Perceived Growing Income Distribution Inequality in Indonesia

Inequality is a persistent problem in Indonesia. Regarding inequality in terms of income distribution, there is evidence of a widening gap between the rich and the poor. When we take a look at Indonesia’s GINI ratio (which measures income distribution inequality), we see an increasing figure. Between the years 2005 and 2013, the GINI ratio rose from 0.36 to 0.41 (a coefficient of 0 indicates perfect equality, while a coefficient of 1 indicates perfect inequality). In fact, the real figure may even be higher because the data that have been used for the measurement did not adequately represent Indonesian households (according to a recent World Bank report).

When inequality lasts for too long, it certainly brings political risks as public anger about social injustice within society can lead to strong movements that are able to topple the power of the political elite. Such a movement - fuelled by public rage - can also cause great social and economic troubles. For example, when in 1974 the Indonesian people were fed up with corruption, inflation and excessive foreign investments in the country, demonstrations - a reaction to a state visit by Japanese Prime Minister Kakuei Tanaka - turned into violent riots resulting in the deaths of 11 people and destruction of hundreds of cars and buildings in Jakarta. This became known as the ‘Malari Incident’ and was an influential happening as it led to several policy changes of Suharto’s authoritarian New Order government.

The survey of LSI divided the population of Indonesia into five categories: very rich, rich, middle class, poor, and very poor. Respondents then needed to answer how much income each of the five categories generate. Results of the survey show that the very rich category (which constitutes only 20 percent of the total population) accounts for 38 percent of total income in Indonesia, while the very poor category only accounts for 19 percent of total income in the country.

However, there is something very interesting about the results of this survey. Although the result indeed indicates a high degree of inequality, the true state of income distribution inequality in Indonesia is far worse than respondent’s perception. The very rich category in fact accounts for 47.9 percent of total income in the country. And if we forget about the five baskets, then matters become increasingly unequal as the combined wealth of the 43,000 richest Indonesians (who represent only 0.02 percent of the total population) is equivalent to 25 percent of Indonesia's gross domestic product (GDP).

The survey, which was conducted between 27 May and 4 June 2014, used 3,080 respondents who were interviewed face-to-face by the LSI staff. At the time of the survey, each respondent was Indonesian, at least 17 years of age, and married. The survey has a margin of error of 1.8 percent.

Although the gap between rich and poor has widened in recent years, absolute and relative poverty have declined drastically in recent years:

Indonesian Poverty Statistics:

	2005	2006	2007	2008	2009	2010	2011	2012	2013
Relative Poverty (% of population)	16.0	17.8	16.6	15.4	14.2	13.3	12.5	11.7	11.5
Absolute Poverty (in millions)	35	39	37	35	33	31	30	29	29
Gini Coefficient/ Gini Ratio	0.36	-	0.35	0.35	0.37	0.38	0.41	0.41	0.41

^{Sources: World Bank and Statistics Indonesia}

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