Although the government of Indonesia aims to lower the country's Gini coefficient to 39 in 2016, there continue to be more reports that see income inequality in Indonesia widening rather than declining. For example, a recent World Bank report notes that Indonesia's Gini coefficient rose from 30 in 2000 to 41 in 2015 (a reading of 0 represents perfect equality, while a reading of 100 represents perfect inequality). This rising trend will continue if the government fails to tackle this issue.
On the one hand, Indonesia has done a great job in expanding its economy in the post-Suharto era. Indonesia became a member of the G20 group of major economies in 2008 as its gross domestic product (GDP) expanded from USD $163.8 billion in 1999 to USD $888.5 billion in 2014. Meanwhile, the poverty rate of Indonesia fell from 24 percent in 1999 (the rate had risen drastically due to the impact of the Asian Financial Crisis in the late 1990s) to 11.1 percent in 2015. Robust economic growth added 45 million jobs to the Indonesian economy during this period.
On the other hand, income distribution inequality in Indonesia has been rising amid this period of economic expansion and poverty reduction. This implies that the richer segments of society have been benefiting more from the country's economic growth than the poorer segments. This situation is dangerous as it jeopardizes the country's social cohesion, as well as political and economic stability over the long term.
Rodrigo Chaves, World Bank Country Director for Indonesia, said in December 2015 that widening income inequality needs to be dealt with as countries with more equal wealth distribution tend to grow faster and more stably. He added that inequality is climbing faster in Indonesia than in most other Asian countries. This is a major cause for concern and alarm. The table below shows that, on average, Indonesia's Gini ratio climbed significantly between the 1990s and 2000s (similar to the case of China). Although the Philippines, Malaysia and Thailand currently have higher Gini ratios (implying higher income distribution inequality) than Indonesia, these countries show a declining trend compared to the previous decade, whereas Indonesia's Gini ratio has been rising.
Asian Countries with Highest Average Gini Ratio:
|Country||Gini Ratio in
|Gini Ratio in
Source: World Bank
In its December 2015 report titled "Indonesia's Rising Divide", the World Bank advises the Indonesian government to tackle the following four drivers of inequality: (1) inequality of opportunity, (2) inequality in the labor market, (3) high wealth concentration, and (4) unequal resilience to shocks. These drivers can be combated through the implementation of the correct policies, such as policies that aim at improving local service delivery (enhance health, education and family planning programs), strengthening social protection, promoting better jobs as well as skills training opportunities for workers, implementing a fairer taxation system, and using tax revenue to reduce inequality.
Proportion of Total National Wealth Controlled by the Richest 1% of the Population:
Source: World Bank
It is also important to note that - although Indonesia managed to reduce its poverty rate to around 11 percent in 2015 - there is a very large group of people living just above the poverty line, implying that a relatively small (inflationary) shock can push these people into full poverty (from near-poverty). According to Statistics Indonesia there are around 29 million poor people in Indonesia in 2015. However, according to the World Bank the number of near-poor Indonesians (living just above the poverty line) numbers 68 million.
Indonesia's Labor Force & Unemployment Statistics:
(% of labor force)
Indonesian Poverty & Inequality Statistics:
(% of population)
Source: Statistics Indonesia