Study of Policies to Reduce Inequality in Indonesia

Advisor:
Coordinator:
Team Member: Niken Kusumawardhani, Rachma Indah Nurbani, Akhmadi
Completion Year:
2017
Area:
Jawa Tengah, Sulawesi Selatan
Topic:
Economic Policy, Poverty & Inequality

Collaborating Partners

Funding body:
Ford Foundation

 
 

Description & Progress

Description

Inequality in Indonesia, as indicated by the Gini index, has increased significantly in the last 10-15 years, especially after the Asian Financial Crisis in 1997. Prior to the 1997 economic crisis, the level of inequality in Indonesia was relatively stable, with the Gini index only slightly fluctuating between 0.32 and 0.36. When the crisis struck, Indonesia fell to its lowest level of inequality. After the 1997 crisis, the Gini index trends indicated a significant increase, reaching a peak of 0.41 in 2011.

The Government was already aware that the issue of rising inequality is extremely urgent and needs to be addressed. Targets for reducing inequality were established in the National Medium Term Development Plan (RPJMN) 2015-2019, to reduce the Gini index of 0.41 in 2014 to 0.36 in 2019. the Gini slightly decreased from 0.410 in March 2014 to 0,397 in March 2016. However, the decline in the Gini index from 2014 until now is not considered significant. On the other hand, the policy options that exist to reduce inequality are still very limited and not supported by significantly comprehensive evidence. In that regard, from April 2016 to June 2017 the SMERU Research Institute in collaboration with the Ford Foundation is conducting a study on ‘Policies to Reduce Inequality in Indonesia’.

 

Methodology

The assessment is being conducted using a mixed-methods approach. A qualitative analysis approach was taken through a series of field activities to extract information from a wide range of development stakeholders and policy makers in the two metropolitan areas (Greater Solo and Greater Makassar).

In addition, a quantitative analysis is being carried out through a micro-simulation of various alternative policies that affect households, such as Raskin, BLSM, PKH, and BSM. A comprehensive literature review and consultations with experts in Jakarta were conducted before commencing the fieldwork.

 

Progress

By the end of December 2016, the team had managed to complete the literature review, expert consultations, and the field visit to Greater Solo. The team also simultaneously prepared the microsimulation and second field visit to Greater Makassar, which was conducted in January 2017. The is expected to be completed by the end of July 2017.