Causes and Consequences of Increasing Inequality in Indonesia

Asep Suryahadi

During the 1970s and 1980s, Indonesia was able to achieve high economic growth without increasing inequality. However, inequality started to increase quickly during the early to mid 1990s, but was reversed back in the end of the decade due to the Asian Financial Crisis, which hit Indonesia quite hard. The recovery from the crisis was immediately followed by a resumption in the upward trend in inequality for two decades. Afterward, inequality was again stable but at a relatively high level. Long-term analysis indicates that the increase in equality was driven by the changes in four structural factors in the economy: increasing educational attainment, shifting in economic activities from farm to non-farm sectors, urbanization, and formalization of the economy. The increase in inequality has serious repercussions on economic growth, poverty reduction, and social conflict. Unfortunately, projection of the changes in structural factors indicates that, at least for medium-term, they will not yet lead to a declining trend in inequality. Furthermore, micro-simulation exercise shows that even a large investment in pro-poor policy will only have a limited impact on reducing inequality. These tendencies highlight the difficulties in achieving inclusive economic growth in Indonesia in the short to medium future.

Date: Wednesday, February 20, 2019 , 10:30 - 12:00 WIB (GMT+7)
Ruang Audiovisual Perpustakaan, Menara Sjafruddin Prawiranegara Lantai 2. Bank Indonesia, Jl. MH Thamrin No. 2, Jakarta, Jakarta 10340
Contact Person: Ratri Indah Septiana ,