10 May 2022 (closed)
Jakarta Composite Index (6,819.79) -89.96 -1.30%
USD/IDR (14,146) -6.00 -0.04%
EUR/IDR (17,335) +57.05 +0.33%
The economy of Indonesia is booming with gross domestic product (GDP) surpassing six percent on an annual basis. And the country's strong economic fundamentals are confirmed by increasing international attention. But within the context of this economic growth it is important to take a look at whether economic growth is shared by all segments of Indonesian society. If, for example, only the higher classes of Indonesia would benefit from the economic boom, it could give rise to social issues in the future.
The bigger the size of a country, the more complex and difficult will its governance become. Being the largest archipelago in the world, stretching across 3,500 miles and consisting of about 17,000 islands, it is no surprise that governance is a complicated matter in Indonesia. As a consequence of its vastness, Indonesia is marked by diversity. This diversity can be found in the presence of many cultures, languages, religions, traditions and histories. Within this diversity it is difficult, probably impossible, to foster equality in all respects and among all regions.
If we take a look at the table below we see that there exists a large difference in the islands' contribution shares towards the national economy. Java, Indonesia's most populous island, accounts for 57.5 percent of the country's economic growth although it only accounts for about seven percent of Indonesia's land area. Together, Java and Sumatra account for more than 80 percent of Indonesia's economic growth. As such, it indicates a significant economic focus (and inequality) on the western part of Indonesia. The explanation for this situation is that throughout the country's history (both precolonial and colonial) strong political centers usually emerged in areas that formed good locations for trade. The Malacca Strait in Indonesia's western part was, and still is, a very important trade route, while Indonesia's eastern part has always been in a more-or-less economic vacuum.
|Island - Region
GDP - 2012
|Bali - Nusa Tenggara||2.55%|
|Moluccas - Papua||2.14%|
Source: Statistics Indonesia
The table above confirms that the further away we go from the western part, the less economic significance regions have towards the national economy. How does this relate to statistics such as poverty and education? The tables below confirm that the relative insignificance of regions translates to high relative poverty as well as illiteracy.
|Nusa Tenggara Timur||20.41%|
|Nusa Tenggara Barat||14.56%|
|Nusa Tenggara Timur||10.80%|
people aged over 10 years in 2011
Source: Statistics Indonesia
It is also paradoxical that some provinces that produce significant natural resources (Papua, Aceh), such as oil and gas are plagued by high relative poverty. Indonesians in those provinces seem to be stuck in a vicious circle: low education results in low income, which results in the inability to pay for the next generation's education (and healthcare). For sure, government intervention is needed to end this vicious circle but although the government spends a large amount of its state budget on education, development is slow due to a lack of good-quality human resources and infrastructure constraints (and regional governments' mismanagement). It is no coincidence that regions with high relative poverty have seen movements that fight for independence, such as Aceh and Papua (although these calls for separation also contain historic and cultural reasons).
GDP per capita has currently reached its highest level in Indonesian economic history and is forecast to grow higher. However, there exists a significant gap between statistics and reality as the wealth of the 43,000 richest Indonesians (who represent only 0.02 percent of the total Indonesian population) is equivalent to 25 percent of Indonesia's GDP. The 40 richest Indonesians account for about 10 percent of GDP (which is the same amount as the combined wealth of the 60 million poorest Indonesians). These numbers indicate a huge concentration of wealth within the small elite (mostly in Java). Moreover, according to analysts this income distribution gap is estimated to widen in the foreseeable future.
In sum, an important and difficult task lies ahead of the government. In many respects Indonesia's society needs be made more equal through the development of better healthcare, education as well as stimulating investments in eastern regions that are currently underdeveloped but contain good prospects in terms of natural resources, agriculture or tourism. To glue everything together, infrastructure development needs to be enhanced. It is a process that will take time and that needs to be accompanied by good public governance.