Poverty and Inequality Analysis
During the economic crisis, the poverty rate in Indonesia changed relatively quickly in short periods of time, implying that there were a large number of households which moved in and out of poverty relatively frequently and experienced relatively short periods of poverty.
A standard method for calculating poverty lines (e.g. Ravallion, 1994) is not fully specified. The choice of the “reference population” for determining food baskets is left to the decision of the individual analyst. However, the poverty line can be quite sensitive to the real income of the reference group because the “quality” of the food basket—measured as the food expenditures per calories—rises sharply with income.
It is well known that the economic crisis in Indonesia has caused the poverty rate to increase significantly. The present study finds, not only that the poverty rate increased significantly, but also that much of the increase was due to a large increase in the chronic poor category (i.e. the poor who have expected consumption below the poverty line and most likely will stay poor in the near future).
The economic crisis caused a clear deterioration in the welfare of the Indonesian people. In this paper, we examine the appropriate method to compare the change in poverty rates over time. We then piece together a consistent series of estimates of poverty rates during the crisis from various sources, covering a period from February 1996 to February 2002.
