Sugeng Bahagijo- Executive Director, International NGO Forum on Indonesian Development; 12540, Jl Jatipadang Raya, 105, Pasar Minggu, Jakarta Indonesia; E-mail: sbahagijo@infid.org

Abstract

In the last five years inequality in Indonesia has increased from 0.35 in 2005 to 0.41 in 2011 based on the Gini coefficient. Indonesia is by no means an exception; the data also shows that among almost all the countries that are experiencing rapid economic growth in the last 10 years, inequality is on the rise, including in China, India and South Africa. Closing the inequality gap, however, is possible and can be done. With a population of 230 million, Indonesia is more prosperous now than 10 years ago. Income per capita is USD3,000, with the 20^th largest GDP in the world, it now surpasses Belgium and Sweden, with an annual budget of about USD150-170 billion. This paper describes (a) the forms of inequality, (b) the causes of inequality (c) responses and government policies; (d) policy options to decrease inequality in Indonesia.

The author starts with exploring the various forms of inequality in Indonesia: income inequality, inequality in social security, inequalities in the burden of tax payments and regional inequalities . Land control inequality is acute for Indonesia as private companies own the majority of land. Income inequality is a result of market mechanisms and the government should take all possible measures to reduce inequality. Lack of social subsidies for the financially disadvantage groups, insufficient support of the agricultural sector, where most of the population is employed, and insufficient funding of some social programmes should be dealt with as causes of inequality in Indonesia.

Highlighting the causes of inequality the author moves over to consider the policy options to address inequality the Indonesian government should take integrated actions: evaluate development programmes, taking into account inequality trends; support the most vulnerable social groups, for example introduce health insurance for all; implement effective pension reform with the account of aging population. Access to key public services: health, education, should be improved, as well as the system of social subsidies. The funds allocated to fuel subsidies could be diverted to cover the costs of health care and educational services as well as infrastructure development in rural and remote areas. The agricultural subsidies should target the farmers and not the state owned enterprises.

Tax policy needs to be revamped to ensure that the system is fair and equitable. All these measures will enable Indonesia to reduce inequality and strengthen its position in the G20.