Chamber of Commerce: Indonesia Won’t Blindly Adopt World Bank Poverty Standard

TEMPO.CO, Jakarta – The Indonesian government isn’t expected to blindly adopt the World Bank’s updated poverty threshold, said Aviliani, Deputy Chair for Macroeconomic and Microeconomic Policy at the Indonesian Chamber of Commerce and Industry (Kadin). Her remarks came in response to a spike in Indonesia’s poverty rate following the World Bank’s revision of its international poverty line.

According to Aviliani, adjusting to the new benchmark would instantly push the poverty rate significantly higher. “The government won’t simply follow the World Bank’s recommendation. We need to consider factors like inflation and what constitutes a basic standard of living in our own context,” she told reporters at the Global and Domestic Economic Outlook event hosted by Kadin in Jakarta on Thursday, June 12.

Still, she acknowledged the need to reassess Indonesia’s national poverty line, which currently stands at Rp595,242 per person per month. The senior economist from the Institute for Development of Economics and Finance (Indef) noted that a change in how poverty is defined could have far-reaching consequences, especially for businesses, as it would affect the calculation of minimum wages.

She also flagged Indonesia’s low labor productivity as a major barrier. “Until we see improvements in workforce productivity, it’s unrealistic to talk about raising incomes,” she said, adding that roughly 60 percent of the economy is still driven by the informal sector.

The World Bank has raised its international poverty line from US$2.15 to US$3.00 per person per day. For lower-middle-income countries, the benchmark increased from US$3.65 to US$4.20, while for upper-middle-income countries, it rose from US$6.85 to US$8.30. The revision was triggered by updated national poverty lines in 16 low-income countries.

These thresholds are based on the purchasing power parity (PPP) method, with the latest revision referencing 2021 data, replacing the 2017 standard.

Following the update, Indonesia’s 2024 extreme poverty figure climbed to 15.42 million people or 5.5 percent of the population. Under the upper-middle-income poverty line, that number jumps to 68.25 percent or 193.49 million people.

However, Statistics Indonesia (BPS) reported a national poverty rate of 8.57 percent or about 24.06 million people as of September 2024. BPS calculates poverty using the Cost of Basic Needs (CBN) approach, which refers to the minimum rupiah amount required to meet essential living needs.

Arief Anshory Yusuf, a member of the National Economic Council, confirmed that a review of Indonesia’s poverty threshold is underway. He noted that the current method has remained unchanged since 1998. “If our economic policies are shaped by the false belief that poverty is already low, they won’t be properly targeted,” he told Tempo on Sunday, June 8.

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