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6 July 2020 (closed)
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The World Bank said that the widening of income distribution inequality in Indonesia grew at the second fastest pace among Asian countries in the past two decades. Based on the World Bank’s Indonesia Economic Quarterly (IEQ) report, Indonesia recorded the second fastest Gini coefficient increase after China. In the period 1990-2011, the Gini coefficient of Indonesia rose by an average of 0.5 percentage point per year. This is a serious matter as social cohesion and economic growth can be jeopardized by increased inequality within Indonesian society.
Although Indonesia has had great success in reducing relative and absolute poverty, the gap between rich and poor has widened. Between the years 2005 and 2013, poverty in Indonesia fell from 16 percent of the total population (or 35 million people) to 11.5 percent (or 29 million people). However, the GINI ratio increased from 0.36 to 0.41 during the same period, indicating a widening of income inequality (a coefficient of 0 indicates perfect equality, whereas a coefficient of 1 indicates perfect inequality). In fact, the real level of the coefficient may be higher than 0.41 as data that has been used for the measurement did not adequately represent Indonesian households, according to the World Bank. As such, the Indonesian government should focus not only on poverty reduction but also on the reduction of income distribution inequality among the people.
Indonesian Poverty Statistics:
(% of population)
Sources: World Bank and Statistics Indonesia
Moreover, many Indonesian workers have not been able to increase income in the past decade. As a result, they are in danger of falling (back) into poverty, especially in times of inflationary pressures. A characteristic of Indonesia is that a large portion of the population - perhaps up to 60 million people - is near poor, hovering just above the poverty line.
Meanwhile, Indonesia’s neighbouring countries that also show solid economic growth, such as Vietnam, Malaysia and Thailand, show stable Gini coefficients or in fact declining inequality.
World Bank economist for Indonesia, Ndiame Diop, said that “pro-poor policies such as improving rural infrastructure will expand access to quality education as well as labor market mobility.” Diop says that the topic of inequality will be an important issue for the new Indonesian government, possibly led by newly-elected Joko Widodo (although defeated presidential candidate is expected to challenge the election result in the country’s Constitutional Court). Diop added that the widening gap between rich and poor is evident: “in 2002, the top 10 percent of households consumed 6.6 times more than the poorest 10 percent. By 2013, the affluent was spending 10 times more than the poor.”