The Ministry of National Development Planning launched on Tuesday (23/05) the Indonesia Development Forum, an international forum involving local and international stakeholders to find solutions to overcome income and developmental gaps in the archipelago. (Antara Photo/Reno Esnir)

Shrinking Inequality Good News for Bottom Half, Not So Much for the Top


AUGUST 19, 2016

Jakarta. Indonesia has narrowed its wealth disparity, the Central Statistics Agency, or BPS, reported on Friday (19/08).

However, while officials would prefer to credit the government's massive infrastructure spending for an increase in the number of available jobs and rising income among the country's lower- and middle-income population, the data suggest that it was more likely due to the rich making less money from commodities.

The country's Gini ratio dropped to 0.397 in March from 0.408 in the same month last year, meaning that the country is well set on its course to reach its target of 0.39 this year and 0.36 by 2019. A reading of zero represents perfect equality, in which everyone has exactly the same amount of income. Vice versa, a Gini ratio of one represents perfect inequality, where one person receives all the income and the rest none.

The BPS reports the ratio twice a year in March and September, which like poverty and labor statistics, reflect the seasonal impact of the harvest early in the year. The Gini ratio was 0.402 last September.

BPS head Suryamin noted that daily incomes rose by 2.3 percent to Rp 47,559 ($4) for agricultural workers and by 3 percent to Rp 81,481 for construction workers in March, compared to last year, narrowing the inequality gap.

The government spent Rp 213 trillion on roads, bridges and other infrastructure last year, almost double the amount compared to a year earlier, in line with President Joko "Jokowi" Widodo's ambition to develop the country into an advanced economy.

But economists said the mishap experienced by top-earners may have made a more significant contribution to lowering income inequality.

"The most likely scenario is that [income of] the top 20 percent of the population fell on the back of falling commodity prices," Samuel Assets Management economist Lana Soelistianingsih said.

Global prices of coal, one of Indonesia's largest export commodities, fell 13 percent in March from the same period a year ago.

Palm oil prices rose 4.2 percent during the period, but the commodity still trades at around half of its 2011 peak. Indonesia is the largest producer and exporter of palm oil with estimated production of 32 million tons and exports of 27 million tons this year, according to Indonesian Palm Oil Producers Association (Gapki).

Eric Alexander Sugandi, an economist at think tank, Kenta Institute, agrees with Lana's assessment, noting that the upper-income group had seen better days during the commodity boom early in the decade but now suffer from weak demand across the globe.

Other data from the BPS seems to support the economists' view.

Spending by the bottom 40 percent of the population — an inequality indicator that the BPS gathers based on the World Bank's criteria — hardly changed in the period.

The group accounted for 17.02 percent of the population's total spending in March, compared to 17.10 percent a year earlier and 17.45 percent in September 2015.

However, the World Bank considers any readings above 17 percent as low inequality. A reading of between 12 percent and 17 percent indicates moderate inequality, while anything below that signals severe inequality.