August 10, 2023
JAKARTA – Indonesia has become slightly more unequal over the past three years, even as more people have been lifted out of poverty, a fact that experts attribute to economic development policy choices in recent years.
As of March, 25.9 million Indonesians lived in poverty, down from 26.42 million in the same period in 2020, according to Statistics Indonesia (BPS).
Over the same period, inequality as measured by the Gini coefficient inched up to 0.409 from the previous 0.393, according to BPS data. The higher the Gini coefficient, the more economically unequal a society is.
As of March, the top 20 percent of Indonesia’s earners accounted for 46.71 percent of spending in the country, up from 45.49 percent in the last three years.
Institute for Development of Economics and Finance (Indef) researcher Nailul Huda said some government policies might have contributed to the bump in inequality.
He told The Jakarta Post on Friday that 2021 luxury tax cuts had prompted the middle and upper classes to spend more on high-ticket items such as vehicles.
Meanwhile, most Indonesians have been coping with higher living costs resulting from a decrease in motor fuel subsidies in September 2022. Through the subsidy cuts, the government sought to lighten the burden on the state budget amid soaring oil prices and a weak rupiah.
Rate hikes by Bank Indonesia (BI), while necessary to stem inflation, Nailul said, had also benefitted wealthy Indonesians, as higher rates meant higher yields on subsequently purchased time deposits and bonds.
“With no increase in income, the poor [need to scale back consumption],” said Nailul.
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Center of Reform on Economics (CORE) director Mohammad Faisal told the Post on Thursday that the combination of increasing inequality and declining poverty was quite unusual.
He said it could be attributable to the lingering economic effects of the COVID-19 pandemic on low earners, as their recovery had been somewhat behind other income groups.
“The spending power of rich people has largely not been affected, while for low earners, they have yet to see a full recovery,” Faisal said.
It could also be the case, he added, that people had been lifted above the poverty line but only barely, meaning they were still quasi-poor.
This group, he said, was not captured well in the statistics, as Indonesia only paid attention to people living under the poverty line.
While the government had deployed large amounts of social aid in recent years, he added, it should take into account that some of the aid was not reaching the intended beneficiaries, particularly in remote areas where government oversight was weaker.
Read also: Millions in RI at risk of falling back into poverty, World Bank warns
Jakarta State University (UNJ) economist Dianta Sebayang said the government’s efforts to keep economic development on track were “reasonable” but that it had to strive for a kind of development where “everyone grows together”.
“We must beware not to […] become rich [in the aggregate] with high inequality,” Dianta told the Post on Thursday.
“Widening inequality will bring about social conflict,” he added.