Indonesia's Gini Ratio Fell in 2015; Concerns about Social Cohesion Persist

Suryamin, Head of BPS, said there were six matters that contributed to modestly declining wealth disparity in Indonesia. Firstly, higher wages for agricultural workers (their daily wages rose 1.21 percent to an average of IDR 46,739 (approx. USD $3.54) between March and September 2015. Secondly, a 1.05 percent increase to IDR 80,494 (USD $6.10) regarding the average daily wage for Indonesian construction workers. Thirdly, there occurred a rise in freelance workers to 12.5 million people in both the agriculture sector and non-agriculture sector. Fourthly, BPS detected growth in spending which reflects higher income of the poorer segments of Indonesian society. Suryamin said this phenomenon is related to the central government's push for infrastructure development (which creates jobs and higher income especially for the lower class workers), public social welfare programs, and higher wages for the lower class civil servants. Fifth, there occurred a rise in urban residents. In March 2015 52.55 percent of the Indonesian population lived in urban areas. This rate grew to 53.19 percent in September 2015. Part of the Indonesian community migrated to the urban areas in search of a higher wage. Sixth, BPS detected faster growing spending among the poorer segments of society compared to growth of spending in the higher segments of society.

Another factor that has had a positive impact on the poorer segments of Indonesian society was controlled inflation. After several subsidized fuel price reforms were conducted by the Indonesian government in the period 2013-2015, Indonesia's inflation rose sharply nearly touching double-digit levels. However, in 2015 inflation eased to a comfortable 3.35 percent (y/y), hence putting less pressure on the poorer segments of Indonesian society. Based on data from BPS there were 29 million Indonesians living below the poverty line in 2015. However, there is also a much larger group of people living just above the poverty line, implying that an inflationary shock can push these people into full poverty. According to World Bank data there are around 68 million Indonesians living just above the poverty line.

Although Indonesia's narrowing income distribution inequality in 2015 is positive news, there persist concerns about widespread inequality in Indonesian society. In fact, often we read stories in media that claim income distribution in Indonesia is widening. Indeed, when we take a wider view, then we still see rising inequality in Indonesia. Whereas in the 1990s Indonesia's Gini ratio stood at an average of 0.30, the ratio rose significantly to an average of 0.39 in the 2000s, and remained stable at 0.41 in the years 2011-2014 before coming down slightly to 0.40 in 2015. In other words, Indonesia's income distribution inequality has increased sharply during the era of reformation and democracy compared to Suharto's authoritarian New Order regime.

Indonesian Poverty & Inequality Statistics:

	2007	2008	2009	2010	2011	2012	2013	2014	2015
Relative Poverty (% of population)	16.6	15.4	14.2	13.3	12.5	11.7	11.5	11.0	11.2
Absolute Poverty (in millions)	37	35	33	31	30	29	29	28	29
Gini Coefficient/ Gini Ratio	0.35	0.35	0.37	0.38	0.41	0.41	0.41	0.41	0.40

^{Source: Statistics Indonesia (BPS)}

Another painful fact is that Indonesia's rising inequality emerged while - at the same time - the overall economy expanded from a USD $163.8 billion economy in 1999 to a USD $888.5 billion economy in 2014 (Indonesia even became a member of the G20 group of major economies in 2008), and while Indonesia's poverty rate fell from 24 percent in 1999 to 11.1 percent in 2015. As such, it can be concluded that the richer segments of Indonesian society have benefited much more from Indonesia's economic growth than the poorer segments have. This situation implies serious risks as it jeopardizes social cohesion within the nation. It can lead to social conflicts and disrupt political and economic stability.

Together with China, Indonesia experienced sharply rising inequality in terms of income distribution. The table below shows that other Southeast Asian nations (Thailand, Malaysia, and the Philippines) still have a higher Gini ratio compared to that of Indonesia. However, contrary to the case of Indonesia, the Gini ratios of these nations show a downward trend between the 1990s and 2000s. Indonesia and China, on the other hand, show a steep increase in income inequality between both periods.

Asian Countries with the Highest Average Gini Ratio:

Country	Gini Ratio in  the 1990s	Gini Ratio in  the 2000s
China	0.34	0.45
Indonesia	0.30	0.39
Laos	0.32	0.38
India	0.34	0.39
Vietnam	0.37	0.37
Cambodia	0.39	0.38
Philippines	0.45	0.44
Malaysia	0.49	0.47
Thailand	0.46	0.41

^{Source: World Bank}

Proportion of Total National Wealth Controlled by the Richest 1% of the Population:

Country	Proportion
Japan	17.9
Australia	21.1
France	21.4
Great Britain	23.3
Canada	24.4
Germany	28.1
Singapore	28.6
Norway	28.9
Denmark	29.3
Austria	29.3
Sweden	30.8
Switzerland	30.9
Taiwan	32.7
South Korea	33.9
China	37.2
USA	38.4
India	49.0
Indonesia	50.3
Russia	66.2

^{Source: World Bank}

In its December 2015 report, the World Bank advised Indonesian authorities to implement the correct policies to combat rising inequality. The World Bank suggests policies that aim to improve local service delivery (enhance health, education and family planning programs), strengthen social protection, promote better jobs as well as skills training opportunities for workers, implement a fairer taxation system, and use tax revenue to reduce inequality.

Additional Notes:

• Indonesia's statistics agency (BPS), a non-ministerial government agency, releases figures about Indonesia's Gini ratio twice per year. Data comprise the months of March and September

• The largest improvement in Indonesia's Gini ratio in September 2015 occurred in the provinces of Lampung (0.35), Central Kalimantan (0.30), and Papua (0.39). In all these three provinces the ratio fell 0.03 percent

• In the 2016 State Budget the Indonesian government targets to push the Gini ratio down to 0.39. By the year 2019 the government wants to have pushed the ratio down to 0.36

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