Indonesian Economic Growth Accompanied by Improved Social Indicators

• Pages: 257-264

Page 257

The following article is based on a study by Manfred Koch of the IMF's Fiscal Affairs Department in connection with the annual Article IV staff consultation with the Indonesian authorities.

[ GRAPHICS ARE NOT INCLUDED ]

Indonesia's strong economic performance over the past three decades has resulted in rapid growth of per capita incomes, a substantial reduction in poverty, and a marked improvement in many health and social indicators. Within a framework of stable macroeconomic policies, high investment and saving rates, and structural reforms to liberalize markets, the Indonesian authorities have persistently addressed poverty and income distribution problems through targeted measures. Public expenditure programs have supported improvements in education and health care, and these have contributed to human resource development and to extending opportunities for higher income earnings. Indonesia's progress in these areas has generally been faster than in other member countries of ASEAN (the Association of South East Asian Nations).

Page 263

Unlike many other developing countries, industrialization in Indonesia has been associated with rapid increases in agricultural productivity and growth. During the 1970s and 1980s, the agricultural sector grew by an average of more than 4 percent a year in response to improvements in irrigation and rural infrastructure. This laid the foundation for sustained poverty alleviation; during the early 1970s, more than half the population and over 80 percent of the poor depended on agriculture. Since the mid-1980s, the expansion of labor-intensive manufactures has been the main source of economic growth and poverty reduction.

Past Achievements

Indonesia's success in reducing poverty was prompted by high rates of broad-based aggregate growth, which averaged more than 7 percent a year during the 1970s and 1980s and 8 percent during the 1990s. Per capita GDP has risen by almost 5 percent a year during the last 25 years and is now at about $1,100.

Poverty Alleviation. The proportion of the population living below the officially defined poverty line declined to about 11 percent in 1996 from some 60 percent in 1970-an impressive achievement given the increase in the population to 200 million from 117 million during this period. Gains in poverty alleviation have been broadly equivalent across urban and rural areas, although the decline in the...