The Institute for Development of Economics and Finance (Indef) argues that economic development that has occurred during the first two years of the government under the leadership of President Joko Widodo is too much centered on the island of Java, Indonesia's most populous island and the political and economic center of Southeast Asia's largest economy. Java, particularly the Greater Jakarta region, contributes about 60 percent to the total Indonesian economy.
According to the latest data from the Indonesia Investment Coordinating Board (BKPM), direct investment (both direct and domestic) in Java stood at IDR 168.9 trillion (approx. USD $13 billion), or a 56.7 percent slice of the whole cake. Indef states that this structural imbalance in terms of geographical investment destinations is what causes rising social inequality (including poverty) between Java island and the outer islands.
Bhima Yudhistira, researcher at Indef, added that - although the Gini ratio of Indonesia has declined - inequality is actually increasing. In August 2016 Statistics Indonesia (BPS) announced that the nation's Gini ratio fell from 0.408 in March 2015 to 0.397 in March 2016 (zero represents perfect equality, while 1 represents perfect inequality). This positive trend was attributed to rising earnings of Indonesia's middle-income segment on the back of government-led and labor-intensive infrastructure development.
However, Yudhistira argues that wealth disparity did in fact not narrow in Indonesia as the latest BPS data would suggest. He argues that the lower Gini ratio was actually caused by slowing consumption among the richer segments of society, not by rising incomes of the poorer segments.
Yudhistira also emphasizes that the quality of Indonesia's economic development has decreased. While currently each one percent of GDP growth creates 110,000 new jobs, the same growth rate created 225,000 jobs in 2011 (just before commodity prices started to plunge drastically).
Meanwhile, in the Global Competitiveness Report 2016-2017, issued by the World Economic Forum, Indonesia fell four places to number 41 as Indonesia's institutions, health, education, market efficiency, technology and innovation were all assessed to have fallen in quality. This means there remains plenty of homework to be done by the government. Contrary to India, where two years ago also a new reform-minded government under Prime Minister Narendra Modi took office, Indonesia did not improve in the Global Competitiveness Index.
Possibly a dangerous development..