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Aceh Poverty Assessment The impact of the Conflict, the Tsunami and Reconstruction on Poverty in Aceh Main messages Poverty increased slightly in 2005 and had declined to below pre-tsunami levels in 2006, facilitated by the end of conflict and reconstruction activities; Poverty in Aceh is a rural phenomenon. A large number of Acehnese remain vulnerable to poverty (living just above poverty line); The abundance of natural resource has not resulted in higher growth rates or lower poverty levels; Aceh will have the necessary resources to combat poverty and promote economic growth, but efficient allocation of resources is key for success. Methodology (i) Two principal data sources: (i) Susenas, a large scale household survey fielded annually by BPS in the whole of Aceh and (ii) STAR, special purpose longitudinal survey re-contacting a selection of 2004 Susenas households in tsunami affected areas SUSENAS records several dimensions of welfare: household composition, characteristics, and consumption as well as access to health and education services Methodology (ii) We start with BPS poverty lines in 2004. For 2005 and 2006, to provide a welfare consistent update we: (1) determine a consumption bundle representative to the poor in urban and rural areas, (2) apply these consumption weights to monthly BPS urban price series. Limitations of this approach: (i) price changes are measured only in Banda Aceh and Lhokseumawe, so poverty at the district level might not be accurately estimated and (ii) small sample size at the district level makes inferences valid only at the province level Poverty increased in 2005, but by 2006 had declined below pre-tsunami levels Aceh Aceh Urban Aceh Rural Indonesia 2004 28.4 2005 32.6 2006 26.5 17.6 20.4 14.7 32.6 36.2 30.1 16.7 16.0 17.8 The relatively low poverty increases in 2005 masks large differences in tsunami and conflict affected areas The relative odds of poverty by kecamatan classification of high or low tsunami and high or low conflict, 2004-06, show that the likelihood of being poor in Aceh increased significantly in tsunami and conflict affected areas in 2005, but it was not significant any more by 2006. High tsunami Low tsunami High conflict Low conflict 2004 0.83** 1.00 1.29*** 1.00 2005 1.44*** 1.00 1.43*** 1.00 2006 1.08 1.00 0.96 1.00 Cumulative Distribution Function for rural Aceh, 2004-06 A large share of the population lives just above the poverty line – a small shock can send them below the poverty line Pre-tsunami, poverty in Banda Aceh and surrounding districts was significantly lower… Poverty increased in many districts in 2005, but decreased in most in 2006 Characteristics of the poor in Aceh are similar to the poor in other parts in Indonesia Household size Education household head Household head female Rural Agricultural employment 2004 ++ -++ ++ ++ 2005 ++ -+ ++ ++ 2006 ++ -n.s. ++ ++ Source: BPS data and World Bank staff calculations. Note: ++/-- indicates statistical significance at the 1% or 5% level, +/- significance at the 10% level. Aceh has had slow growth rates for most of the decade, mostly due to conflict and declining gas extraction 14 NAD 12 National 10 8 6 4 2 0 -2 -4 1971-75 1976-80 1981-85 1986-90 1991-95 1996-00 2001-04 Aceh’s economy continued to decline from 2001-05, as the rest of Indonesia recovered from the financial crisis 10% 1997 Financial Crisis 8% 6% 4% 2% 0% AvGr86-90 AvGr91-95 AvGr96-00 AvGr01-05 -2% Aceh -4% -6% Indonesia Aceh North Sumatra Sumatra As a result, poverty continued to increase in Aceh while it declined in most of Indonesia 60 Poverty rate 50 Papua 40 30 Aceh 20 Indonesia North Sumatra 10 West Java Jakarta 0 1993 1996 1999 2002 2004 Poverty growth elasticity in Aceh is one third of the rest of Indonesia – normal for economies reliant on natural resources 0 -0.5 % Poverty Growth Elasticity, 1984-99 Aceh -1 -1.5 -2 -2.5 -3 -3.5 Papua Riau East Kalimatan Rest of Indonesia … availability of oil and gas does not necessarily translate into lower poverty levels 3.0 60 2.5 50 2.0 40 1.5 30 1.0 20 0.5 10 0.0 0 Indonesia Aceh Tamiang Aceh province Aceh Timur Aceh Utara Per capita GDP (times the national average) Poverty headcount in %, 2004 Aceh will have the necessary resources to combat poverty and promote economic growth 18 16 Trillion rupiah (constant 2006 prices) 14 Gains from Law 11/2006 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 Total revenue with dana otsus ($60/brl) 2005 2006 2007 2008 2009 2010 2011 Total revenue without dana otsus ($60/brl) bi N Su at io m na at ra l Se la ta n La m pu ng Ja w a Ba ra t Ba nt en Ja m 600 Su R ia la u w Ka es lim iU an ta ra ta n Te ng ah Yo gy Ka ak lim ar an ta ta n Ti m N ur us Be a ng Te ku ng lu N g us ar a a Te Ti m ng ur ga ra Ba Su ra m t at ra U ta ra Pa pu a Education per capita public expenditure is the second highest in the country (2004) Per Capita Education Expenditure 2004 Thousand Rupiah 800 700 Aceh 500 400 300 200 100 0 0 Banten Jawa Barat Lampung Jawa Timur Jawa Tengah Sumatra Selatan Maluku Utara Sulawesi Utara Sulawesi Tenggara Nusa Tenggara Barat National Sumatra Utara Sulawesi Selatan Kalimantan Barat Yogyakarta Bangka Belitung Sumatra Barat Nusa Tenggara Timur 150 Jambi Bengkulu Bali Kalimantan Selatan Aceh Sulawesi Tengah Maluku D K I Jakarta Kalimantan Tengah Riau Gorontalo Kalimantan Timur Papua Health per capita public expenditure is well above the national level (2004) Thousand Rupiah Per Capita Health Expenditure 2004 350 300 250 200 Aceh 100 50 But both education and health outcomes are not significantly better than in the rest of the country… …signaling the need to improve the efficiency of spending Graduation rates 2004/05 Primary school (SD) Junior high school (SMP) Senior high school (SMA) Aceh 96.6 89.5 91.5 North Sumatra 97.6 93.4 87.7 Indonesia 96.8 98.0 92.1 Immunization Coverage in Aceh vs. Indonesia BCG immunization coverage 100 82 85 89 92 94 100 90 80 80 60 % 70 56 68 63 70 73 20 % 60 40 50 40 30 0 1 2 3 4 Income quintile Aceh province Indonesia 5 20 10 0 BCG DPT1 2004 DPT3 2005 Polio 1 2006 Polio 4 2006 Indonesia Measles Priorities for Poverty Alleviation (i) Longer-term development efforts should focus on the poorest areas of Aceh, in particular those in the rural interior and more remote areas. Current focus on tsunami affected areas might have to be revised; Any poverty alleviation strategy should focus on increasing the productivity of the agricultural and fisheries sectors, as well as a strategy to improve the capabilities of the poor and linking them to growth poles in urban areas; The Government of Aceh should diversify the economy away from natural resources and increase transparency of the distribution and use of revenues. Priorities for Poverty Alleviation (ii) The Government of Aceh should invest in a strong civil service that ensures an efficient allocation of resources, as well as the provision of quality public services; Given Aceh’s large resources and opportunities, spending patters should be improved. Scrutinize increased spending on government administration and the civil service wage bill; Education and health spending is very high, but efficiency of spending can be improved. In all sectors, better planning and budgeting should align needs identified with allocation of resources.