{"id":4753,"date":"2018-08-30T08:30:48","date_gmt":"2018-08-29T22:30:48","guid":{"rendered":"https:\/\/testblogs.griffith.edu.au\/asiainsights\/?p=4753"},"modified":"2023-08-08T11:15:59","modified_gmt":"2023-08-08T01:15:59","slug":"two-decades-of-economic-growth-benefited-only-the-richest-20-how-severe-is-inequality-in-indonesia","status":"publish","type":"post","link":"https:\/\/testblogs.griffith.edu.au\/asiainsights\/two-decades-of-economic-growth-benefited-only-the-richest-20-how-severe-is-inequality-in-indonesia\/","title":{"rendered":"Two decades of economic growth benefited only the richest 20%. How severe is inequality in Indonesia?"},"content":{"rendered":"

YENNY TJOE<\/a>\u00a0 |<\/p>\n

A\u00a0World Bank report in 2015<\/a>\u00a0rang alarm bells for Southeast Asia\u2019s largest economy. Despite Indonesia managing to\u00a0more than halve its poverty rate<\/a>\u00a0since 1999, inequality has been rising fast since 2000. That\u2019s because the richest 20% have enjoyed much higher growth in incomes and consumption than others.<\/p>\n

But President Joko \u201cJokowi\u201d Widodo\u2019s policies to tackle inequality are producing results.<\/p>\n

Economic growth and rising inequality<\/h2>\n

Indonesia is currently the third-fastest-growing economy among the G20 economies. The\u00a0latest statistics<\/a>\u00a0suggest that Indonesia\u2019s gross domestic product (GDP) per capita increased on average at 4% a year from 2000 to 2017. This is bettered only by China and India, which grew by 9% and 5.5% per year, respectively.<\/p>\n

However, Indonesia\u2019s economic growth spurred a\u00a0rising inequality<\/a>. This is reflected in the country\u2019s Gini index \u2013 which measures inequality from 0 (perfect equality) to 100 (perfect inequality).<\/p>\n

World Bank estimates reveal that Indonesia\u2019s Gini index increased to 39.0 in 2017 from 30.0 in the 1990s.<\/p>\n

\"\"
Gini index by country, the 1990s and recent. Gini index between 40 and 50 indicates high income inequality, and above 50 corresponds to severe income inequality.<\/span>\u00a0Sources: World Bank, CIA, *Hong Kong (Census & Statistics Department), *Singapore (Statistics Singapore), *Indonesia (Statistics Indonesia), *Australia (OECD Data)<\/span><\/span><\/figcaption><\/figure>\n

Data obtained from Indonesia\u2019s Central Statistics Agency show inequality rose rapidly in the early 1990s.<\/p>\n

Inequality declined following the Asian financial crisis as the crisis hit the rich. However, the gap between the haves and the have-nots began to widen fast under the administrations of Megawati Soekarnoputri and Susilo Bambang Yudhoyono (SBY).<\/p>\n

The Gini index rose to 41.0 in 2014 under SBY from 31.0 in 2001 under Megawati\u2019s administration.<\/p>\n

\"\"
Indonesia\u2019s Gini index, 1990-2017.<\/span>\u00a0Statistics Indonesia<\/span><\/span><\/figcaption><\/figure>\n

Consumer class-driven inequality<\/h2>\n

The 2015 World Bank report<\/a>\u00a0stated that Indonesia\u2019s economic growth was enjoyed by only the top 20%. This group is identified as the consumer class. These people earn a net annual income of more than US$3,600 and spend about $10 to $100 a day on food, transport and household supplies.<\/p>\n

Today, at least 70 million people in Indonesia fall within this consumer class bracket. It is projected that by 2030 this group will reach\u00a0135 million people<\/a>, representing half of the population.<\/p>\n

Since 2000 Indonesia\u2019s consumer class has grown stronger thanks to two decades of economic growth. Their incomes are rising as their high educational qualifications meet the increasing demand for skilled workers. These people play a vital role in raising tax revenues and in demanding greater responsiveness, transparency and accountability.<\/p>\n

On the other side, people with lower education struggle to find productive employment. They are trapped in low-paying jobs. Some work in farming and fisheries in rural areas, others work in the informal sectors \u2013 market coolies, domestic workers, drivers, etc. As their wages increase more slowly than for skilled workers, the income gap widens.<\/p>\n

Inequality and human development<\/h2>\n

High inequality is bad for society because people in the lower-income group may have no access to basic goods and services such as food, health and education. This can slow down the process of human development \u2013 measurable by the Human Development Index (HDI).<\/p>\n

The index measures a country\u2019s average achievements in three basic dimensions of human development: health, education and income to support a decent standard of living. There are four human development categories: very high (greater than 80), high (between 70 and 80), medium (between 60 and 70) and low (below 60).<\/p>\n

Based on the HDI value released by the United Nations Development Programme (UNDP), Indonesia is in the category of medium human development.<\/p>\n

However, the bigger gap between the rich and the poor in Indonesia seems to have slowed down improvements in its HDI.<\/p>\n

Data from\u00a0Human Development Reports<\/a>\u00a0showed that throughout the 2000s Indonesia\u2019s HDI improved on average by 0.92% per year, from 60.4 in 2000 to 66.2 in 2010. The Gini index during that period was between 31.0 and 38.0.<\/p>\n

From 2010 to 2014, Indonesia\u2019s HDI grew much more slowly at 0.78% per year as, under SBY\u2019s administration, inequality was higher. During SBY\u2019s second presidential term, the Gini index rose to 41.0.<\/p>\n

Economists believe that a country must rely on two key drivers to get the best outcomes in human development:\u00a0economic growth and declining inequality<\/a>. Indonesia is seeing these two things happening under Jokowi\u2019s administration.<\/p>\n

Under Jokowi, the Gini index has dropped below 40.0 to 38.9 as of March 2018. This decrease has led to greater human development.\u00a0The latest data<\/a>\u00a0show that Indonesia\u2019s HDI is now 70.8. It has shown stunning growth of 1.3% a year since 2015.<\/p>\n

The progressive trend is also happening at the provincial level.\u00a0Statistics<\/a>\u00a0show that 15 provinces are below the national average, but 14 of them are in the category of medium HDI.<\/p>\n

\"\"
Fifteen provinces below national HDI, 2014 and 2017.<\/span>\u00a0Source: Statistics Indonesia and UNDP<\/span><\/span><\/figcaption><\/figure>\n

Poorer provinces also showed rapid improvements in health, education and standard of living. Between 2014 and 2018 Papua recorded the fastest human development progress, followed by West Nusa Tenggara and West Sulawesi. Their HDI increased at 1.4%, 1.2% and 1.1% per year respectively.<\/p>\n

Tackling inequality<\/h2>\n

The government has been addressing inequality issues with various policies.<\/p>\n

Between 2004 and 2014, SBY\u2019s administration focused on rapid poverty reduction. Total spending on pro-poor programs increased to 7% in 2014 from 5.7% in 2011. In tackling inequality, SBY\u2019s programs aimed at empowering the people through education, health and micro finance support.<\/p>\n

Jokowi\u2019s administration decided to continue SBY\u2019s legacy. From 2015 to 2018, the country\u2019s spending on poverty reduction programs increased from 9% to 12.8%. Different from SBY\u2019s approach to tackling inequality, Jokowi prioritises development of not only the people but also infrastructure. I think this is why Jokowi is better at handling inequality than SBY.<\/p>\n

Infrastructure development<\/a>\u00a0aims to improve connectivity and reduce logistic costs within the archipelago. Jokowi is giving\u00a0extra attention to 30 priority projects<\/a>, including\u00a0Palapa Ring project<\/a>,\u00a0Trans Sulawesi railway<\/a>\u00a0and\u00a0Trans Papua road project<\/a>.<\/p>\n

In 2014, Jokowi introduced the Smart Indonesia Program to address education disparity. The program gives cash to poor students aged between 6 and 21 to ensure they complete school. As of October 2017, over\u00a017.9 million smart cards, of the target of 19.7 million, have been distributed<\/a>.<\/p>\n

Jokowi also revitalised\u00a0vocational education<\/a>. He involved industry players to contribute to curriculum development for vocational and technical schools. Private companies will offer training and internship opportunities for students and teachers.<\/p>\n

This reform aims to develop skill sets that reflect market demand, thus further strengthening Indonesia\u2019s workforce.<\/p>\n

On the right track<\/h2>\n

Rising inequality can reduce the quality of human life, social cohesion and economic growth. Inequality, in this case, is strongly related to unequal access to opportunities and services.<\/p>\n

Jokowi\u2019s approach to development has evidently considered this issue, which led his administration to pursue a combination of infrastructure and human resources development.<\/p>\n

As connectivity such as transportation and communication improves and more people in the rural areas have equal access to public services, inequality will further decline. Hence, Indonesia is moving in the right direction in the way it manages and reduces inequality.<\/p>\n

Tackling inequality remains a challenge for Indonesia. We should also draw attention to local governments. Their roles are now crucial to ensure funds and programs are handled optimally to boost economic growth and\u00a0job creation in rural areas<\/a>.<\/p>\n

AUTHOR<\/div>\n
Dr Yenny Tjoe,<\/strong>\u00a0Griffith University.<\/div>\n
This article first appeared at\u00a0The Conversation<\/a>.<\/div>\n","protected":false},"excerpt":{"rendered":"

YENNY TJOE\u00a0 | A\u00a0World Bank report in 2015\u00a0rang alarm bells for Southeast Asia\u2019s largest economy. Despite Indonesia managing to\u00a0more than halve its poverty rate\u00a0since 1999, inequality has been rising fast since 2000. That\u2019s because the richest 20% have enjoyed much higher growth in incomes and consumption than others. But President Joko \u201cJokowi\u201d Widodo\u2019s policies toContinue reading “Two decades of economic growth benefited only the richest 20%. How severe is inequality in Indonesia?”<\/span><\/a><\/p>\n","protected":false},"author":14,"featured_media":4754,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_newsletter_tier_id":0,"footnotes":""},"categories":[233,247],"tags":[822,344,1813],"class_list":["post-4753","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-feature-series","category-indonesia-and-southeast-asia","tag-economic-inequality","tag-indonesia","tag-yenny-tjoe"],"acf":[],"modified_by":"Jill Moriarty","yoast_head":"\nTwo decades of economic growth benefited only the richest 20%. 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