Indonesia has sustained robust growthover a long period, and this has enabled millions ofcitizens to move out of poverty. Indonesia’s gross domesticproduct (GDP) has risen at an average 5 percent a year since1990 and 5.3 percent a year after the Asian financial crisisat the end of the 1990s. This growth has been supported byfavorable international commodity markets, a large, youngpopulation, and a solid macroeconomic policy framework.Although the growth has moderated in the last few years ascommodity prices and global financing conditions that hadbuoyed growth previously have become less favorable, annualGDP growth has still averaged 5 percent since 2014. As aresult, GDP per capita is calculated to have grown six foldbetween 1990 and 2018, while extreme poverty declined from57 percent to slightly less than 6 percent. However, manyIndonesians remain vulnerable, and most of those who haveescaped poverty still lack the economic security andwell-being of the middle class. Despite the progress inpoverty reduction, around 30 percent of Indonesians stillrisk falling back into poverty or become poor following afinancial or nonfinancial shock. In addition, although theirnumber is growing, fewer than a quarter of Indonesians aretoday free from worry about monetary poverty and thereforebelong to the middle or upper class. Joining the middleclass is associated with people who have additionaldisposable income for discretionary expenditures, such as onhealth care, education, and housing, which directly affecttheir well-being. While rural areas have also benefited fromthis broad-based growth, an overwhelming majority of thepoor and vulnerable are living in rural areas. Makingcontinued progress in reducing poverty will require that thechallenges to improving the living conditions of the poor inrural areas are addressed. Against this backdrop, theobjective of this report is to update the knowledge aboutrural poverty in Indonesia. The report analyzes the trendsin rural poverty and inequality, the profile of the ruralpoor, and drivers of observed poverty reduction. Newanalysis is combined with syntheses of recent work,especially the recent report on urbanization. The goal is toconsolidate relevant material on rural poverty. The finalsection of the report offers some reflections on futureresearch to deepen the understanding of the challenges andthe opportunities involved in reducing rural poverty in Indonesia.
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