EXECUTIVE SUMMARY

The 2004 Indian Ocean earthquake and tsunami caused devastating damage and loss in Aceh, both in economic and human terms. The global community, led by the Indonesian government, mobilized a  reconstruction effort on an unprecedented scale for a developing country. Concurrent with these developments, and in part galvanized by the trauma of the tsunami, an historic peace agreement was reached between the Government of Indonesia and the Free Aceh Movement (GAM). Three years into the reconstruction effort, with vast amounts of aid having been spent, this reports aims to shed some light on questions regarding the ability of the early relief and reconstruction effort ort to alleviate poverty in Aceh. This report aims to offer the provincial government in Aceh and the reconstruction agency (BRR) a clearer picture of poverty in the post-conflict and tsunami environment in order to allow them to better design policies and programs to alleviate poverty in the province. In addition, it is important for the international community to gain a better understanding of poverty in Aceh post-tsunami, as the international community may well face similar disasters and the need for major reconstruction efforts in the future.

Poverty in Aceh increased slightly in the aftermath of the tsunami, from 28.4 percent in 2004 to 32.6 percent in 2005. This occurred against falling poverty levels in the rest of the country. This increase is relatively small, given the extent of damage and destruction caused by the tsunami and may reflect the beneficial effects of the initial  reconstruction efforts

Poverty fell in 2006 to 26.5 percent, below the pre-tsunami level, suggesting that the rise in tsunami-related poverty was short lived and reconstruction activities most probably facilitated this decline. The poverty level in Aceh declined in 2006 as it went up in the rest of the country. Nevertheless, poverty in Aceh remains significantly higher than in the rest of Indonesia.

Poverty was higher in both tsunami- and conflict-affected areas in the immediate aftermath of the tsunami. By 2006, poverty in tsunami and non-tsunami affected areas appeared to equalize and the impact of the conflict on poverty declined in 2006. District level poverty data show that areas with the highest poverty levels are in the rural interior and more remote districts, while areas around Banda Aceh have some of the lowest observed poverty levels. Analysis of transitions in and out of poverty has identified some of the factors that assisted households in escaping poverty, such as having a non-farm business, crop diversification, disaster assistance or the education of the household head.

Poverty in Aceh is predominantly a rural phenomenon, with over 30 percent of rural households living below the poverty line. This compares with less than 15 percent of poor households in urban areas. Other characteristics associated with higher poverty levels are larger household sizes, lower education levels, female-headed households and households that predominantly work in agriculture. The relationship between these characteristics and poverty remained relatively stable over the tsunami period suggesting that underlying determinants of poverty were unchanged despite the rapid socio-economic and political changes.

There appear to be two overlapping but distinctly vulnerable groups: the structurally poor, i.e. those that were poor before the tsunami, and the 'shocked', who suffered loss of private goods and assets due to the tsunami. Many of the shocked retain certain productive capacities, such as their own education and savings they could use to smooth consumption, which the structurally poor lack. The activities of development actors need to distinguish between these two groups when designing projects and policies.

Aceh has experienced very low or negative growth rates for most of the past three decades, lagging behind Indonesia and North Sumatra in most years. The main reason for this slower growth was the longstanding conflict affecting the province, although structural economic deficiencies also contributed to the economy's poor performance. As a result, Aceh has poverty levels well above those seen in most other regions in Indonesia. High GDP per capita in Aceh, primarily the result of the large gas and oil reserves on Aceh's east coast, has not translated into lower poverty levels. Given that poverty is predominantly a rural phenomenon, pro-poor growth will entail promoting growth in agriculture, through increasing the productivity of farmers, removing constraints to growth in rural areas (such as lack of access to finance), improving rural infrastructure and the access to markets for farmers as well as facilitating the movement of the rural population towards growth poles in urban areas.