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On how to calculate “Towards a More Equal Indonesia”

 Looking at the future: a father holds his daughter as he stands on a site from which local residents have recently been evicted to make way for new developments, close to luxury apartments in North Jakarta, Indonesia. In the past two decades, the gap between the richest and the rest in Indonesia has grown faster than in any other country in South-East Asia. The four richest men in Indonesia now have more wealth than the poorest 100 million people. Inequality is slowing down poverty reduction, dampening economic growth and threatening social cohesion.                 

Looking at the future: a father holds his daughter as he stands on a site from which local residents have recently been evicted to make way for new developments, close to luxury apartments in North Jakarta, Indonesia.

 

In the past two decades, the gap between the richest and the rest in Indonesia has grown faster than in any other country in South-East Asia. The four richest men in Indonesia now have more wealth than the poorest 100 million people. Inequality is slowing down poverty reduction, dampening economic growth and threatening social cohesion.

 

Oxfam and INFID launched a report on inequality in Indonesia: “Towards a More Equal Indonesia” last week. This report was described as a “wake up call” on extreme inequality by Yanuar Nugroho, Deputy Chief of Staff for Analysis and Oversight of Priority Programmes at the Executive Office of the President.

 

The report contains some fresh analysis of inequality in Indonesia and recommendations to strengthen and complement the Government’s existing commitment and policies to fight inequality.

One of the most shocking facts presented in the report, and which received a lot of attention from the press and the public, was that the “Four richest Indonesian men own more wealth than the poorest 100 million Indonesians”.

Oxfam’s calculation is based on the data published by Credit Suisse in their “Global Wealth Databook 2016” (LINK: http://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=AD6F2B43-B17B-345E-E20A1A254A3E24A5), which estimates the global wealth distribution. This includes data on Indonesia, which is drawn from the 2014 Indonesia Family life survey. Using this data, Credit Suisse estimate that there was a total wealth of $1.7 trillion in 2016, but that almost half of this (49%) was owned by the richest 1% of Indonesians. The poorest 40% meanwhile – representing approximately 100 million Indonesians, shared just 1.36% of total Indonesian wealth.

Table 1: data from Credit Suisse Global Wealth Databook 2016, net household wealth in Indonesia by wealth deciles

1 2 3 4 Bottom 40% 5 6 7 8 9 10 TOTAL
Share of Indonesian wealth % -0.09 0.14 0.44 0.87 1.36 1.48 2.29 3.48 5.71 9.94 75.71 100%
Net wealth in USD $ billions -1.6 2.5 7.8 15.4 24 26.2 40.5 65.6 101.0 175.8 1,339.3 1,769

 

Table 1 presents the Indonesian data from the Credit Suisse Databook. The net wealth of the bottom 40% is the sum of the wealth of the bottom 4 deciles. At the same time, you only need to count 4 places down the published 2016 Forbes list (online version regularly updated here: http://www.forbes.com/billionaires/list/) of Indonesian billionaires before you get to a total net wealth of $25 billion. The 4 richest billionaires combined own more wealth than the poorest 100 million Indonesians combined

There are many ways to measure inequality, and the Gini coefficient for income distribution is often used as the go-to inequality measure in Indonesia and around the world. Indonesia’s Gini coefficient has fallen slightly in the past couple of years. While this fall is cited in the report, and is welcome, our statistic provides a complementary measure to help understand the level and trends of inequality, because we know that the data the Gini measure is based on underestimates the true scale of economic inequality.

What our statistic shows is extreme inequality of wealth, which is defined as the amount an individual owns at any given point, made up of all their financial and non-financial assets, including property, minus any debts and comparing the wealth of the very richest with that of the poorest. Usually wealth and income are correlated – so that those with the highest incomes tend to have the greatest wealth. Wealth inequality is often significantly higher than income inequality.  Indonesia is not alone in having a high degree of wealth inequality: while Indonesia has the sixth worst inequality of wealth in the world of the countries for which good data is available, OECD countries like Russia, Denmark, India, USA and Thailand all have higher wealth inequality than Indonesia.

The statistic is indeed  a shocking fact. But let’s put this into perspective: globally, just 8 billionaires own as much wealth as half the world’s population (3.6 billion people). Inequality is not just an Indonesian problem – it is an issue around the world. It’s a global problem that needs to be tackled at different levels – local, national, regional and global. This is what our report highlights.

The Government of Indonesia has shown real commitment and taken important steps to tackle inequality, as evidenced through the recent adoption of the Economic Justice policy package. The Minister of Finance of the Republic of Indonesia, Dr. Sri Mulyani, in her keynote speech during the launch of our report agreed with us that both the national government, but also and more importantly local governments, need to take concrete steps to fight inequality. The Minister welcomed the report, and also said that “organisations like Oxfam and INFID have to keep monitoring the implementation of Government policies and programmes, not just at the national level, but also at the local level.”  Minister Sri Mulyani mentioned that she agrees with Oxfam and INFID’s recommendations and are committed to equitable public spending to fight inequality in Indonesia. Fighting inequality has become the priority of President Jokowi’s administration, and Oxfam and INFID as civil society organisations have the responsibility to engage critically with the government and other key stakeholders to contribute to a more equal and prosperous Indonesia.

The report can be open at links below:

“Towards a More Equal Indonesia”

https://www.oxfam.org/sites/www.oxfam.org/files/bp-towards-more-equal-indonesia-230217-id.pdf

 

 

 

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