Jul 23, 2014

Indonesia - Poverty alleviation a tough job for next Indonesian president, says World Bank

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Indonesia’s next president might face difficulties in efforts to liberate more people from poverty, with the country’s economic slowdown possibly further widening the gap between the poor and the rich, the World Bank says.

“The people of Indonesia, the world’s third-most populous democracy, have voted for a new president who will take office facing hard choices necessary to address rising fiscal pressures and to implement much-needed reforms to deliver on the economy’s enormous potential,” the World Bank wrote in its quarterly report released on Monday.

The US-based organisation has made another slash to its economic growth forecast for Indonesia to only 5.2 per cent this year, from its earlier estimate of 5.3 per cent.

The World Bank had previously predicted Indonesia would grow at 6.5 per cent throughout this year, but then consistently shaved its forecast due to significant contraction in the country’s growth drivers, notably imports and investments.

Ndiame Diop, World Bank lead economist for Indonesia, warned that the latest deceleration in the economy might not be cyclical in nature, but rather a representation of a “more structural downshift” in the economy.

Such a structural slowdown might pose a challenge for Joko “Jokowi” Widodo — who thus far leads the tally in the vote count by the General Elections Commission (KPU) — in his bid to fulfill his campaign promises, which focused on promoting inclusive growth aimed at lifting more people out of poverty and narrowing the income gap between the rich and the poor.

The World Bank noted that income inequality in Indonesia had been steadily increasing since 2000, and it had been the second-fastest in the Asian region after China.

The rise of income inequality in Indonesia, measured in a Gini coefficient ratio, contrasts with the situation seen in Japan, South Korea and Taiwan, which all posted a high level of growth with a low ratio of income inequality.

In the Southeast Asia region, countries such as Thailand, Vietnam and the Philippines have also enjoyed periods of strong growth with stable or declining income inequality, according to the World Bank.

Indonesia’s income inequality is widening because its economic expansion has not been followed with development in necessary infrastructure, such as health care and education, it says.

As a consequence, poor households are denied access to economic resources enjoyed mostly by the rich.

“Indonesia is not giving everybody a level playing field to compete,” said Rodrigo A. Chaves, World Bank country director for Indonesia.

“In fact, there is substantial inequality of opportunities: some people play uphill, others are playing downhill,” he added.

Commenting on the report, National Development Planning (Bappenas) Minister Armida Alisjahbana agreed that inequality issues “would be homework for the incoming government”.

Nevertheless, she argued that the existing government had laid out several programs that could serve as the groundwork needed for the new president to accelerate poverty alleviation.

“We have completed our jobs related to social assistance and protection agenda, such as those related to the programs’ database and targeting-mechanisms, many of which have become our milestones,” Armida told The Jakarta Post on Monday.

“The incoming government will just have to continue [the existing framework],” she added.

Satria Sambijantoro

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