The Need to Raise Monetary Standards and Take into account a Multidimensional Approach to Measuring Poverty Standards Chaves

The PRAKARSA - The discourse on adjusting the standard for calculating Indonesia's monetary poverty has warmed up again after the release of the latest poverty assessment report from World Bank. In the report, one of the main points is the need to adjust Indonesia's definition of poverty so that it is commensurate with the state's income status. As a candidate for an upper middle-income country, Indonesia has the consequence of increasing the extreme poverty line to a standard of purchasing power parity or purchasing power parity (PPP) of 3,2 US dollars per person per day.

Currently, the old PPP standard for extreme poverty is still USD 1,9 per person per day. This old standard itself has lasted for 25 years and now the government is required to follow up on the new standard reference so that the measurement of Indonesian poverty can be more relevant in describing the real condition of society.

Researcher PRAKARSA, Rizky Deco Praha said, the government will rationally study this matter very carefully, bearing in mind that the implications of this will greatly affect the achievements of President Joko Widodo's government, as well as the allocation of the social assistance budget and political image.

Through the BPS release, the government's achievements so far have been synonymous with reducing the poverty rate to only single digits, amounting to 9,57% or 26,4 million people in September 2022. The World Bank says the new version of the standard has increased the number of poor people to 44 million people.

“This of course directly increases the government's aid budget very significantly. In addition, if the current government does this, this adjustment has the potential to become a bad precedent for the current administration in a politically-ridden year," said Deco. Friday (19/5).

Deco further explained, the government needs to emphasize that even with the setting of this new, higher standard, Indonesia has actually made a lot of progress in handling the problem of poverty. By calibrating data using a standard of US$3,2 (2011 purchasing power parity), the World Bank said that poverty has decreased by several percent from 61 percent in 2002 to only 16 percent in 2022.

“Increased domestic consumption has driven poverty reduction in the last decade, contributing to job growth in a tight labor market and an increase in real wages,” explained Deco.

According to Deco, currently it is necessary to adjust the poverty line, although it is not as high as the World Bank's recommended standard. "The government can consider aspects of differences in the level of living costs and domestic economic conditions, so that a poverty rate reference might be pursued in the range of US$2,5 or around 37 thousand rupiah per person per day," he said.

The reason, said Deco, is that the economic considerations are quite rational and relatively progressive, at least this can reduce the swelling of the social assistance budget allocation and slightly dampen the socio-political turmoil that might occur.

“On the other hand, calculating poverty using the standard poverty line based on the aspect of individual spending is now considered insufficient. Within the evidence-based policy framework, poverty alleviation that is only based on monetary calculations actually dwarfs the definition and scale of poverty itself. The worry is that this will have implications for the focus of government policies and programs which tend to be short term and not on target. What's more, at this time a number of classic problems have often arisen, such as the dependence of the poor on government assistance and their availability moral hazard in data collection and utilization by beneficiary families,” explained Deco.

Deco added, as a multidimensional problem, ideally poverty needs to be calculated and addressed in a simultaneous and sustainable way. Since being initiated in 2010 by OPHI and UNDP, the concept of global multidimensional poverty which includes the dimensions of education, health, and standard of living has developed and includes at least 100 countries in the world, both developed and developing countries, in efforts to reduce poverty.

"Meanwhile, the monetary aspect of family spending is sometimes one of dozens of indicators estimated, in the multidimensional national poverty of several countries," he said.

In Indonesia, the results of a national multidimensional poverty calculation conducted by PRAKARSA said the poverty rate had decreased drastically from 2012 percent in 49 to 14,3 percent in 2021. Utilizing 5 dimensions and 11 indicators from Susenas data which is released annually by BPS, indicators such as morbidity rates, access to proper drinking, and housing deserves to be an indicator with the highest poverty rate and at the same time needs to be the focus of the central government. Regionally, the eastern part of Indonesia, such as the provinces of Papua, NTT and North Maluku, has the highest multidimensional poverty index.

Along with the release of the World Bank, according to Deco, efforts to reduce poverty both in monetary and multidimensional terms in Indonesia have in fact been moving in the right direction. The use of these two approaches can complement each other so as to facilitate the government's policy and budget priorities. "Both the central and regional governments have certainly provided a series of interventions to reduce poverty, but setting priorities more effectively and efficiently is now urgently needed and must be a major concern," he said. Finally, Deco argues, however, the aspect of poverty alleviation does not necessarily make it the first point of the UN's global sustainable development target. Although there is no hierarchy between the points, this number one point should imply that poverty alleviation is a top priority point and the estuary of other development goal points. "Therefore, multidimensional poverty finds its relevance to be used as new evidence in materials for formulating poverty alleviation policies by the central government down to the village level in Indonesia," concluded Deco.

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