Indonesia's Sharply Divided Economy

On various occasions, I often visit the city of Batam. Many of its remarkable places clearly demonstrate why this archipelagic autonomous region has become the second-largest economy in Sumatra, accounting for one percent of the national economy.

The Harbour Bay is one of the many example, a 500-hectare port area adorned with luxurious hotels and entertainment centers filled with vibrant nightlights that can be clearly seen from the neighboring country of Singapore across the strait.

However, overlooked behind all the grandeur, along a narrow path just behind the long wall that separates Harbour Bay from the outside world, lives a community of people in rows of semi-permanent houses made of rusty corrugated iron walls and thin wooden boards.

This is a stark portrayal of the sharp divide that still exists in Indonesia’s economy.

Rising Divide

Such stark contrasts in living condition can actually be easily found in many areas, especially in metropolitan cities. For instance, in Jakarta, the country’s capital city that also being the third most unequal province, there is Gasong Waste Picker Village (Kampung Pemulung Gasong), overshadowed by towering apartment complexes in the Setiabudi area.

Inequality indeed remains an issue that cannot be separated from any economy. However, in the case of Indonesia, this problem has worsened over time rather than improved. The international non-profit organization Oxfam, in 2017, found that inequality in Indonesia was the fastest-growing in Southeast Asia.

In 2022, the Gini ratio alone, which measures the level of national income inequality, was 11% higher than two decades ago. The previous year, the United Nations Development Programme (UNDP) once again identified Indonesia as being at the severe end of the spectrum of growing inequality in the Asia-Pacific region.

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Serious Implications

This bleak issue does not come without serious implications for Indonesia’s economy. Inequality in access to basic needs, particularly education and healthcare facilities, worsens living conditions and traps vulnerable communities in a never-ending cycle of poverty.

In mid-2021, Credit Suisse found that the pandemic had created 65,000 new millionaires in Indonesia while 1.12 million others fell below the poverty line. By the end of 2022, the poverty rate remained at 9.57%, higher than the pre-pandemic rate of 9.22%. This means that there are still 26.36 million people live below the national poverty line of just US$36.1 (Rp535,547) per capita per month.

This criticism is crucial for Indonesia, which aims to become a global economic power by 2045 through its Golden Vision. It is important to ensure that the economy not only grows but also benefits all segments of society.

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The Importance of Economic Inclusivity

The government has indeed made efforts to address the inequality. Each year, a tremendously large budget has been allocated for various welfare programs. However, the size of the budgetary spending alone is not enough without inclusive policies that prioritize vulnerable communities.

Norway can serve as a representative example, as its consistent success in maintaining one of the lowest inequality rates is made possible by laws providing free education and healthcare, as well as prohibiting discrimination in the labor market.

Indonesia can take similar steps. Firstly, improving access to education should be an absolute priority. UNICEF (2022) found that children from socioeconomically disadvantaged families have the highest risk of dropping out of school. It is crucial to provide financial assistance for their education to ensure the improvement of their future prospects.

Secondly, creating an environment of decent living conditions and improving access to healthcare is also essential so that every individual can fully participate in the economy. The World Health Organization (2019) emphasizes that the health sector plays a crucial role in shaping a stable and functional economy.

Lastly, equally important is the creation of inclusive job opportunities, which is crucial in combating inequality. Indonesia can take inspiration from countries like Norway, Denmark, and the United States, which legally prohibit age and gender restrictions in employment, a practice that is still common in Indonesia.

Only by collectively improving access to education, healthcare, and employment can Indonesia address the growing inequality that divides its economy. By doing so, every individual will fully experience the benefits of the ever-growing economy.

The Indonesian version of this article has been published in Kompas.com .