off take for granted.

US: 01/21/02             Your comment