Before the onset of the Asian financial crisis in 1997, the Indonesian economy was growing quickly; as a result, poverty fell significantly. Other welfare indicators, such as the infant mortality rate, the school enrolment rate and life expectancy at birth, were also showing improvements. The economic crisis that engulfed Indonesia in 1997–98 reversed these trends, resulting in a large increase in poverty in 1999.

To alleviate the effects of the economic crisis, in mid-1998 the government introduced a social safety net for the poor (Jaring Pengaman Sosial, or JPS) covering food, education, health and employment. Some components of the JPS continue today with some changes to their design and targeting. Together with general economic growth and sectoral development, these programs have contributed to a resumption in the downward trend in poverty. The poverty rate fell from a peak of 23.4 per cent in 1999 to 13.3 per cent in 2010.

Poverty rates tell only part of the story, however, and the number of poor people would more than double if people who are not officially counted as poor, but are nevertheless vulnerable to poverty, were taken into account. Because these near-poor have per capita household expenditure that is only slightly above the poverty line, they are easily pushed into poverty when negative shocks occur.

The numbers of such people are substantial. In 2008, for example, 15.4 per cent of Indonesians were living below the national poverty line, but a much larger 42.6 per cent were living below the international poverty line of $2.00 per capita per day in purchasing power parity (PPP) terms. This meant that 27.2 per cent of Indonesians were living above the national poverty line but below the international poverty line.

These people are likely to fall below the poverty line if they experience a ‘shock’ that adversely affects their income, such as job loss, business bankruptcy, crop failure, illness, accident, natural disaster or social conflict. Social protection in the form of security of access to basic services such as food, education and health is therefore needed to reduce the risk that these people will fall into poverty. Another distinct feature of poverty in Indonesia is that the country lags behind its neighbours in reducing non-monetary poverty at the same time as it has made significant progress in reducing monetary poverty