INDONESIA

Wealth gap still plagues Indonesia ahead of presidential elections

Yudhoyono's vow to reduce poverty remains unfulfilled as he wraps up second and final term

PUBLISHED : Monday, 14 April, 2014, 10:31pm
UPDATED : Tuesday, 15 April, 2014, 6:20pm

Tedi Kumaedi earns about US$87 a month selling instant coffee from his rusty bicycle near Jakarta's stock exchange. At nearby TechnoBike, they have sold out of US$25,000 Lamborghini-branded bicycles.

Narrowing the gulf between workers like Kumaedi, who toils for 14 hours a day outside a luxury hotel operated by Ritz-Carlton, and TechnoBike's increasingly affluent customers will be among the biggest challenges facing the winner of Indonesia's presidential election in July.

The wealth gap in the world's fourth most populous country is widening, threatening President Susilo Bambang Yudhoyono's goal of reducing poverty before he steps down after a decade in power.

It is also restraining growth in Southeast Asia's largest economy, as consumption by the poorest half of the country stagnated last year, according to the World Bank.

Growing inequality has boosted the popularity of Jakarta Governor Joko Widodo, whose Indonesian Democratic Party of Struggle won the most votes in an April 9 parliamentary election and who leads opinion polls to succeed Yudhoyono.

"There is a sense of the big end of town enriching itself," said Hal Hill, a professor of Southeast Asian economies at Australian National University in Canberra.

"Jokowi seems a man of the people, and that's a powerful message," he said, referring to Widodo by his nickname.

The country's Gini coefficient, a measure of income inequality, widened to 0.41 in 2012, from 0.35 in 2005, a year after Yudhoyono became president, according to the World Bank.

That is above the 0.4 level that the United Nations has said was a predictor of social unrest, and compares with China's level of 0.47 the past two years.

The poorest half of Indonesians saw no growth or a slight decline in consumption expenditure between 2012 and 2013, compared with 4 per cent growth across the entire population and an average of 7 per cent for the richest 20 per cent, the Washington-based World Bank said in a report last year.

Yudhoyono, who is barred by law from standing for a third term, said after being re-elected in 2009 that he would cut the country's poverty rate from 14 per cent to a range of 8 per cent to 10 per cent by this year.

"The rate of poverty reduction has been slowing," said Matthew Wai-Poi, a Jakarta-based senior economist for the World Bank.

"The distribution of economic growth has been much more to the richest 20 per cent."

A decline in the poverty rate over recent years might be masking increases in inequality because about three times more people were now classed as "vulnerable" rather than poor, Wai- Poi said.

About 16 per cent of Indonesians lived on less than US$1.25 a day in 2011, while 43 per cent lived on under US$2 a day, according to the World Bank.

"There's a bunch missing out in terms of growth," Wai-Poi said.

"There is a risk because higher inequality can lead to higher conflict," he added.