Inequality in Indonesia rose to record high

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Indonesia inequality_World BankInequality in Indonesia has reached historical high, a World Bank report released in Jakarta on December 8 revealed. The country’s Gini coefficient, which measures inequality of income distribution, has risen from 30 points in the year 2000 to 41 points in 2014, the highest-ever recorded level for Indonesia.

This inequality has taken place even as Indonesia experienced sustained high growth and had significant reduced the national poverty rate, the report found. The main causes for the result were identified as inequality of opportunity, unequal jobs, high wealth concentration and low resiliency among the poor.

“Indonesia is at risk of leaving its poor and vulnerable behind,” said Radrigo Chaves, the World Bank’s Indonesia Country Director, adding that “poverty reduction has begun to stagnate, with a near zero decline in 2014. Income inequality is rapidly rising and up to one third of it is explained by inequality of opportunities.”

The affluent were the most affected by the Asian financial crisis and slowest to recover, but since 2003, Indonesia’s richest 20 per cent of the population have enjoyed much higher growth in incomes and consumption. Regional disparities also persist, further contributing to inequality nationally. Eastern Indonesia lags behind other parts of the country, notably Java.

Strong economic growth and poverty reduction has not dampened the perception and reality that many Indonesians are not enjoying the fruits of economic development. There is some evidence that inequities in access to social assistance have increased crime and eroded social capital.

The World Bank recommended four key actions: improving local service delivery for health, education and family planning opportunities; promoting better jobs and skills training; ensuring protection from economic shocks; and using taxes and government spending to reduce inequality.

The World Bank noted that one of Indonesia’s main challenges was that approximately 40 per cent of all people remain clustered around the national poverty line set at 330,776 rupiah ($22.6) per person per month.

The inability of Indonesia’s poorest 40 per cent of households to exit vulnerability and move into the middle class could weaken economic growth, which is expected to be driven by a growing – and consuming – middle class. Lower consumption growth by the poorest will also lead to underinvestment in human capital and in entrepreneurial activities, further dampening broader economic growth prospects, the World Bank said.

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Reading Time: 2 minutes

Inequality in Indonesia has reached historical high, a World Bank report released in Jakarta on December 8 revealed. The country’s Gini coefficient, which measures inequality of income distribution, has risen from 30 points in the year 2000 to 41 points in 2014, the highest-ever recorded level for Indonesia.

Reading Time: 2 minutes

Indonesia inequality_World BankInequality in Indonesia has reached historical high, a World Bank report released in Jakarta on December 8 revealed. The country’s Gini coefficient, which measures inequality of income distribution, has risen from 30 points in the year 2000 to 41 points in 2014, the highest-ever recorded level for Indonesia.

This inequality has taken place even as Indonesia experienced sustained high growth and had significant reduced the national poverty rate, the report found. The main causes for the result were identified as inequality of opportunity, unequal jobs, high wealth concentration and low resiliency among the poor.

“Indonesia is at risk of leaving its poor and vulnerable behind,” said Radrigo Chaves, the World Bank’s Indonesia Country Director, adding that “poverty reduction has begun to stagnate, with a near zero decline in 2014. Income inequality is rapidly rising and up to one third of it is explained by inequality of opportunities.”

The affluent were the most affected by the Asian financial crisis and slowest to recover, but since 2003, Indonesia’s richest 20 per cent of the population have enjoyed much higher growth in incomes and consumption. Regional disparities also persist, further contributing to inequality nationally. Eastern Indonesia lags behind other parts of the country, notably Java.

Strong economic growth and poverty reduction has not dampened the perception and reality that many Indonesians are not enjoying the fruits of economic development. There is some evidence that inequities in access to social assistance have increased crime and eroded social capital.

The World Bank recommended four key actions: improving local service delivery for health, education and family planning opportunities; promoting better jobs and skills training; ensuring protection from economic shocks; and using taxes and government spending to reduce inequality.

The World Bank noted that one of Indonesia’s main challenges was that approximately 40 per cent of all people remain clustered around the national poverty line set at 330,776 rupiah ($22.6) per person per month.

The inability of Indonesia’s poorest 40 per cent of households to exit vulnerability and move into the middle class could weaken economic growth, which is expected to be driven by a growing – and consuming – middle class. Lower consumption growth by the poorest will also lead to underinvestment in human capital and in entrepreneurial activities, further dampening broader economic growth prospects, the World Bank said.

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