Millions Feared To Fall Back Into Poverty In Indonesia As Virus Shatters Economy
Apr 17, 2020

Indonesia could be faced with a new wave of poverty as the coronavirus crisis is causing a prolonged shutdown of businesses and workplaces, with fears that up to 3.78 million Indonesians could fall back into poverty and 5.2 million could lose their jobs during the pandemic.

The country’s finance minister Mulyani Indrawati said on April 14 that these numbers are likely in case the spread of the virus is not brought under control swiftly and economic growth in Indonesia reaches the lowest level since the 1998 financial crisis as projected for this case.

In terms of poverty, the picture is bleak. In hindsight, strong economic growth in Indonesia has helped to reduce poverty from a rate of 24 per cent in 1999 to just over nine per cent in 2019. However, approximately 20.6 per cent of the entire population remains vulnerable of falling into poverty, as their income hovers only marginally above the national poverty line.

In the worst-case scenario of 3.78 million falling back into poverty due to the virus crisis, the poverty rate would thus jump back up to around 11.3 per cent this year before next year’s anticipated recovery could help it bouncing back. The international poverty line is currently defined by the World Bank as $1.90 per day as per purchasing power parity, but is set at an average of $28 per month by the Indonesian government.

Mulyani reiterated the government’s plans to increase spending on health, social safety and support for businesses, ranging from large corporations to small and medium enterprises, micro enterprises and the informal sector.

Economic growth could plunge close to zero

According to calculations by the International Monetary Fund (IMF), Indonesia’s economic growth could plunge to 0.5 per cent this year from 5.02 per cent in 2019, which was already a four-year low.

This more or less corresponds to the baseline scenario of the Indonesian government which is set for a drop in economic growth to 2.3 per cent, the lowest in 21 years, with a worst-case scenario of an economic contraction of 0.4 per cent.

The IMF also projects that the country’s unemployment rate will rise to 7.5 per cent this year, from last year’s 5.3 per cent, as a result of the pandemic disrupting supply chains, forcing companies to lay off employees and evaporating demand for goods as consumers stay at home.

However, the IMF expects that recovery will take place in 2021 as Indonesia’s economy may expand by 8.2 per cent, the highest since 1995.

As of April 15, Indonesia had 5,136 confirmed coronavirus infections, of which 469 died and 446 recovered.