De Soto: Minimize Poverty through Property Rights
Friday, 03 November, 2006 | 12:34 WIB

Tempo Interactive, Depok: An economist from Peru, who is known for his thoughts and writings on the informal economy, Hermando de Soto said poverty eradication in Indonesia can be started with the awareness of formalized property rights. Through property assets that are owned legally, he said that the public can develop them into a source of welfare because the property can be a guarantee to obtain capital (loan) from banks.

In his presentation at the University of Indonesia, Depok, yesterday (2/11), the President of the Institute for Liberty and Democracy described the importance of property formalization. “People must know what they own and where,” he said.

De Soto, who came to Jakarta on the invitation from Tempo and PT Bank Danamon, is the writer of The Other Path (1998) and The Mystery of Capital (2000). In his latest book he argues that property rights which are valid at this moment are not yet strong enough for everyone to feel involved in the economy. On the contrary, most of the underprivileged are instead ignored.

The main cause of poverty in many third world countries, according to de Soto, is the (poor) people’s low access to a formal and integrated property system. Therefore, this group becomes passive and unable to develop business. “They don’t have access to banking to acquire loans,” said the former consultant at the Swiss Bank Corporation Consultant Group.

“The weaker the people’s access to standardized property,” he said, “the bigger the opportunity of poverty to rise.”

De Soto is of the opinion that what government must do first in eradicating poverty is collecting data thoroughly to identify what a citizen owned and making the formal certificate. “After an inventory, then the country can reform and redistribute ownerships,” he said.

De Soto foresees between 10 and 30 percent of third-world countries’ citizen do not own land or other property. Nonetheless, by those ownerships, individual freedom for the public to protect their personal assets can come to reality. “Because what they have is protected by law and can be proven.”

De Soto has been invited by at least 20 heads of states for his opinion on development policy. He stressed that by property ownership, the public’s trust in running businesses will increase. “This is because in owning property, people will start doing business and become productive to survive,” he said.

Agus Supriyanto and Anne
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