Indonesia's falling absolute poverty rates have been very impressive, particularly in the period before the Asian financial crisis in 1997–98. There was a significant reduction in the proportion of the population below the poverty line, from 40.1 per cent in 1976 to 11.3 per cent just before the crisis in 1996. This dramatic decline occurred in both urban and rural areas. But although the record has been impressive nationally, the regional statistics reveal a more varied picture of stubbornly high poverty rates in some areas but low rates in others. In 2009, for example, the poverty rate for the national capital, Jakarta, was about one-eighth that in Papua and one-sixth that in East Nusa Tenggara. The gap between South Kalimantan and Bali, both low-poverty provinces, and Papua, Aceh, and East and West Nusa Tenggara, all high-poverty provinces, was almost as large.

What determines the differences in both levels of poverty and rates of change in poverty across the archipelago? We would expect poverty rates to be closely related to levels of regional development, given the differences in resource endowments across regions and the persistence of socio-economic differences over time (Hill 1989). But at the same time, we would expect a tendency towards convergence in poverty rates over time as capital moves into and labour out of the poorer, low-wage provinces and districts.

This chapter discusses regional disparities in poverty rates and attempts to link them with socio-economic or development indicators known to be associated with poverty. It relies heavily on the regional poverty data for 1984–2002 presented in Miranti (2007). Most of the data discussed in this study therefore relate to the period before decentralisation was implemented in 2001. The development indicators used in the chapter are income, human capital and infrastructure. Knowing which indicators matter most for poverty in particular regions should help policy makers propose more suitable poverty alleviation strategies.

In discussing the relationship between regional poverty rates and development indicators, initial conditions in each region can be expected to play an important role. In addition to discussing those initial conditions – in this case, referring to the situation in 1984 – this chapter describes the state of development in 2002 and, briefly, in 2009. The 2009 data show that decentralisation has advanced development in most provinces since 2002, the end year of the analysis in Miranti (2007).