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Widodo's big challenge is reducing Indonesia's inequity

His administration has certainly not been idle but the country remains one of the world’s most unequal societies.

 
Jakarta: 

Indonesia’s economy continues to forge ahead, with President Joko Widodo striving to raise the level of growth above the 5 percent mark. But some — indeed as many as half the population — appear to be receiving very little benefit.

Around 49 percent of Jakarta’s area has been classified as slums by the Agrarian and Spatial Planning Ministry, in a study conducted with the World Bank. And while the Central Bureau of Statistics celebrated the fall of the unemployment rate to 5.01 percent in February, that statistic too hides a story of deep inequality.

Out of a total workforce of 136.18 million, a full 74.08 million people or 57.27 percent work in the informal sector, with no guaranteed wages and little in the way of protection from disasters such as the loss of a job or sickness to cushion them from tumbling into real poverty.

The statistics demonstrate that Indonesia has done a lot, reducing the poverty level down to 9.82 percent of the population by March last year. But that still adds up to 25.95 million people. Add to that the country’s extremely low definition of poverty — a level of around US$35 per person per month — and it’s not difficult to see that economic growth hasn’t helped everyone.

Recent criticism of the poverty level as defined by the Statistics Bureau was accompanied by comments that, if the standards of the World Bank were applied, there would be 100 million poor people in the country.

So while global rating agency Standard & Poor's on May 31 raised Indonesia's sovereign credit rating by a notch to BBB from BBB-, one notch above investment grade, the figure for the slums of Jakarta and other statistics that describe the extent of poverty are far more revealing about how far the country has to go to provide equal opportunity for all its citizens.

Recognized as one of the world’s most unequal societies, the government struggles to confront the issue, aware that a deep social gap is a recipe for instability. The country’s Gini co-efficient — a measure of inequality — hovers around the 4.0 mark, the level seen as the red line for security issues.

The Widodo administration has certainly not been idle. The widespread implementation of a national health insurance system has been a real winner with poorer members of the community. Hospitals that in the past were a haven for the elite are now far busier as people relying on the national health service get ailments treated they had been forced to ignore for years. Like free health care programs everywhere, they have to wait in line while patients with private insurance get treated first, but that is the same everywhere in the world.

Smart cards are topped up automatically to pay for poor children’s educational needs and there are cash payments to help those identified as in need. The country is now able to state that it has the framework in place for a real social security system.

President Widodo stressed the importance of reducing inequity in a speech to senior government and military leaders at the end of 2015.

"We are not against the rich. We want our people to be rich. But if we have super rich and others struggling to eat, then there is a gap we need to close with our budget and policies in the field. Poverty and social inequality are dangerous, they fuel social conflict, separatism, radicalism, extremism and even terrorism,” Widodo was reported as saying.

"Early detection is crucial, while mapping and de-radicalization efforts also have to be continuously conducted. Both soft and hard approaches [to fight radicalism] through cultural and religious efforts are also needed,” he said.

Indonesia has to focus on battling radicalism, he stressed, as neglecting it could make moves by terror groups a real and serious threat to the country.

Despite the advances that have been made in reducing poverty, there’s little doubt that inequity was one of the drivers of the mass support for presidential challenger Prabowo Subianto at the April 17 election. While he lost in his second attempt to take the presidency, his supporters were far more impassioned than those of the incumbent. Hard-line Islamist groups supporting the creation of a caliphate played to the emotions of people who see the present system as failing them.

Widodo, with his promise of better infrastructure and a modern economy, appealed to those in formal sector jobs, while Subianto’s call for a “just and prosperous society” called to those who see themselves as the underdogs.

As Widodo prepares for his second term, he is faced with a dilemma. While he has said he wants to concentrate over the next five years on raising Indonesia’s human capital, he also needs to satisfy the investment fund managers and others who want to see more evidence of a burgeoning economy.

One test ahead of him is what to do about the increasing weight of subsidies for fuel and electricity. So far, he has allowed higher international oil prices to cut into profits at national energy mammoth Pertamina and power utility PLN. While that allows the purchasing power of the middle classes to remain strong, the government ends up footing the bill by forgoing profits at the two state-owned companies.

Critics of the policy say it would be simple to cut the subsidies, forcing the middle class to pay market prices for fuel and power, and redirect the cash to the poor through the card-based health, education and poverty cards.

In the past, however, the Indonesian public has shown itself extraordinarily sensitive to higher fuel prices. The riots that brought down Suharto in 1998 were sparked by a hike in pump prices. The many millions who get to work each day on motorbikes would deeply resent having to pay more for the privilege.

With the election win behind him, Joko Widodo still has a struggle ahead of him to solve both sides of the development equation.

Keith Loveard is an Indonesia-based journalist and analyst.

Source: UCAN

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