Established in 1989
Supported by UNFPA and
the Kobe City Government
|| HOME | ABOUT US | PROGRAMS | PUBLICATIONS | DATABASE | WHAT'S NEW | ACCESS | LINKS ||
An Alternative Policy to the so-called "Rural Urbanization" and Poverty Alleviation;
The Case of Indonesia. 1)
by Dr. Prijono Tjiptoherijnto 2)
Over the next 69 years or so Indonesia is faced with a doubling of its present population, even more so in urban areas. In 1990 55.4 million people lived in urban areas, which was 30.9 percent of the nation's total population. About 40 percent of these dwellers lived in metropolitan areas (urban population greater than one million) and large cities (500,000 to one million) and another 20 percent lived in medium size cities (100,000 to 500,000).
The urbanization process in Indonesia should be considered since many studies showed that the level of population concentration in large cities had been increasing over time. A Study by Warner Rutz in 1987 (see Karyoedi, 1993) analyzes 400 cities in Indonesia based on the total population in each city. The number of small cities (less than 100,000 inhabitants) are enormous compared to medium (100,000 - 500,000 inhabitants) and large cities (500,000 - 1,000,000). Since the medium and large cities (particularly medium cities) are not well developed yet, people from rural areas or small cities tend to migrate directly to large or metropolitan areas. Because of this, the development of metropolitan areas, such as Jakarta or Surabaya, are very difficult to manage and development creates some problems.
At the national level, 'the primacy rate' in Indonesia is still acceptable. However, when analyzed and broken down into regional levels, it is clear that 'the primacy rates' in several regions are of concern. The development of Ujung Pandang in South Sulawesi, for example, is not supported by a medium city (Mamuju is the closest city to Ujung Pandang but it is a small city. The other cities in the area, Kendari and Palu, are medium cities. However those are too far away from Ujung Pandang. Government policy in urban development also stimulates the development of large cities and metropolitan areas. The concept of inter-link cities such as Jabotabek, Bandung Raya, and Gerbangkartosusila is expanding the development of large cities, and failing to stimulate the development of a medium city nearby.
Urbanization and Urban Growth in Indonesia
Java had both the highest level of urbanization (35.69 percent in 1990) and the highest population concentration in large and metropolitan cities (50 percent living in cities with more than 1 million people). With the exception of Kalimantan (27.57 percent urban), urban shares in the rest of Indonesia were comparatively low (12-15 percent). Only one city in those regions (Ujang Pandang) was larger than one half million. As might be expected, given regional economic patterns, most of Indonesia's cities are located on Java, (62 percent of the 43 cities with populations greater than 100 000). Among the non-Java cities of 10 000 or more, almost half are located on Sumatra.
Looking more deeply into the relationship between urbanization and the growth of cities, it can be seen that the urban population has almost tripled during the period from 1920-1990. In the period between 1961 and 1971, the urbanization rate was lower than the rate of population growth, but not so for the 1971-1980 period. The proportion of people living in rural areas, which was relatively high in the early period, decreased with a rate of less than 0.30 percent in the period of 1920-1971. Only in the 1971-1980 period, was there a high decrease, around 0.78 percent per annum on average.
The period between 1971 and 1990 showed that the distribution of cities in Indonesia was heading towards an integrated and dispersed urban system. Development of cities in Indonesia tended to create mega-urban areas. Some examples of mega-urban areas in Indonesia are
Banjarmasin and its regency, just to quote some recent examples.
There are tendencies among several large cities to keep growing larger, and then form so-called metropolitan cities. The capital, Jakarta, for example, has long been the largest city in the southeast Asian region with an estimated 9 million people in 1995. It is expected to become one of the largest cities in the world within the next fifteen years, if it continues to grow at its present rate. The present living and working conditions of Jakarta and other large and small cities of the country leave a great deal to be desired and further growth of these cities will pose formidable problems to Urban management, finance and provision of services. The wide range of complex issues faced by the national planners requires that a broad range of research be undertaken and applied to the specific planning areas (see Wirosuhardjo 1986).
The most common picture in large and medium cities is the fact that many of the city's dwellers live below subsistence level. Some of them even have to live in the squatter and slum areas. Therefore, poverty incidence sometimes appears higher in the urban than rural areas. Even though, as a general figure, the urban people's standard of living is always better than that of the rural population in terms of nominal income. The major factor that contributes to the level of urban growth is migration from rural to urban areas. However, the rural-urban migration process should be recognized as a natural process of human efforts to develop welfare. In this context, government function is to provide the policy in the level and direction of urbanization across the nation. This policy is very important in order to avoid an extreme primacy rate and an unbalance of urban distribution. In other ways, Indonesia will face a chaotic situation both in urban and rural areas. Among several policies to direct the urbanization process is to promote rural development through industrialization processes. There are at lest 2 benefits that will be obtained by promoting industrialization in rural areas which are firstly, the level of rural-urban migration can be controlled and even the urban population will move to rural areas,
and secondly, the level of urbanization growth will increase remarkably since the status of the rural areas will change and become an urban area. In line with rural industrialization, the government of Indonesia (GOI) through the State Ministry for Population/NFPCB initiated the policy and program called 'Rural Urbanization'. The concept of rural urbanization refers to the condition where certain areas have the physical characteristics of rural areas but people who live in those areas lead a modern way of life such as the main industry shifted from agriculture to non-agriculture, utilization of modern financial institutions, highly motivated on education issues, etc. The reason for initiating rural urbanization in Indonesia is based on the fact that urbanization is closely related to the level of economic growth. Data shows that most industrial countries have an urbanization level of at least 75 percent. This is why the government of Indonesia endeavors to accelerate the level of urbanization in order to inspire economic growth through rural development. However, in order to avoid urban problems such as environmental degradation, which may occur during the urbanization process, the government will focus more on changing the way of life, rather than putting high physical investment in rural areas.
In general, economic growth is concentrated in several urban areas which have better environments for industrial activities, such as the availability of reliable power, telecommunications, water supply and other public utilities, banking and credit institutions, intra and inter urban transportation and human resources. As a result, although economic growth is increasing, its spread is inequitable. Furthermore, disparity between rural and urban areas and increased poverty, among regions are emerging. To respond to this condition, in December 1993 the government launched a Presidential Decree Program No.5/93 (IDT Program) concerning poverty alleviation and it was officially implemented on the first of April 1994. The IDT program was then followed by the launching of Takesra-Kukesra program (Prosperous Savings-Loans Program). The Takesra-Kukesra program is the program under the umbrella of Bangga Suka Desa Movement (the movement to bring urban values to families in the village). The IDT program and Banggasukadesa movement themselves are part of the movement to accelerate the rural urbanization.
In terms of absolute poverty, the total amount of poverty in urban areas is much less than in rural areas. In 1984, the number of poor people in urban areas totaled 9.3 million, while in 1996 it declined to 6.9 million. Meanwhile during the same time, the number of poor people in rural areas was 25.7 million and 15.7 million. But in terms of relative poverty, the condition in rural areas is better than in urban areas (Gina Ratio in rural areas has decreased from 0.28 in 1984 to 0.2648 in 1996, while in urban areas it has increased from 0.32 to 0.3660 for the same period). Economic disparities between urban and rural areas, in turn, influenced the growth rate of the urban population. Although the growth rate of the urban population is higher than the national average; some Indonesian cities such as Medan, Jakarta and Surabaya were far below the national urban population growth rate.
Urban development in Indonesia can fulfill only some of the growing population's needs. In 1993, only 14.7 percent of total urban households were served by clean water; 55.3 percent by electricity and 2.2 percent by telecommunications. Compared to other urban services, the availability of electricity is better, particularly in the city of Medan (93.8 percent), Bandung 97.3 percent) Semarang (91.8 percent) and Banjarmasin 98.4 percent). Telecommunication services only reach 2.2 percent of the population; in large cities the percentages are at least six times. A lack of urban infrastructure and services will have a greater effect on low income groups, as they have a weak financial capability to fulfill their needs.
High land prices, particularly in strategic urban locations, and limited land availability for housing, encourages the growth of informal shelter in urban areas. On the other hand, high income groups usually have several houses with large plot areas that in turn causes inefficient use of land. The inability of low income communities and the ever increasing land prices in urban areas are a result of the increased need for commercial space for commerce and increased land speculation, have led to the growth of more slum housing, particularly on public land and marginal areas (river banks or next to rail road tracks), or slums kampungs with unsuitable housing and environmental conditions. Furthermore, the lack of planning has contributed to abnormally high density housing in some kampungs, as well as environmental problems such as over-use of aquifers acting as sources of ground water and wells. In general, large cities such as Jakarta and Medan have smaller percentages of authorized housing stock. This situation can be related to the imbalance between urban housing and the rate of housing construction.
Disparity in economic growth as the result of the concentration of economic activities (industry and service) in urban areas has increased urbanization. The urban informal sector has become the obvious choice of jobs for many unskilled migrants. Those that cannot enter the informal sector, due to many restrictions imposed by city government, become unemployed. The informal sector in urban areas is still playing an important role in absorbing the labor force that could not enter the formal sector. In 1993. 43.6 percent of all employees in the urban areas worked in the informal sector. Further analysis shows that 49.3 percent of female workers work in the informal sector compared to 41.1 percent of male employees.
The percentage of employees who work in the informal sector in urban areas is substantially lower than in rural areas. In 1993, around 77.8 percent of total employees in rural areas work in the informal sector. The figure among female employees was 82.5 percent and among male employees, 74.7 percent. It is clear that both in urban and rural areas, the percentage of women who enter the informal sector was higher than men. Many of the rural poor who have migrated to urban areas have only changed their status to become urban poor, without any significant improvement in their welfare. The primary reason for the above condition is that most rural-urban migrants are uneducated people. A study done by the state ministry for Population/NFPCB (1995) in Surabaya found that 82.5 percent of migrants from rural areas who migrated to Surabaya, were absorbed by the informal sector (including construction, porters, manufacturers etc.), while only 17.5 percent of migrants were absorbed by the formal sectors (including government officials, army, private office staff etc.).
The above study also found that migrant's type of occupation seem to have a positive correlation with the duration of living in the city. Migrants in informal kinds of occupation tend to be the newcomers to the city. The migrants tend to change the type of occupation to formal sectors when they have lived for a long period in the city. This could be explained because most new comers usually are not familiar with the city situation. However, because they need a job in order to live, informal sectors are often their first choice before they find a job in the formal sector. Even though the level of education of migrants from rural areas is relatively low compared to the level of many people in the city, level of education of migrants is relatively high compared to non migrants in rural areas. Actually their knowledge and skill is more useful if used in rural areas. However, since the socio- economic situation in rural areas could not fulfill their demand, they move to urban areas and can only enter the informal sectors.
In many cases poor people in urban areas are in the informal sector. Studies done by Cohen (1972), Suparlan (1974) (see Suparlan 1995) found that the poor and the poorest people in urban areas work in informal sector jobs such as street vendors, vendors of used articles, Pedi cab drivers etc. There is a general opinion that this is a lazy group of people. However, the above studies reject this opinion. The studies found that the group is willing to work hard. The reason that they could not enter the formal sector is because of their limited education and skills. The studies also found that this group of people is willing to work hard. The reason why they could not enter the formal sector in urban areas, their socioeconomic status is better than when they lived in rural areas.
Wirosardjono (1985) claimed that the existence of the informal sector in urban areas is related to five sources; first, economic growth in Indonesia failed to accommodate the surplus part of the labor force, second, government policy on the economy tends to be capital intensive rather than labor intensive, third, economic development failed to accommodate for the social mobility of the population from the agricultural sector to outside the agriculture sector, fourth, government policies on economic development in general and manpower planning in particular are very conducive to the existence of the informal sector. Promoting policies to keep the salaries/wages down for enlarging the number of the population entering the industrial sector, create the cheap services that could fulfill the labor demand which is the informal sector, fifth, as long as the government does not pay any compensation for unemployment, every one has to work, whether it be in the formal or informal sector. Looking at the above conditions, it is difficult to claim that the existence of the informal sector in Indonesia in general and urban areas in particular, is just temporary.
Realizing the important role of the informal sector to handle unemployment problems in both rural and urban areas, the government of Indonesia (GOI) makes serious efforts to maintain the existence of this sector as long as it is not disturbing the public safety and comfort. In several cases, especially in urban areas, the existence of the informal sector, including street vendors, creates an unpleasant situation for many people. The government, especially the local city government, works to provide policies and programs to protect the existence of the informal sector. Policies and programs include laws and regulations, providing micro-credit schemes, training in skills and management, providing infrastructure for the informal sector and establishing mutual partnerships between the formal sector, such as large companies, and the informal sector. Laws and regulations are very important in order to give a feeling of security to people who run businesses in the informal sector. In many cases, the uncertain regulations from local city government toward the informal sector (for example if local governments collect taxes from them while also rejecting their existence) creates anger among people within this sector.
During the last few years, the government has initiated a program to provide better infrastructure and facilities for the informal sector, through the construction of market places called 'Pujasera' (Pusat Jajan Serba Ada). Indeed the government has encouraged mutual partnerships between large scale industrial businesses and medium and small scale industrial businesses. This type of mutual partnership could be enlarged to include the informal sector. Department stores or supermarkets can help the informal sector by providing a counter to display and sell products from the informal sector within their business area. The current mutual partnerships are coming from banking groups in Jakarta which provide small mobile stores for informal sector businessmen. Furthermore, large and tall buildings in Jakarta and other large cities in Indonesia provide a food counter which is run by businesses from the informal sector.
Micro-credit schemes such as the Prosperous Family Credit Scheme (Kukesra) which provides special treatment for very small scale business could be introduced within the informal sector. So far, Kukesra is concentrated in rural areas regardless of whether the business is formal or non-formal. This kind of credit scheme could be enlarged to urban areas to help businessmen in the informal sector in urban areas to maintain or improve their business scale. The specific aims of Takesra and Kukesra programs, i.e. (1) to support families in raising the family's prosperity, especially those categorized in pre-prosperous family and prosperous family to get business capital in easy and fast ways, (2) to motivate and increase family spirit in doing business, (3) to support families in developing counter partnership in economic activities, (4) to introduce the use of banking to families.
In other words Takesra and Kukesra programs can be utilized as one tool for poverty eradication in addition to other programs.
Regarding the cultivation of the existence of street vendors, the local city government initiates policies which allow them to sell the product along the street in certain areas only, and educates them not to disturb the other street users. This policy was launched after many street users complained about the presence of street vendors.
Furthermore, in order to improve the living quality of poor urban people, the Kampung Improvement Programme (KIP), which was formerly implemented and funded by local government , was considered appropriate to improve existing low income housing with limited access to urban infrastructure. in some cases, local Government participation was negligible, due in part to the projects implementation being dominated by central government funds with no requirements for local cost-sharing. A lack of participation on the part of the beneficiaries (i.e. the communities) has led to a lack of care and maintenance.
Current Policy and Program of Rural Development.
Many rural-urban migration studies in Indonesia show that the main reason for migration to urban areas from rural areas is to find a job. A study done by the State Ministry for Population and the Asian Urban Information Center of Kobe (AUICK) in Surabaya (1995) found that almost all respondents (95.8 percent) reported that job opportunities in Surabaya was the reason they moved to the city. Socio- economic development in Surabaya was becoming a very attractive factor for rural people. This finding is very similar to the research done by the State Ministry for Population and Environment in 1991. In the previous study, it was found that 92 percent of respondents moved to Surabaya because of job opportunities in the city. Only 8 percent of respondents moved to Surabaya for other reasons such as education, family considerations, transfer of job, and following the family. On the previous study the number of respondents was 324 persons.
Indonesia has implemented various micro finance schemes in rural areas. The nation's first micro-finance program, established in 1898, was the village credit institution (Badan Kredit Desa), a village based institution which provides loans and accepts savings. It is operated by residents of the respective villages. Currently there are more than 3000 such BKDs operating in rural areas of Java. Since 1994, the government has created new BKD-type institutions throughout Indonesia. The new institutions are called 'Center for Savings and Loan Services'. Other micro finance schemes are the Farmer Micro-enterprise Credit, Rural Credit and Savings, Micro-enterprise credit, Credit for Income Generating Projects for Marginal Farmers and Fishermen, and the People's Education Credit. The main purpose of all credit schemes is income generation for rural people and promotion of economic activities in rural areas.
Accordingly in 1994 the government initiated a special program for income generating of poor rural areas, called Inpres Desa Tertinggal (IDT program) for poverty alleviation in rural areas. The IDT program has three important objectives, first, to trigger and accelerate the national movement for poverty alleviation, second, to reduce social and economic disparities in the community, and third, to activate the people's economy by empowering the poor. The program has three basic elements which are; first, a government grant of Rp. 20 million (US $9000) per year to each village for three consecutive years, second, the provision of facilitators to help the 'self-help' group of the poor to develop their micro-enterprises, and third, the building of rural infrastructure in the form of rural roads, bridges etc., to the amount of Rp. 100 million to Rp. 130 million (US $40 000- $60 000) per village, starting in 1994 and up to 2004, if needed.
Planners and implementers of development programs have long acknowledged the importance of households' access to credit , especially in rural areas. Credit enables households to start or expand business activities and at the same time to increase production and create financial surpluses. This will improve living standards and promote sustainable development.
In the IDT program , a grant ranging from US $10,000 to $30,000 is provided by the central government to self-help groups in each 'left behind' village as 'working capital' to finance micro-enterprises of individual members. These IDT groups called Pokamas, deliver funds to members as credit which must be paid back to the group after a certain period of time, which may be 6 months, 12 months, or 24 months depending on the consensus within the group. Whether or not members pay interest on the loan is also determined by the members themselves. The fund is not paid back to the government, but become an 'eternal' working capital for members of the group. Groups are advised to introduce an intra group loan system, in which the process of capital accumulation can take place, among others, by introducing loan service fees to members.
Following the success of the IDT program, the government initiated another special credit program in rural areas called Prosperous Family Savings (Takesra) and Prosperous Family Credit (Kukesra) programs. However, unlike the IDT program, which is based on a village approach this micro credit scheme is based on a family approach. The initiation of Takesra and Kukesra programs is based on the fact that even if the village is prosperous (not 'left behind'), not every family in the village may also be prosperous. That is why the target group of the Takesra and Kukesra programs is poor families falling outside the IDT program. Only family which have been classified as Pre-Prosperous and Prosperous Stage-I have access to the Kukesra and Takesra schemes. The family is first invited to join the Takesra saving fund with an initial saving of Rp. 2,000 or US $0.75. Then the depositor will be able to receive credit for a maximum amount of 10 times the Takesra balance, so that the fist credit will be a maximum of Rp. 20,000 or US$ 9.00. In the following stage, 10 percent of the Rp. 20,000 loan is then deducted, adding to the saving so that the savings become Rp.4000. With this saving then, the second credit will be Rp. 40,000 and so forth up to a maximum of Rp. 360,000 or US $160.00 per family.
Using the 1996 National Family Data Registration, in 1995 the composition of welfare of Indonesian families were; 10.85 million families (27.54 percent) classified as Pre-Prosperous, 11.13 million families (28.25 percent) as Prosperous Stage I, 9.23 million families were Prosperous Stage II, 6.35 million families (16.62 percent) Prosperous Stage III and 1.64 million families (4.16 percent) In Prosperous stage III plus. In other words, in 1995 there were around 21.26 million families in Indonesia classified as poor families. Among all families in the Pre-Prosperous. Among all the families in the Pre-Prosperous Stage, 7.19 million families were classified Pre-Prosperous because of economic reasons and 3.66 million because of non-economic reasons. Meanwhile, among Prosperous Stage I families, 5.04 million families were because of economic reasons and 6.09 million families were because of non-economic reasons.
In order to accelerate the transition of prosperity stages, interventions or development supports both from government and private sectors are needed. For example, to accelerate the number of families from Pre-Stage Prosperous stage I, it is necessary to assist families in improving their living standards in a wide spectrum, such as encouraging people to use health facilities if necessary, or to convince them to practice family planning and other reproductive health care. In this matter, the role of the 'Family Welfare Centre', which is located in every village throughout the country, is very important in guiding families toward better welfare.
All micro-finance schemes in Indonesia complement each other in order to accelerate poverty alleviation or to accelerate the transition of prosperity stages and to promote rural development. The basic idea of poverty alleviation programs in Indonesia is to provide poor families with basic technology and small financial support. By providing appropriate technology and capital, it is hoped that the family could become a micro enterprise institution , especially in rural areas where these micro-credit schemes are mainly focused.
Rural-urban migration, the informal sector and urban poor are factors that interact with each other. At present, the Government of Indonesia (GOI) and local city government are taking serious action to counter the above problems through several policies and programs. Macro policies and programs include balancing development between rural and urban areas while micro policies and programs include how to maintain the existence of the informal sector in urban areas and to improve the quality of slum areas.
Rural-urban migration studies in Indonesia show that the main reason people migrate to urban areas is to find a job. Indonesia has implemented various schemes of micro finance in rural areas. The nation's first micro-finance program, established in 1898, was the Village Credit Institution (Badan Kredit Desa). This village based institution provided loans and accepted savings. It is operated by residents of the respective villages. The main purpose of all credit schemes is to promote income generation of rural people and to promote economic activities in rural areas.
Jakarta, October 10, 1997.
1) Paper submitted for the meeting of ASEAN Minister on Rural Development and Poverty Eradication,
2) Assistant Minister for Population, R.I and Senior Lecturer, Faculty of Economics, University of