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During more than 30 years in power, the reduction of absolute poverty was

one of the most signifi cant achievements of the New Order government. In

the mid-1970s, more than 50 million people, or around 40 per cent of the

population, were living below the poverty line. In the late 1980s and early

1990s, poverty incidence has been reduced to below 30 million or less than

20 per cent of the population. In 1996, a year before the onset of the Crisis,

the poverty level had been reduced to an estimated 22.5 million people or

around 11 per cent of the population. The New Order’s success in reducing

poverty has been attributed to rapid economic growth, especially from the

mid-1980s, after the government undertook a series of structural adjustment

policies, including privatization and economic deregulation, combined with

rural development and employment programs (Booth, 2000: 83–5).

In sharp contrast to these trends, the Crisis that began in late 1997 created

widespread social distress in many parts of the country. A fall in GDP

was accompanied by massive job losses as bankruptcies and cutbacks in

production multiplied. This led to a sharp rise in open unemployment and

underemployment. As a result, there was a signifi cant increase in the number

of people living below the poverty line and a marked deterioration in income


The household-level adjustments resulting from the Crisis took the

form of changing patterns of household income and expenditure. The

sharp reduction in real income forced people to accept work at lower rates

of remuneration, consume their savings or sell their assets to cope with

increasing levels of expenditure. The increase in prices was considerably

larger than the increase in nominal urban wages. For low-income families,

where much of their expenditure was absorbed by food, the sharp increase

in food prices signifi cantly reduced their purchasing power, lowered their

food consumption, and reportedly, even led to cases of starvation in

some areas.

Table 3.1 presents the results of the offi cial poverty headcount calculation

(proportion of the population below the poverty line).1 It shows that the

Crisis increased the number of people living below the poverty line from 34.5

million (17.7 per cent of total population) in 1996 to 49.5 million (or 24.2 per

cent) in 1998.2 After reaching a peak in 1998, poverty figures began to decline

in the following years. A reduction in food prices from the second quarter of

1999 contributed signifi cantly to this trend, with the poverty line falling by 2

and 6 percentage points in urban and rural areas respectively (Badan Pusat

Statistik, 2001: 583). The Central Bureau of Statistics published two sets

of offi cial poverty figures for 1999. The first set of figures was based on the

results of the full national Social Economic Survey (SUSENAS) conducted

in February. A slight improvement in the economy, especially with a lower

rate of infl ation and the return to positive GDP growth, reduced poverty

levels to 48.4 million (23.5 per cent). The second set of figures, based on a

Mini-SUSENAS3 conducted in August, revealed a more signifi cant decline

in poverty to 37.5 million (18.2 per cent).

Offi cial poverty fi gures in the subsequent years were estimated based on

the core database of the full SUSENAS, with both the number of the poor

and the incidence of poverty continuing to show a declining trend after

February 1999.4 The incidence of poverty and the numbers of the poor

continued to decline slightly in 2001. As the economy continued to recover,

the average real incomes of the poor also began to rise. Hence, although

the poverty line also rose, on average nominal income increases more than

compensated for this.

There is need for caution in interpreting and drawing comparisons

between the various sets of offi cial poverty fi gures presented by the Central

Bureau of Statistics, since some of the calculations were based on different

surveys. For example, the estimates for December 1998 and August 1999

were drawn from Mini-SUSENAS data, which cover only about 10 000

households, compared with the 65 000 households covered by the SUSENAS

consumption module. In an attempt to produce a comparable set of fi gures

for the poverty rate since the emergence of the Crisis, the Social Monitoring

and Early Response Unit (SMERU) Research Institute has published a

consistent series of poverty measurements (Suryahadi et al., 2003a). The

study used the data from the SUSENAS and Mini-SUSENAS database,

the 100-Village Survey,5 as well as several estimates by Gardiner (1999),6

and Frankenberg and Beegle (1999).7 These independent poverty estimates

are presented in Figure 3.1. Despite the differences in results, both series

show similar poverty trends.