11 November 2019 (closed)
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In my previous column, I outlined the emergence of a new and promising class of Indonesian consumers that is most likely to bring a positive effect on the country's economic growth in the years ahead. I also pointed out that the level of prosperity of a population is an influential factor towards the state (and future) of democracy in a country: the wealthier a population becomes in terms of per capita GDP, the longer the life expectancy of its democracy will be.
In the last six years, Indonesia has posted annual economic growth of between 6.0 and 6.5 percent (with the exception of 2009 when amid global turmoil the country grew 'only' 4.6 percent) and its per capita GDP rose accordingly. In fact, the National Commission on Economics (Komite Ekonomi Nasional, or abbreviated KEN) predicts that the level of Indonesia's per capita income might reach USD $6,000 within the time-span of three to four years.
However, despite this optimism there are a number of matters that complicate (as well as frustrate) Indonesia's current economic growth. Moreover, as I argued last week that economic growth and democracy have a (complex) relationship, these matters thus also form a risk for the state of democracy in Indonesia. These matters include income distribution inequality, corruption, and weak state institutions.
Firstly, income distribution inequality needs to be mitigated. Indonesia's Gini coefficient, which measures income distribution inequality, has been at 0.4 for the last two years. For Indonesia, this is the highest figure in the last fifty years (a coefficient of 0 indicates perfect equality, while a coefficient of 1 indicates perfect inequality). It implies that economic development has favoured Indonesia's middle class, upper middle class and elite but not the poorer segments of the country. This situation cannot be ignored because the more unequal society becomes, the more social problems will emerge and frustrate the economy or bring major uncertainties along.
Secondly, corruption should be dealt with. A study, conducted by Drury, Krieckhaus and Lusztig (2006), concluded that in non-democratic countries corruption will slow down economic development. Although in democratic countries the influence of corruption is smaller, it will still impact negatively on economic development. According to Transparency International 2012, Indonesia is currently number 118 (out a total of 176 countries) on the corruption perceptions index. After 15 years of Reformation, it does not represent a good performance. The battle against corruption in Indonesia is difficult. Apart from technical constraints, the politicization of corruption cases often make law enforcement agencies, such as the Corruption Eradication Commission (Komisi Pemberantasan Korupsi, abbreviated KPK), not free to carry out their investigations optimally.
Lastly, Indonesia needs improvement of its state institutions. An orderly democracy as well as economic development are not possible without good-functioning state institutions. Institutional reform should lead to reduced transactional costs, the minimization of moral hazard, and the establishment of full transparency and accountability. All of these matters are important prerequisites for creating an atmosphere of good governance within the state institutions.
Indonesia's new consumer force is rising. It will be important not to let the three aforementioned subjects become bottlenecks that impact negatively on Indonesia's expanding consumer class as well as on its burgeoning democracy.
Agung Budiono is an analyst at Jakarta-based Pol-Tracking Institute