Indonesia’s Village Fund Program: Does It Contribute to Poverty Reduction?

Abstract

To stimulate rural development and reduce poverty in rural areas, The Government of Indonesia enacted the policy of Village Fund in 2014. However, a few studies have been conducted to examine this program. This study describes how poverty alleviation goes following Village Fund Program in Indonesia between 2015-2019. The poverty reduction was represented by holistic data, including insufficient and village status improvement through the Village Development Index (VDI). The analysis is conducted using a descriptive method by dividing the areas into six regions, Sumatera, Java & Bali, Kalimantan, Sulawesi, Maluku & NT, and Papua. The result showed that over five years, the village fund dramatically increases. Moreover, this growth is along with the slight decline the poverty. The researchers found that the decreasing number of poverty from 2015 to 2019 is about 15%. The VDI status for districts/municipalities shows that the status improved from underdeveloped villages in 2015 to developing villages in 2019. Java is the region that contributed to making the status improved either to be developing, developed, or independent. At the same time, it is the Papua region known as the region consisting of most of the least underdeveloped villages. Since the goal of this policy in poverty reduction still works slowly, it needs a lot of effort from many levels of government, from the village, regional, and national officials, to work together cooperatively.

The Effect of Rural Development on Poverty Gap, Poverty Severity and Local Economic Growth in Indonesia

“…However, village locations in Java can increase real/nominal GDRP and district economic growth. The results of this study complement the results of previous studies, such as those conducted by Saragi et al (2021), that found the increase in VDI status and the implementation of village fund allocations in 6 (six) large islands was accompanied by a decrease in poverty rates in the rural areas. Thus, the results of this study can be used as a new reference in a more detailed view of the impact of VDI status as an aggregate at the district/city level in Indonesia.…”

“…Village funds can be allocated by the village government to build small-scale infrastructure facilities and to strengthen the capacity of the local community by providing some empowerment programs (Adhayanto et al, 2019;Arifin et al, 2020). Several studies have concluded that village fund transfers can reduce poverty levels in villages (Arham & Hatu, 2020;Saragi et al, 2021;Andi Setiawan, 2019). Similar to the case in Indonesia, Thailand also has a village fund called the Thailand Village and Urban Community Fund, the results of the analysis show that the transfer of funds to the village has a positive influence on the income level of the poor in the village (Boonperm et al, 2013).…”

“…However, a study conducted by Saragi et al (2021) has not specifically explained the relationship between VDI status and conditions of depth and severity of poverty and economic growth per district/city in Indonesia. It becomes a research gap on the role of village development in reducing poverty problems in every district/city in Indonesia.…”

“…The low carrying capacity of rural development will result in less development of economic activity in a village area that can affect the community welfare. Saragi et al (2021) explained the importance of village funds as financing for village development to reduce poverty in villages. Furthermore, their study also found that the accumulated VDI number based on the VDI aggregation in each of the major islands in Indonesia tends to increase, which indicates an improvement in the status of development in the village.…”

“…Furthermore, their study also found that the accumulated VDI number based on the VDI aggregation in each of the major islands in Indonesia tends to increase, which indicates an improvement in the status of development in the village. As measured by the VDI, VDI status can contribute to poverty reduction efforts (Saragi et al, 2021;Singh & Chudasama, 2020). Thus, the attempt to realize an independent village as the highest status of VDI becomes a necessity and, of course, regarding development that can increase human resource capacity and sustainably optimize economic resources.…”