00074918.2015.1110685
Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Growth, Poverty, and Inequality under Jokowi
Arief Anshory Yusuf & Andy Sumner
To cite this article: Arief Anshory Yusuf & Andy Sumner (2015) Growth, Poverty, and
Inequality under Jokowi, Bulletin of Indonesian Economic Studies, 51:3, 323-348, DOI:
10.1080/00074918.2015.1110685
To link to this article: http://dx.doi.org/10.1080/00074918.2015.1110685
Published online: 29 Nov 2015.
Submit your article to this journal
Article views: 278
View related articles
View Crossmark data
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=cbie20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 17 January 2016, At: 23:16
Bulletin of Indonesian Economic Studies, Vol. 51, No. 3, 2015: 323–48
Survey of Recent Developments
GROWTH, POVERTY, AND INEQUALITY UNDER JOKOWI
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Arief Anshory Yusuf*
Padjadjaran University
Andy Sumner*
King’s College London
SUMMARY
The political authority of President Joko Widodo (Jokowi) was bolstered in the third quarter of 2015 by a cabinet reshufle, his coalition’s gaining a parliamentary majority, and several foreign-policy developments. Indonesia’s request to rejoin OPEC, for example, after
having left in 2008, seemed more about international relations than oil prices, while oficial
visits to the Middle East and the United States allowed Jokowi to project his presidency on
the international stage. He still faces resistance from within his own party, however.
Jokowi’s politically bold reshufle of economic ministers in August soon yielded a range
of policy announcements. In September and October, his government introduced its irst
substantial set of reforms—a number of economic policy packages intended, among other
things, to attract investment and stimulate domestic demand. If even half of these policies
are put in place, the impact on Indonesia’s economy should be tangible.
Few countries have escaped the effects of falling global commodity prices and China’s
growth slowdown. At 4.7%, year on year, in the third quarter Indonesia’s rate of economic
growth again fell short of the government’s target. Slowing growth and a negative outlook
have lowered market expectations and weakened the rupiah, which is also burdened by
the large outstanding external debt held by corporate borrowers. Indonesia’s real effective
exchange rate has recently begun to depreciate, however, which may stimulate exports.
Growth prospects will also improve if the substantial increase in capital and infrastructure
spending allocated in the state budget is realised.
Against this backdrop, we focus on what has happened to poverty and inequality in
Indonesia since Jokowi took ofice. The distributional impacts of the current macroeconomic
climate are likely to be hardest felt by the poor. Indonesia is well known for its record on poverty reduction, but between September 2014 and March 2015 the share of the population in
poverty increased, even though economic growth was close to 5.0%. Slowing growth, rising
food prices, the falling real wages of farmers, and the delayed disbursement of fuel-price compensation all had an effect. Such impacts may be mitigated in the medium term by Jokowi’s
budget reallocations to infrastructure, if realised, and his expansion of social spending.
Keywords: growth, poverty, inequality, inclusive growth
JEL classiication: E60, I32, I38, O11, O53
* We thank those who gave us comments during the 2015 Indonesia Update, at ANU, and
at seminars in Jakarta, as well as Hal Hill, Lukas Schlögl, Kyunghoon Kim, Ross McLeod,
Peter McCawley, Anne Booth, Howard Dick, Chris Manning, Dharendra Wardhana, and
the editors, who gave us detailed comments on our drafts. We also thank Megananda
Suryana and Yangki Suara, for their assistance, as well as a number of experts whom we
interviewed in Jakarta and Manila.
ISSN 0007-4918 print/ISSN 1472-7234 online/15/000323-26
http://dx.doi.org/10.1080/00074918.2015.1110685
© 2015 Indonesia Project ANU
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
324
Arief Anshory Yusuf and Andy Sumner
POLITICAL DEVELOPMENTS
Between July and October 2015, events in Indonesia—notably, a cabinet reshufle, the changing balance of power in the People’s Representative Council (DPR),
and foreign-policy developments—did much to bolster President Joko Widodo’s
(Jokowi’s) authority domestically after what had been a rocky period. Jokowi’s
presidency began in October 2014 with an undeniable political success: the budget
reallocation of fuel subsidies to infrastructure and social spending. Since then,
however, and despite new iscal space, many of the 10 major infrastructure projects
that he had identiied as priorities (including lagship port and maritime developments) have failed to make much progress, owing in part to political inighting, a
lack of cooperation and coordination among ministries, and Jokowi’s reportedly
indecisive and non-confrontational leadership style. The making and unmaking
of policy has become surprisingly common, and ministers have enacted policies
that Jokowi has later had to overturn.
In August, Jokowi made his long-awaited irst cabinet reshufle, in which ive
ministers were removed and one was reassigned. New appointees included a set of
well-known economists: Darmin Nasution, a former governor of Bank Indonesia
(BI), the central bank, who became coordinating minister of economic affairs;
Rizal Ramli, a former minister of inance, who became coordinating minister for
maritime affairs; and Thomas Lembong, a former investment banker who reportedly played an important role in Jokowi’s election victory, who became minister
for trade. These appointments were a response to macroeconomic circumstances
and have already yielded a broad set of policy announcements.
Other changes included the movement of retired general Luhut Panjaitan from
presidential chief of staff to coordinating minister for political, legal, and security affairs, replacing Tedjo Edhy Purdijatno; former coordinating minister for the
economy Sofyan Djalil, who was appointed minister for national development
planning; and Pramono Anung, one of the president’s closest advisors, who was
appointed cabinet secretary. Teten Masduki, a former lawyer and anti-corruption
activist, was appointed the president’s new chief of staff. Jokowi also appointed
General Gatot Nurmantyo chief of the armed forces and Sutiyoso, a former governor of Jakarta, head of the State Intelligence Agency. Sutiyoso is chair of PKPI
(Indonesian Justice and Unity Party), so his appointment was widely seen as
political. The police commissioner, General Budi Waseso, was removed from his
position as head of the criminal investigation unit (Kabareskrim).1
Jokowi’s authority was also strengthened in September, by the surprise
defection of PAN (National Mandate Party) from the opposing Red-and-White
Coalition. This move in effect gave Jokowi’s Great Indonesia Coalition a parliamentary majority for the irst time—it holds 289 of 560 seats in the DPR, against
1. There were also a number of developments at the Corruption Eradication Commission
(KPK), most notably the coming before the DPR of the process to appoint ive commissioners, from a shortlist of eight, for a four-year term. The commission arrested or detained a
number of high-proile bribery suspects, including Gatot Pujo Nugroho, the governor of
North Sumatra; Otto Cornelis Kaligis, a prominent lawyer; Patrice Rio Capella, a former
secretary-general of NasDem; Tripeni Irianto Putro, the head of the State Administrative
Court in Medan; Partogi Pangaribuan, a director-general of the Ministry of Trade; and
Dewie Yasin Limpo, a legislator from Hanura (People’s Conscience Party).
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
325
the 201 held by the Red-and-White Coalition2—but Jokowi still faces resistance
from within his own party, PDI–P (Indonesian Democratic Party of Struggle),
which did well in the cabinet reshufle (Rizal is close to party chair and former
president Megawati, and Pramono was party secretary-general).
Several foreign-policy developments helped to reassert Jokowi’s domestic
authority by projecting his presidency on the international stage. A presidential
tour of the Middle East in early July was one such opportunity. A visit to the United
States in late October to meet with President Obama was another. Meanwhile,
Indonesia’s decision to rejoin OPEC, the cartel of oil-producing nations, seemed
more about international relations than oil prices. Indonesia left OPEC in 2008, on
becoming a net importer of oil. Given that the purpose of a cartel is to raise prices
to beneit suppliers at the expense of buyers, and that Indonesia is still a net buyer
of oil, if OPEC succeeds then Indonesia may suffer economically. These developments taken as a whole suggest that Jokowi is giving more attention to foreign
policy as he enters his second year in ofice.3
MACROECONOMIC DEVELOPMENTS
Economic Growth
Few countries have escaped the effects of falling global commodity prices and
China’s growth slowdown. Indonesia’s rate of economic growth continues to be
lower than the government’s target of 5.3%, but the country is weathering the
global storm in the sense that growth has not slowed further. Medium-term growth
prospects will be improved if the substantial increase in capital and infrastructure
spending allocated in the state budget is realised. This boost to the production–
possibility frontier for Indonesia could act as an investment-led Keynesian
stimulus, and would mean that Indonesia’s budget reallocations could to some
considerable extent counteract the global winds. Indonesia at the very least has
wriggle room, thanks to a iscal stimulus that other countries lack.
In the third quarter, the Indonesian economy grew by 4.7% (year on year), as
it had in the irst and second quarters. This rate of growth sits uneasily with the
government’s National Medium-Term Development Plan 2015–2019, which aims
for growth of 6.0%–8.0% per year in order to achieve key national goals, such as
becoming a high-income country (Bappenas 2014). Economic growth has been
slowing since the fourth quarter of 2010, when it peaked at 6.8%. This slowing
is visible across almost all sectors (table 1). In the third quarter, economic output
in mining and quarrying contracted by 5.6%, much more than in the irst quarter
but slightly less than in the second. This is also relected in the data on provincial
economic growth; the economies of Aceh, Riau, and East Kalimantan contracted
during the second quarter.4
2. The remaining seats belong to the Democratic Party, which has been wavering between
joining the Red-and-White Coalition and remaining unaligned.
3. Other events of note for Indonesia’s foreign policy included the replacement in midSeptember of Tony Abbott by Malcolm Turnbull as Australian prime minister, which is
thought likely to improve relations between the two countries, and the visit to Indonesia in
late July of the UK prime minister, David Cameron.
4. Economic growth in the second quarter of 2015 was weakest in Sumatra and Kalimantan,
where output is dominated by the production of crude oil, gas, coal, and palm oil.
326
Arief Anshory Yusuf and Andy Sumner
TABLE 1 Components of GDP Growth, 2013–15 (% year on year)
2013
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
GDP
By expenditure
Consumption
Private
NPIs serving households
Government
Investment
Structures
Machinery & equipment
Vehicles
Other
Exports
Imports
By sector
Tradables
Agriculture, livestock, forestry,
& isheries
Mining & quarrying
Manufacturing
Excluding coal, oil, & gas
Non-tradables
Electricity & gas supply
Water supply & sewerage
Construction
Wholesale & retail trade, repairs
Transport & storage
Accommodation, food,
& beverages
Information & communication
Finance & insurance
Real estate
Business services
Other services
2014
2015
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
5.6
5.1
5.0
4.9
5.0
4.7
4.7
4.7
5.7
4.5
4.6
4.5
5.4
5.1
5.1
5.0
23.7 22.8
5.6 –0.2
6.1 –1.5
1.3
2.8
4.7
3.7
3.9
4.3
5.5
4.9
4.5
7.1
–2.7 –0.8 –5.7 –9.1
–6.3 –10.7 –10.0 –7.4
14.8
9.8 18.9
5.9
3.2
1.4
4.9 –4.5
5.0
0.4
0.3
3.2
4.5
5.0
–8.3
2.7
4.4
5.5
–1.0
–4.0
6.9
–1.0
–2.4
4.3
5.0
–7.9
2.1
3.7
4.8
–5.4
–6.4
11.0
–0.1
–7.0
5.2
5.0
6.4
6.6
4.6
6.3
2.5
6.8
–5.6
–0.7
–6.1
4.6
2.7
4.2
4.8
5.3
–2.0
4.5
5.5
5.0
1.1
4.8
5.6
3.6
0.8
5.0
5.7
2.8
2.2
4.2
5.6
4.0
–1.5
4.0
5.2
6.8
–6.2
4.3
5.3
3.2
–5.6
4.3
5.2
4.4
4.5
6.2
6.1
8.9
3.3
3.6
7.2
6.1
8.4
6.5
3.2
6.5
5.1
8.5
6.0
2.8
6.5
4.8
8.0
6.5
2.7
7.7
3.5
7.1
1.7
2.9
6.0
4.0
6.3
0.8
6.0
5.4
1.8
6.5
0.6
7.6
6.8
1.5
7.1
6.3
9.5
3.5
4.3
8.0
7.2
6.5
9.8
3.2
4.7
10.3
5.1
6.4
10.5
4.9
4.9
10.0
3.3
5.9
9.8
1.5
5.1
9.3
6.1
4.9
10.0
10.2
5.3
9.7
7.1
3.6
10.1
7.6
5.3
7.4
5.9
3.9
9.8
2.5
5.0
7.6
8.9
4.5
10.8
10.3
4.8
7.6
5.4
6.0
5.4
12.8
7.9
2.1
4.0
1.8
–19.2
3.6
9.4
–0.9
Source: CEIC Indonesia Premium Database.
Note: Calculated on the basis of GDP at 2010 constant prices. NPIs = Non-proit institutions.
In contrast to growth in mining and quarrying, growth in agriculture—signiicant for 35% of the labour force—was relatively strong in the second and third
quarters. Underlying this growth, however, was a shift in planting and harvest
times owing to changes in climatic conditions. Some agricultural production
thus moved from the irst quarter to the second (BPS 2015a). The growth of the
Growth, Poverty, and Inequality under Jokowi
327
FIGURE 1 Index of Selected Commodity Prices, 2009–15
140
120
100
Crude oil
Copper
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
80
PO
60
Coal
40
Rubber
20
0
Jan-2009
May-2010
Sep-2011
Jan-2013
May-2014
Sep-2015
Source: Data from the IMF (2015b).
Note: January 2011 = 100. PO = palm oil.
manufacturing sector in the second and third quarters is still slower than it was
in most of 2014. Moreover, economic growth in wholesale and retail trade, one of
the most important non-tradable sectors, was only 1.5% in the third quarter, down
from 4.0% in the irst quarter and 1.8% in the second. In previous quarters, it was
activity in this sector that prevented a greater slowdown in growth. Wholesale
and retail trade constitutes 14% of total value added in Indonesia’s GDP (about
the same as agriculture). Slow growth in this sector is worrying because it indicates weak domestic demand.
In the second and third quarters, on the expenditure side of GDP, underlying
the trends in aggregate economic growth are trends in exports, investment, and
government consumption. Indonesia’s export contraction continued, but this
trend needs to be viewed in the context of falling global commodity prices and
slower growth in China. The global prices of commodities that matter most to the
Indonesian economy have been declining since early 2011. Nickel and aluminum,
two base metals that serve as indicators of global demand, are close to six-year
lows, which is bad news for Indonesia. The primary cause of weak exports was
declining commodity prices for Indonesia’s main export commodities—notably,
crude oil, palm oil, copper, coal, and rubber (igure 1). In May 2015, Indonesia’s
exports to China were half the value of what they were at their peak in December
2013, while Indonesia’s exports to Japan, which have also been on a downward
trajectory, were a third of the value of what they were in mid-2011.
Improvements in investment trends in Indonesia over the last year have been
constrained by weak investor conidence, itself owing to the weakening of economic growth prospects. Policy reforms may stimulate investment. In the last few
quarters, private consumption, the largest expenditure component of GDP, has
been growing slightly faster than GDP itself, and to some extent maintaining economic growth. BI’s consumer conidence index, however, fell to 99.3 (a negative
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
328
Arief Anshory Yusuf and Andy Sumner
outlook) in October 2015 from 112.6 (a positive outlook) in August 2015. The index
is now at its lowest point since 2010.5 Private consumption remained stable at 5%.
The government looked to boost demand by introducing expansionary iscal measures in social policy and by exempting certain goods from luxury taxes. Although
the former method is likely to increase household consumption, one could ask
whether the latter method is the best way to boost aggregate consumption.
In the third quarter, investment and government consumption picked up
because of faster realisation of planned expenditure, after a delay in previous
quarters. Government consumption growth jumped to 6.6% (from 2.1% in the
second quarter) and investment growth increased to 4.6% (from 3.7%). Imports
contracted strongly in the second quarter (by 7.0%) and the third quarter (by 6.1%).
In the second quarter, the biggest import contraction was, worryingly, in capital
equipment, which fell by 22% in value and 32% in quantity (BI 2015). That said,
exports contracted less in the second and third quarters than in the irst.
Inlation, Interest-Rate Policy, and the Exchange Rate
Annual headline inlation has been stable but relatively high, at around 7.0%,
since May. In September, however, it fell slightly, to 6.8%, and continued to fall
in October, to 6.2%. The increase in fuel prices drove up headline inlation during February–May. Rising headline inlation during June–August, however, was
triggered by factors unrelated to fuel prices or ‘administered’ inlation (of items
less affected by market forces). Although the price of diesel has been cut slightly
as part of recent economic policy packages,6 other fuel prices have changed little
since April 2015 and, accordingly, administered inlation has been stable. ‘Volatile’
inlation—that is, inlation of prices of items most susceptible to shocks, such as
food, fuel, and electricity—was 6.3% in April, climbed to 9.7% in August, but fell
back to 7.0% in October (igure 2). The mid-year increase in volatile inlation is
likely to have played a major role in raising poverty estimates.
Prices of staple foods have increased rapidly in recent months. The price of
rice, for example, rose by 16.2%, year on year, to 1 October, and the price of sugar
rose by 13.3% (igure 3). Although core inlation is stable, at around 5.0%, BI has
indicated that it will focus on maintaining inancial stability, rather than boosting
aggregate demand by reducing interest rates. It lowered its oficial rate slightly in
January, to 7.50% (from 7.75%), but has since left it unchanged. It is entirely possible for base money to expand even when interest rates are constant or rising, yet
BI has insisted on maintaining its position on rates—despite slowing growth—
because of the risk of capital outlow and its impact on the already weakened
rupiah.7 In the year to September, the rupiah depreciated against the US dollar by
5. This index surveys 4,600 middle-class households in major cities, representing an estimated 80% of GDP. An index score above 100 indicates an improving outlook and a score
below 100 indicates a worsening outlook.
6. The recent adjustment in the price of diesel fuel, by Rp 200, or 3.0%, was part of the third
of ive economic policy packages announced by the government in September and October.
7. BI also uses other measures to maintain a stable exchange rate. It issued, for example, Regulation 17/3/PBI/2015 and Circular Letter 17/11/DKSP/2015, which obligate
traders to use the rupiah in quotes for the provision of goods and services (Tempo, 2 July
2015). It is uncertain how these measures will reduce the rupiah’s volatility.
Growth, Poverty, and Inequality under Jokowi
329
FIGURE 2 The Fuel Price and Inlation, 2014–15
(%)
20
Rp ’000/L
9
8
Fuel price (premium) (lhs)
16
7
14
6
Administered
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
5
12
10
4
Volatile
8
3
Headline
6
2
Inflation target
Core
1
0
Jan-2014
18
Apr-2014
Jul-2014
Oct-2014
4
2
Jan-2015
Apr-2015
Jul-2015
0
Oct-2015
Source: CEIC Indonesia Premium Database.
FIGURE 3 Price Index of Selected Staples, 2014–15
125
120
Rice
Sugar
115
110
105
Beef
100
95
Egg
Chicken
Apr-2015
Jun-2015
90
85
Oct-2014
Dec-2014
Feb-2015
Source: Data from the Ministry of Trade (2015).
Note: 1 October 2014 = 100.
Aug-2015
Oct-2015
330
Arief Anshory Yusuf and Andy Sumner
FIGURE 4 Exchange-Rate Index against US Dollar, Selected Countries, 2015
105
Yuan devaluation
CN
100
PH
95
TH
ID
85
MY
80
-2
ct
O
p-
20
01
5
15
5
Se
-2
ug
A
Ju
l-2
01
01
5
15
20
nJu
-2
ay
M
pr
-2
01
01
5
5
5
A
ar
-2
01
15
M
20
bFe
n-
20
15
75
Ja
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
90
Source: Data from the IMF (2015a).
Note: 6 January 2015 = 100. CN = China. PH = Philippines. TH = Thailand. ID = Indonesia. MY = Malaysia.
around 14% (igure 4). On 28 August, the nominal exchange rate exceeded the socalled psychological threshold of Rp 14,000 per dollar (there is no evidence to support such a threshold, other than its association with the 1997–98 Asian inancial
crisis). Slowing growth and a weakening outlook for Indonesia have lowered market expectations and weakened the rupiah, which is also burdened by the large
outstanding external debt held by corporate borrowers. As the rupiah depreciates, the servicing costs of external debts increase. Indonesian corporate debt has
doubled since 2010, reaching $170 billion in August 2015. A quarter of this amount
is short-term borrowing with a maturity of under one year and—worryingly, if
the rupiah depreciates further—with 96% held in foreign currency. In total, it is
estimated that Indonesian companies have $42 billion in foreign-currency loans to
roll over in the next 12 months. Foreign debt held by local developers is a particular concern, as it is denominated in US dollars and the fall of the rupiah has left
much hedged debt unprotected (Financial Times, 4 Oct. 2015). On reaching 14,700
per US dollar in early October, its lowest level ever, the rupiah started to rebound
(along with other currencies), after the US Federal Reserve hinted that it would
continue to hold rates at a low level while economic growth in the United States
remained in a risky phase. By 9 October 2015, the rupiah had returned to the level
it was before China devalued its currency. Some argue that the announcement in
September of the government’s second economic policy package also contributed
to the rebound (MetroTVNews.com, 10 Oct. 2015).
Exchange-rate depreciations can be good for economic growth if they generate
an export boom. Until June 2014, the nominal exchange rate was highly correlated
with the real exchange rate (igure 5). From June 2014 to January 2015, however, the
depreciation of the nominal exchange rate was followed by an appreciation of the
Growth, Poverty, and Inequality under Jokowi
331
FIGURE 5 Exchange Rate and Real Effective Exchange Rate Index, 2013–15
Rp ’000/$
8
105
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
100
9
REER index (lhs)
95
10
90
11
85
12
80
13
Exchange rate (rhs)
75
70
Jan-2013
Sep-2013
May-2014
Jan-2015
14
15
Sep-2015
Source: CEIC Indonesia Premium Database.
Note: 2010 = 100. REER = real effective exchange rate.
real effective exchange rate, because the currencies of almost all Indonesia’s main
trading partners also depreciated against the US dollar. As a result, Indonesia’s
exports did not become more competitive. Indonesia’s real effective exchange rate
has recently begun to depreciate, however, which may stimulate exports and provide a much-welcome boost to economic growth.
Fiscal Policy
Fiscal policy is likely to be important for economic stimulus in the immediate
future, given global events and their downward pull on growth. The revised 2015
budget (table 2) includes a projected increase of almost 20% in tax revenues; a
decrease of 61% in energy subsidies, which would save the government more
than Rp 200 trillion; an increase of Rp 115 trillion in capital expenditure; and
a reduction of the iscal deicit from 2.3% to 1.9% of GDP, well below the legal
limit (3.0% of GDP).8 In the irst three-quarters of the year, however, the budget’s
implementation was hampered by poor revenue collection and spending.
The government’s tax-revenue target is deliberately ambitious, owing largely
to an expected decline in oil and gas revenue. By September, the government
had reached only 54% of its target for overall tax-revenue and 47% of its target
for value-added-tax revenue (which is closely linked to economic growth), compared with 65% and 59%, respectively, last September. Yet nominal tax revenues
have started to grow, year on year, and it is important to look at the budget from
8. The 3.0% igure refers to the consolidated deicit (which includes subnational deicits).
Since the regions have been running high surpluses, the central government could book
an even larger deicit.
332
Arief Anshory Yusuf and Andy Sumner
TABLE 2 Budgets for 2014 and 2015 (Rp trillion)
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
2014
2015
Revised
To
budget Sept.
% of
revised
budget
REVENUES & GRANTS
Domestic revenue
Tax
Domestic
Income tax
Value-added tax
Other
International trade taxes
Non-tax
Natural-resource revenues
Proits of state-owned
enterprises
Other
Grants
1,635.4 1,081.3
1,633.1 1,079.9
1,246.1
807.2
1,189.8
773.0
569.9
388.3
475.6
280.9
144.4
103.7
56.3
34.3
386.9
272.7
241.1
163.3
%
Revised change
budget on 2014
To
Sept.
66.1
66.1
64.8
65.0
68.1
59.1
71.8
60.9
70.5
67.7
1,761.6
1,758.3
1,489.3
1,439.9
679.4
576.5
184.2
49.3
269.1
118.9
7.7
7.7
19.5
21.0
19.2
21.2
27.6
–12.4
–30.4
–50.7
989.8
989.3
800.9
775.3
397.5
271.7
105.9
25.7
188.4
82.6
56.2
56.3
53.8
53.8
58.5
47.1
57.5
52.1
70.0
69.5
34.0
75.4
1.4
85.0
71.3
60.9
37.0
113.2
3.3
–7.5
7.0
43.5
35.1
70.8
0.4
94.9
62.5
12.1
EXPENDITURE
Personnel
Material
Capital
Interest
Subsidies
Energy
Fuel
Electricity
Transfers to regions
Village funds
Other
1,876.9 1,234.7
258.4
184.4
195.2
98.3
160.8
59.8
135.5
103.3
403.0
283.2
350.3
254.7
246.5
183.4
103.8
71.4
596.5
440.7
65.8
71.4
50.4
37.2
76.2
70.3
72.7
74.4
68.8
73.9
5.7
13.4
22.3
71.5
14.9
–47.4
–60.7
–73.8
–29.6
11.4
127.4
65.0
51.0
1,984.1
293.1
238.8
275.8
155.7
212.1
137.8
64.7
73.1
664.6
20.8
144.0
1,248.9
212.6
108.2
76.8
122.8
148.8
104.7
59.3
45.4
511.2
16.6
68.5
62.9
72.5
45.3
27.8
78.9
70.2
76.0
91.7
62.1
76.9
79.8
47.6
BALANCE
(% of GDP)
–241.5
2.3
–153.4
1.5
63.5
–222.5
1.9
–7.9
–259.2
2.2
116.5
40.0
105.8
2.3
13.0
% of
revised
budget
Source: CEIC Indonesia Premium Database.
Note: Discrepancies are due to rounding.
another perspective: that the new government was aware that oil and gas revenue would decline owing to falling commodity prices and lowered its target
accordingly.
On the spending side, fuel subsidies are still large—contrary to popular perceptions that they had been eliminated. By September, 63% of the total government
budget line had been spent, compared with 66% last year. That said, although
capital expenditure in this year’s budget increased by 71% on last year’s budget,
only 28% of the capital-spending budget line had been spent by September 2015
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
333
(compared with 37% by September 2014). In nominal terms, Rp 77 trillion of capital spending had been realised by September 2015, compared with Rp 60 trillion
by September 2014. The government plans to spend as much as Rp 276 trillion on
capital expenditure this year. If realised, it would be the largest annual increase in
planned capital expenditure in Indonesia’s history. Even if the inal realisation of
the planned capital expenditure in the budget is low, it will still be a substantial
amount, which will be positive for Indonesia’s medium-term growth prospects. It
is also usual, though not optimal, for more than half of capital spending to be realised towards the end of the year. One also needs to allow time for a new administration to settle into government. The slow realisation of spending is partly due to
a protracted process of parliamentary approval and the reorganisation of government agencies. In Indonesia, in general, signiicant spending starts in the second
quarter. The slow realisation of spending has, however, delayed the disbursement
of cash compensation intended to protect the poor from the impact of the fuelsubsidy reform. This has contributed to a rise in poverty. One positive indication
that infrastructure spending has begun in earnest was the 17% jump in August in
annual cement production.
Balance of Payments
Indonesia’s trade balance showed a $4.1 billion surplus in the second quarter (in
contrast to a year ago, when it was in deicit), largely because of much lower levels of merchandise imports in the irst and second quarters (table 3). The decline
in imports is mainly due to a large decline in the value of oil and gas imports. To
some extent, the reduction in oil imports can be attributed to domestic fuel-price
reform. Oil and gas imports in the second quarter were $6.8 billion, compared
with $10.7 billion in the same quarter in 2014 (before the domestic fuel-price
adjustment was implemented in November 2014). Non–oil and gas imports,
however, also recorded lower values than they did in the same quarter last year.
This indicates at least two things: that the exchange-rate depreciation has had
an effect, and that investment and production activities have slowed because
Indonesian imports predominantly comprise capital goods and raw materials. Foreign-exchange reserves declined by $3.6 billion in the second quarter
but remain healthy, at $108 billion. BI noted that the decline in foreign reserves
was a result of the government’s foreign-debt repayments. BI also acknowledged that some of these reserves were used to support the rupiah. In nominal
terms, exports of goods rose owing largely to non–oil and gas exports, which is
encouraging.
There was a notable change in the second quarter in the overall net inancial
account, which recorded only $2.5 billion of net capital inlows. The overall current account deicit is $4.5 billion, while the overall deicit is $2.9 billion. The
decline in net capital inlows during the second quarter was due in part to lower
portfolio-investment inlows and large capital outlows. Portfolio investment fell
by $3.0 billion in the second quarter because of large net sales of domestic stock
by foreign investors and because of relatively low levels of foreign acquisition of
government bonds (BI 2015). Capital outlows included negative ‘other investment’ of $6.9 billion, driven mainly by lower levels of new corporate external debt
(owing to economic uncertainty and weaker growth prospects) and the payment
of outstanding corporate and government debts.
334
Arief Anshory Yusuf and Andy Sumner
TABLE 3 Balance of Payments, 2014–15 ($ billion)
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
2014
2015
Q2
Q3
Q4
Total
Q1
Q2
–9.6
–0.4
44.5
36.7
7.5
0.3
–44.9
–34.2
–10.7
0.0
–2.8
5.7
–8.6
–7.9
1.5
–7.0
1.6
43.6
36.0
7.3
0.4
–42.0
–31.6
–10.4
0.0
–2.5
5.7
–8.2
–7.3
1.2
–6.0
2.4
43.2
36.6
6.4
0.3
–40.8
–31.6
–9.2
0.0
–2.6
6.2
–8.8
–7.2
1.4
–27.5
7.0
175.3
145.0
28.8
1.5
–168.3
–127.7
–40.6
0.0
–10.0
23.5
–33.5
–29.7
5.2
–4.1
3.1
37.8
33.1
4.4
0.4
–34.8
–29.1
–5.6
0.0
–1.9
5.5
–7.3
–6.7
1.4
–4.5
4.1
39.7
34.7
4.6
0.3
–35.6
–28.8
–6.8
0.0
–2.6
5.0
–7.7
–7.4
1.4
13.9
3.7
8.0
2.2
14.7
6.0
7.4
1.3
8.9
3.0
1.9
4.0
44.6
16.0
26.1
2.6
6.3
2.3
8.8
–4.8
2.5
3.6
5.8
–6.9
Errors & omissions
0.0
Overall balance (change in reserves)
4.3
Foreign reserves
107.7
–1.2
6.5
111.2
–0.6
2.4
111.9
–1.9
15.2
111.9
–0.9
1.3
111.6
–0.9
–2.9
108.0
3.0
2.7
3.1
1.9
2.1
Current account
Goods
Exports
Non–oil & gas
Oil & gas
Other goods
Imports
Non–oil & gas
Oil & gas
Other goods
Services
Exports
Imports
Primary income
Secondary income
Capital & inancial account
Direct investment
Portfolio investment
Financial derivatives & other
Current account (% of GDP)
4.3
Source: CEIC Indonesia Premium Database.
Note: Discrepancies are due to rounding.
Macroeconomic Policy
Declining commodity prices and a slowdown in China are the immediate causes
of slower economic growth in Indonesia, but underlying problems remain. During
the Yudhoyono years, growth was based on a commodity boom—as Sadli’s Law
argues, good times may produce bad policies (Hill and Thee 2008, 154)—and
almost no signiicant reforms were introduced before the end of the boom.
Jokowi faces three structural problems that have hindered economic development in Indonesia since the 1997–98 Asian inancial crisis: low infrastructure
investment, weak manufacturing performance, and weak growth in foreign direct
investment. These were all major drivers of structural change prior to the late
1990s. Infrastructure investment is still only half of what it was before the crisis,
and is lower than that of other high-performing Asian economies. Indonesia’s
manufacturing performance has become less competitive since the crisis and a
process of premature deindustrialisation may have begun, if one considers the
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
335
proportion of manufacturing value added in GDP and the proportion of employment in manufacturing (See Rodrik 2015 for a discussion). Indonesia, unlike many
of its neighbours, has yet to take advantage of global value chains; manufacturing
has been held back by labour-market policies and low levels of labour productivity (Hill and Aswicahyono 2014). Foreign direct investment, meanwhile, has
been hindered by bureaucracy and economic nationalism, though no more than
in some other middle-income developing countries.
Against this backdrop, we evaluate to what extent the new economic policies,
the fuel-subsidy reform, and the cabinet reshufle can address these structural
problems that hinder industrialisation. One of the most important economic policies of the Jokowi government has been the fuel-subsidy reform (see Damuri
and Day 2015). By reallocating the fuel subsidy, Indonesia was in a position to
increase government capital spending (mostly in infrastructure) by 70% in the
2015 planned budget—an important aspect of Jokowi’s medium-term economic
strategy. Capital investment is likely to make a difference, though more so in the
medium term.
Jokowi’s politically bold reshufle of economic ministers in August seems
to have already had an impact; in September and October, the government
announced ive economic policy packages. They include revising more than 130
regulations deemed detrimental to businesses; simplifying the application process for investment permits and planning permits, land acquisitions, and procurement; accelerating strategic projects; creating a new village fund to inance
a cash-for-work program; extending the subsidised Rice for the Poor (Raskin)
program from 12 months to 14 months; supplying new subsidised credit, via
cooperatives, to support small and medium enterprises in rural areas; raising
the tax-free threshold to a level that will cover most unskilled workers; revising
corporate tax policy and introducing tax holidays of up to 20 years (which may
later erode tax revenue); supporting the operational costs of domestic industries
by reducing the prices of fuel, electricity, and gas (which may in the irst instance
seem contrary to fuel-subsidy reform but—so far at least—relates only to the
price of diesel and, given the state of the economy, is not unreasonable as a temporary measure); changing how the minimum wage is set; and introducing a set
of inancial reforms.
Judging by the components of the packages, these measures are intended
to raise domestic public and private and international investment by cutting
bureaucratic procedures, reducing operational costs, and providing tax breaks;
to stimulate domestic demand by providing subsidised credit to households
and small and medium enterprises as well as by accelerating the village fund;
to help industries import raw and capital goods and give iscal incentives for
exports; to reduce inancial volatility, particularly exchange-rate volatility; and
to make minimum-wage adjustments more predictable by overhauling the current regime (in which setting minimum wages involves negotiating with labour
unions, district leaders, and industry). The ifth package, in late October, covers
three areas of deregulation. It obligates companies to revalue their assets in light
of inlation and the rupiah devaluation; this is expected to improve performance
by giving irms a better understanding of their assets and debts. It eliminates
double taxation for investment funds in real estate, property, and infrastructure,
with the aim of attracting funds to Indonesia’s capital market. It also attempts to
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
336
Arief Anshory Yusuf and Andy Sumner
simplify the regulatory and licensing procedures for Sharia banking and inance
products.
Will these policies boost the economy? It seems there is something for everyone. International investors will beneit from less bureaucracy and from shorter
processing times for investment permits. The domestic business sector will
welcome the introduction of credit for small and medium enterprises and the
increased support for the operational costs of domestic industries. The manufacturing labour force may see minimum wages rise at a slower rate, although many
workers will no longer pay income tax. The poor will beneit from increased consumption, thanks to additional funding for the government’s cash-for-work and
Raskin programs. The policy packages are comprehensive, but questions remain
about their transformative power and how they will reinvigorate the manufacturing sector, which has historically been the engine of Indonesia’s economic development and growth. The fourth package, which changes how minimum wages
will be set, may go some way in this direction. From January 2016, a new wage
formula will aim to give more certainty to businesses and workers. It will calculate changes to the annual minimum wage in each province by pegging increases
to inlation and GDP growth. Workers will then be guaranteed to see their real
wages improve during periods of economic growth.
These policy packages are Jokowi’s irst substantial set of reforms. Of course,
their effectiveness in stimulating the economy will depend on the nature and
extent of their implementation and what happens outside Indonesia in terms of
China’s growth and commodity prices. If even half of these policies are put in
place, the impact on the economy, in both the short and medium term, should be
tangible.
POVERTY AND INEQUALITY UNDER JOKOWI
Distribution and Economic Growth
Jokowi’s election platform and his previous policies as mayor of Solo and governor of Jakarta suggest that he has a speciic interest in improving the living standards of the poorest and raising people out of poverty. These objectives require
policies on growth and, often, short-run transfers, as well as changes to social
policy and entitlements. They can also require greater medium-term investment
in education and health care, for example, to redistribute the beneits of economic
growth and create opportunities. The question of which part of Indonesian society has beneited most from economic growth and trends in inequality during
democratisation was raised in mid-2014, during the presidential campaign, not
only because Jokowi was known for enacting speciic social policies as mayor and
governor but also because of his humble background. During the campaign, he
came to be viewed as a pro-poor igure.
Questions about the distribution of economic growth are increasingly viewed
in the development literature as an instrumental concern. In particular, they relate
to mathematical identity: that high or rising income (or consumption) inequality
is associated with lower rates of poverty reduction at any given poverty line. The
ongoing debate in the econometrics literature on the relation between inequality and growth received a detailed review in Cunha Neves and Tavares Silva’s
(2014) article. Although numerous methodological issues remain, an emerging
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
337
consensus is that inequality may support growth at low levels of average income,
but rising or high inequality can hamper growth at the middle level. Brueckner
and Lederman (2015), for example, found that, on average, if the Gini, a common measure of inequality, rises by one percentage point, GDP per capita will fall
by 1.1% over ive years. Importantly, however, they also found that increases in
inequality raise GDP per capita in low-income countries but reduce it in middleincome countries. For these reasons, there is an instrumental case for governments
in middle-income countries such as Indonesia to—at a minimum—be concerned
about rapid and substantial rises in inequality, owing to the potential impact of
these rises on future growth and the rate of poverty reduction.9
Such matters resonate with the government’s National Medium-Term Development Plan in that, for the irst time, an explicit target for the Gini coeficient, of
0.36 in 2019 (it is now 0.41), has been set alongside the target for a national poverty
rate, of 7%–8% by 2019. The government will look to reach these targets by creating employment, providing basic services, and implementing social-protection
policies (Bappenas 2014). One causal mechanism for reducing inequality is the
attempt to improve human capital and, in doing so, raise the future incomes of
those at the lower end of the distribution. In the shorter term, generating employment and introducing direct-transfer policies as part of the social policy and welfare regime are likely to address inequality.
It is commonly thought that Indonesia’s Gini is low. This is the case if one
takes at face value the consumption Gini from the National Socio-economic
Survey (Susenas) data and compares it internationally. However, the mismatch
between the Susenas data and the national accounts suggests that Susenas may
be weak at capturing top incomes; Susenas reports that only approximately 10%
of Indonesians consumed more than $10 per day in 2012 (in 2011 purchasingpower-parity [PPP] dollars) (Edward and Sumner 2015). Further, Indonesia’s
Gini is based on consumption inequality, so adjusting consumption to income
would raise inequality estimates considerably (see Lahoti, Jahadev, and Reddy
2014). And adjusting the estimate of inequality using the taxation data of top
incomes shows that the share of income to the richest is generally much greater
in Indonesia than in other countries (see Leigh and Van der Eng 2009) and challenges the perception that Indonesia is relatively egalitarian.
Indonesia is also well known for its record on poverty reduction, but its national
poverty line is one of the lowest in the world—comparable, in PPP dollars, to
those of the poorest countries of sub-Saharan Africa—despite GDP per capita in
Indonesia of $10,500 (in 2011 PPP dollars). As is well documented, many people
in Indonesia live not far above the national poverty line; median consumption,
using Susenas data, in Indonesia in 2012 was approximately $4 per day, in 2011
PPP dollars (Edward and Sumner 2015). Perhaps a quarter to half of the population are therefore potentially vulnerable to falling back into poverty if, for example, growth slows or rice prices spike, as has happened recently.
9. In a similar vein, Dabla-Norris et al. (2015, 6–7) showed that a higher net Gini is associated
with lower output growth in the medium term, and found an inverse relation between economic growth and the national income share of the rich. They also found that as the income
share of the richest quintile increases, GDP slows in the following ive years. Conversely, an
increased share of national income to the poorest quintile increases future growth.
338
Arief Anshory Yusuf and Andy Sumner
FIGURE 6 Growth, Inequality, and Poverty in Indonesia, 2001–19 (%)
9
45
Gini (rhs)
8
40
7
35
6
30
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
5
25
Economic growth (lhs)
4
3
20
15
Poverty incidence (rhs)
2
10
1
5
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
0
Sources: Data from BPS and Bappenas (2014).
Note: The dashed lines are the targets in the National Medium-Term Development Plan 2015–2019.
In light of the above, what has happened to inequality and poverty since
Jokowi’s inauguration? Of course, little over a year has passed, so our assessment
is necessarily preliminary.10 Much may depend on the distributional impacts of the
reallocation of highly regressive fuel subsidies to infrastructure and social spending and what happens to the price of staple foods such as rice. For this reason, we
consider the social policies that are likely to have medium-term impacts on poverty
and inequality, as well the outcomes based on data available in the second quarter.
The new president inherited consumption inequality that was on an upward
path (at least to 2011), slowing GDP growth, and a slowing rate of poverty reduction (igure 6). New data released in the second quarter point towards stable
inequality but stagnant poverty reduction. From September 2014 to March 2015,
Indonesia’s Gini coeficient remained at 0.41 (where it has been since 2011, after
having risen from 0.33 in 2001). This change in the trend coincided with the end of
the commodity boom and suggested that growth driven by commodity prices may
have been the main cause of Indonesia’s increasing inequality. Commodities such
as oil, gas, and coal are capital-intensive, so this hypothesis has a theoretical logic.
The Gini coeficient in urban areas remained at 0.43; in rural areas, it fell by a small
amount, from 0.34 in September 2014 to 0.33 in March 2015. The Gini increased in
13 provinces (table 4) but decreased in 20, suggesting considerable variation.
New Poverty Data
Recent data from Badan Pusat Statistik (BPS 2015b), Indonesia’s central statistics agency, reported a rise in the poverty headcount of almost 1.0 million people, from 27.7 million to 28.6 million, or from 11.0% of the population to 11.2%,
10. At the time of writing, the latest Susenas raw data were not available, preventing us
from comparing the growth incidence curve under Jokowi with that of the Yudhoyono era.
Growth, Poverty, and Inequality under Jokowi
339
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
TABLE 4 Gini Coeficient by Province, September 2014 and March 2015
Aceh
North Sumatra
West Sumatra
Riau
Riau Islands
Jambi
South Sumatra
Bangka-Belitung
Bengkulu
Lampung
DKI Jakarta
West Java
Banten
Central Java
DI Yogyakarta
East Java
West Kalimantan
Central Kalimantan
South Kalimantan
East Kalimantan
North Sulawesi
Gorontalo
Central Sulawesi
South Sulawesi
North Sulawesi
Southeast Sulawesi
Bali
West Nusa Tenggara
East Nusa Tenggara
Maluku
North Maluku
West Papua
Papua
Gini,
September 2014
Gini,
March 2015
Change
(2014–15)
Urban Rural Total
Urban Rural Total
Urban Rural Total
0.38
0.33
0.35
0.41
0.43
0.35
0.40
0.31
0.38
0.38
0.44
0.41
0.43
0.41
0.44
0.43
0.42
0.40
0.35
0.36
0.45
0.44
0.41
0.43
0.43
0.44
0.45
0.45
0.38
0.31
0.35
0.37
0.40
0.28
0.28
0.28
0.32
0.31
0.32
0.32
0.25
0.33
0.28
0.00
0.29
0.29
0.36
0.38
0.34
0.36
0.33
0.29
0.30
0.37
0.44
0.28
0.43
0.34
0.36
0.34
0.31
0.28
0.29
0.26
0.35
0.38
0.34
0.31
0.33
0.38
0.44
0.34
0.38
0.30
0.36
0.33
0.44
0.40
0.42
0.39
0.43
0.40
0.40
0.36
0.33
0.36
0.44
0.45
0.35
0.45
0.38
0.40
0.44
0.39
0.35
0.33
0.32
0.41
0.46
0.37
0.36
0.36
0.39
0.36
0.38
0.39
0.29
0.41
0.40
0.43
0.43
0.41
0.42
0.44
0.44
0.35
0.37
0.38
0.31
0.39
0.42
0.43
0.42
0.39
0.41
0.38
0.40
0.33
0.31
0.28
0.34
0.34
0.29
0.30
0.30
0.33
0.29
0.34
0.31
0.26
0.35
0.35
0.00
0.32
0.27
0.33
0.33
0.34
0.30
0.29
0.30
0.29
0.32
0.37
0.33
0.38
0.35
0.37
0.33
0.33
0.29
0.32
0.26
0.48
0.38
0.33
0.34
0.34
0.36
0.36
0.36
0.36
0.28
0.38
0.38
0.43
0.41
0.40
0.38
0.43
0.42
0.33
0.33
0.35
0.32
0.37
0.42
0.37
0.42
0.36
0.40
0.38
0.37
0.34
0.34
0.28
0.44
0.42
–0.01
0.03
0.01
–0.02
–0.07
0.03
–0.01
–0.02
0.03
0.02
–0.01
0.02
–0.02
0.01
0.00
0.01
–0.07
–0.03
0.03
–0.05
–0.06
–0.02
0.02
–0.01
–0.04
–0.03
–0.07
–0.05
–0.05
0.00
–0.07
–0.03
–0.06
0.01
0.02
0.02
0.01
–0.02
0.02
–0.01
0.01
0.02
0.07
0.00
0.03
–0.02
–0.03
–0.05
0.00
–0.06
–0.04
0.01
–0.01
–0.05
–0.07
0.05
–0.05
0.01
0.01
–0.01
0.02
0.01
0.03
0.00
0.13
0.00
–0.01
0.03
0.01
–0.02
–0.08
0.02
–0.02
–0.02
0.02
0.05
–0.01
0.01
–0.02
–0.01
0.00
0.02
–0.07
–0.03
0.02
–0.04
–0.07
–0.03
0.02
–0.03
–0.02
0.00
–0.06
–0.02
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Growth, Poverty, and Inequality under Jokowi
Arief Anshory Yusuf & Andy Sumner
To cite this article: Arief Anshory Yusuf & Andy Sumner (2015) Growth, Poverty, and
Inequality under Jokowi, Bulletin of Indonesian Economic Studies, 51:3, 323-348, DOI:
10.1080/00074918.2015.1110685
To link to this article: http://dx.doi.org/10.1080/00074918.2015.1110685
Published online: 29 Nov 2015.
Submit your article to this journal
Article views: 278
View related articles
View Crossmark data
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=cbie20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 17 January 2016, At: 23:16
Bulletin of Indonesian Economic Studies, Vol. 51, No. 3, 2015: 323–48
Survey of Recent Developments
GROWTH, POVERTY, AND INEQUALITY UNDER JOKOWI
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Arief Anshory Yusuf*
Padjadjaran University
Andy Sumner*
King’s College London
SUMMARY
The political authority of President Joko Widodo (Jokowi) was bolstered in the third quarter of 2015 by a cabinet reshufle, his coalition’s gaining a parliamentary majority, and several foreign-policy developments. Indonesia’s request to rejoin OPEC, for example, after
having left in 2008, seemed more about international relations than oil prices, while oficial
visits to the Middle East and the United States allowed Jokowi to project his presidency on
the international stage. He still faces resistance from within his own party, however.
Jokowi’s politically bold reshufle of economic ministers in August soon yielded a range
of policy announcements. In September and October, his government introduced its irst
substantial set of reforms—a number of economic policy packages intended, among other
things, to attract investment and stimulate domestic demand. If even half of these policies
are put in place, the impact on Indonesia’s economy should be tangible.
Few countries have escaped the effects of falling global commodity prices and China’s
growth slowdown. At 4.7%, year on year, in the third quarter Indonesia’s rate of economic
growth again fell short of the government’s target. Slowing growth and a negative outlook
have lowered market expectations and weakened the rupiah, which is also burdened by
the large outstanding external debt held by corporate borrowers. Indonesia’s real effective
exchange rate has recently begun to depreciate, however, which may stimulate exports.
Growth prospects will also improve if the substantial increase in capital and infrastructure
spending allocated in the state budget is realised.
Against this backdrop, we focus on what has happened to poverty and inequality in
Indonesia since Jokowi took ofice. The distributional impacts of the current macroeconomic
climate are likely to be hardest felt by the poor. Indonesia is well known for its record on poverty reduction, but between September 2014 and March 2015 the share of the population in
poverty increased, even though economic growth was close to 5.0%. Slowing growth, rising
food prices, the falling real wages of farmers, and the delayed disbursement of fuel-price compensation all had an effect. Such impacts may be mitigated in the medium term by Jokowi’s
budget reallocations to infrastructure, if realised, and his expansion of social spending.
Keywords: growth, poverty, inequality, inclusive growth
JEL classiication: E60, I32, I38, O11, O53
* We thank those who gave us comments during the 2015 Indonesia Update, at ANU, and
at seminars in Jakarta, as well as Hal Hill, Lukas Schlögl, Kyunghoon Kim, Ross McLeod,
Peter McCawley, Anne Booth, Howard Dick, Chris Manning, Dharendra Wardhana, and
the editors, who gave us detailed comments on our drafts. We also thank Megananda
Suryana and Yangki Suara, for their assistance, as well as a number of experts whom we
interviewed in Jakarta and Manila.
ISSN 0007-4918 print/ISSN 1472-7234 online/15/000323-26
http://dx.doi.org/10.1080/00074918.2015.1110685
© 2015 Indonesia Project ANU
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
324
Arief Anshory Yusuf and Andy Sumner
POLITICAL DEVELOPMENTS
Between July and October 2015, events in Indonesia—notably, a cabinet reshufle, the changing balance of power in the People’s Representative Council (DPR),
and foreign-policy developments—did much to bolster President Joko Widodo’s
(Jokowi’s) authority domestically after what had been a rocky period. Jokowi’s
presidency began in October 2014 with an undeniable political success: the budget
reallocation of fuel subsidies to infrastructure and social spending. Since then,
however, and despite new iscal space, many of the 10 major infrastructure projects
that he had identiied as priorities (including lagship port and maritime developments) have failed to make much progress, owing in part to political inighting, a
lack of cooperation and coordination among ministries, and Jokowi’s reportedly
indecisive and non-confrontational leadership style. The making and unmaking
of policy has become surprisingly common, and ministers have enacted policies
that Jokowi has later had to overturn.
In August, Jokowi made his long-awaited irst cabinet reshufle, in which ive
ministers were removed and one was reassigned. New appointees included a set of
well-known economists: Darmin Nasution, a former governor of Bank Indonesia
(BI), the central bank, who became coordinating minister of economic affairs;
Rizal Ramli, a former minister of inance, who became coordinating minister for
maritime affairs; and Thomas Lembong, a former investment banker who reportedly played an important role in Jokowi’s election victory, who became minister
for trade. These appointments were a response to macroeconomic circumstances
and have already yielded a broad set of policy announcements.
Other changes included the movement of retired general Luhut Panjaitan from
presidential chief of staff to coordinating minister for political, legal, and security affairs, replacing Tedjo Edhy Purdijatno; former coordinating minister for the
economy Sofyan Djalil, who was appointed minister for national development
planning; and Pramono Anung, one of the president’s closest advisors, who was
appointed cabinet secretary. Teten Masduki, a former lawyer and anti-corruption
activist, was appointed the president’s new chief of staff. Jokowi also appointed
General Gatot Nurmantyo chief of the armed forces and Sutiyoso, a former governor of Jakarta, head of the State Intelligence Agency. Sutiyoso is chair of PKPI
(Indonesian Justice and Unity Party), so his appointment was widely seen as
political. The police commissioner, General Budi Waseso, was removed from his
position as head of the criminal investigation unit (Kabareskrim).1
Jokowi’s authority was also strengthened in September, by the surprise
defection of PAN (National Mandate Party) from the opposing Red-and-White
Coalition. This move in effect gave Jokowi’s Great Indonesia Coalition a parliamentary majority for the irst time—it holds 289 of 560 seats in the DPR, against
1. There were also a number of developments at the Corruption Eradication Commission
(KPK), most notably the coming before the DPR of the process to appoint ive commissioners, from a shortlist of eight, for a four-year term. The commission arrested or detained a
number of high-proile bribery suspects, including Gatot Pujo Nugroho, the governor of
North Sumatra; Otto Cornelis Kaligis, a prominent lawyer; Patrice Rio Capella, a former
secretary-general of NasDem; Tripeni Irianto Putro, the head of the State Administrative
Court in Medan; Partogi Pangaribuan, a director-general of the Ministry of Trade; and
Dewie Yasin Limpo, a legislator from Hanura (People’s Conscience Party).
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
325
the 201 held by the Red-and-White Coalition2—but Jokowi still faces resistance
from within his own party, PDI–P (Indonesian Democratic Party of Struggle),
which did well in the cabinet reshufle (Rizal is close to party chair and former
president Megawati, and Pramono was party secretary-general).
Several foreign-policy developments helped to reassert Jokowi’s domestic
authority by projecting his presidency on the international stage. A presidential
tour of the Middle East in early July was one such opportunity. A visit to the United
States in late October to meet with President Obama was another. Meanwhile,
Indonesia’s decision to rejoin OPEC, the cartel of oil-producing nations, seemed
more about international relations than oil prices. Indonesia left OPEC in 2008, on
becoming a net importer of oil. Given that the purpose of a cartel is to raise prices
to beneit suppliers at the expense of buyers, and that Indonesia is still a net buyer
of oil, if OPEC succeeds then Indonesia may suffer economically. These developments taken as a whole suggest that Jokowi is giving more attention to foreign
policy as he enters his second year in ofice.3
MACROECONOMIC DEVELOPMENTS
Economic Growth
Few countries have escaped the effects of falling global commodity prices and
China’s growth slowdown. Indonesia’s rate of economic growth continues to be
lower than the government’s target of 5.3%, but the country is weathering the
global storm in the sense that growth has not slowed further. Medium-term growth
prospects will be improved if the substantial increase in capital and infrastructure
spending allocated in the state budget is realised. This boost to the production–
possibility frontier for Indonesia could act as an investment-led Keynesian
stimulus, and would mean that Indonesia’s budget reallocations could to some
considerable extent counteract the global winds. Indonesia at the very least has
wriggle room, thanks to a iscal stimulus that other countries lack.
In the third quarter, the Indonesian economy grew by 4.7% (year on year), as
it had in the irst and second quarters. This rate of growth sits uneasily with the
government’s National Medium-Term Development Plan 2015–2019, which aims
for growth of 6.0%–8.0% per year in order to achieve key national goals, such as
becoming a high-income country (Bappenas 2014). Economic growth has been
slowing since the fourth quarter of 2010, when it peaked at 6.8%. This slowing
is visible across almost all sectors (table 1). In the third quarter, economic output
in mining and quarrying contracted by 5.6%, much more than in the irst quarter
but slightly less than in the second. This is also relected in the data on provincial
economic growth; the economies of Aceh, Riau, and East Kalimantan contracted
during the second quarter.4
2. The remaining seats belong to the Democratic Party, which has been wavering between
joining the Red-and-White Coalition and remaining unaligned.
3. Other events of note for Indonesia’s foreign policy included the replacement in midSeptember of Tony Abbott by Malcolm Turnbull as Australian prime minister, which is
thought likely to improve relations between the two countries, and the visit to Indonesia in
late July of the UK prime minister, David Cameron.
4. Economic growth in the second quarter of 2015 was weakest in Sumatra and Kalimantan,
where output is dominated by the production of crude oil, gas, coal, and palm oil.
326
Arief Anshory Yusuf and Andy Sumner
TABLE 1 Components of GDP Growth, 2013–15 (% year on year)
2013
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
GDP
By expenditure
Consumption
Private
NPIs serving households
Government
Investment
Structures
Machinery & equipment
Vehicles
Other
Exports
Imports
By sector
Tradables
Agriculture, livestock, forestry,
& isheries
Mining & quarrying
Manufacturing
Excluding coal, oil, & gas
Non-tradables
Electricity & gas supply
Water supply & sewerage
Construction
Wholesale & retail trade, repairs
Transport & storage
Accommodation, food,
& beverages
Information & communication
Finance & insurance
Real estate
Business services
Other services
2014
2015
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
5.6
5.1
5.0
4.9
5.0
4.7
4.7
4.7
5.7
4.5
4.6
4.5
5.4
5.1
5.1
5.0
23.7 22.8
5.6 –0.2
6.1 –1.5
1.3
2.8
4.7
3.7
3.9
4.3
5.5
4.9
4.5
7.1
–2.7 –0.8 –5.7 –9.1
–6.3 –10.7 –10.0 –7.4
14.8
9.8 18.9
5.9
3.2
1.4
4.9 –4.5
5.0
0.4
0.3
3.2
4.5
5.0
–8.3
2.7
4.4
5.5
–1.0
–4.0
6.9
–1.0
–2.4
4.3
5.0
–7.9
2.1
3.7
4.8
–5.4
–6.4
11.0
–0.1
–7.0
5.2
5.0
6.4
6.6
4.6
6.3
2.5
6.8
–5.6
–0.7
–6.1
4.6
2.7
4.2
4.8
5.3
–2.0
4.5
5.5
5.0
1.1
4.8
5.6
3.6
0.8
5.0
5.7
2.8
2.2
4.2
5.6
4.0
–1.5
4.0
5.2
6.8
–6.2
4.3
5.3
3.2
–5.6
4.3
5.2
4.4
4.5
6.2
6.1
8.9
3.3
3.6
7.2
6.1
8.4
6.5
3.2
6.5
5.1
8.5
6.0
2.8
6.5
4.8
8.0
6.5
2.7
7.7
3.5
7.1
1.7
2.9
6.0
4.0
6.3
0.8
6.0
5.4
1.8
6.5
0.6
7.6
6.8
1.5
7.1
6.3
9.5
3.5
4.3
8.0
7.2
6.5
9.8
3.2
4.7
10.3
5.1
6.4
10.5
4.9
4.9
10.0
3.3
5.9
9.8
1.5
5.1
9.3
6.1
4.9
10.0
10.2
5.3
9.7
7.1
3.6
10.1
7.6
5.3
7.4
5.9
3.9
9.8
2.5
5.0
7.6
8.9
4.5
10.8
10.3
4.8
7.6
5.4
6.0
5.4
12.8
7.9
2.1
4.0
1.8
–19.2
3.6
9.4
–0.9
Source: CEIC Indonesia Premium Database.
Note: Calculated on the basis of GDP at 2010 constant prices. NPIs = Non-proit institutions.
In contrast to growth in mining and quarrying, growth in agriculture—signiicant for 35% of the labour force—was relatively strong in the second and third
quarters. Underlying this growth, however, was a shift in planting and harvest
times owing to changes in climatic conditions. Some agricultural production
thus moved from the irst quarter to the second (BPS 2015a). The growth of the
Growth, Poverty, and Inequality under Jokowi
327
FIGURE 1 Index of Selected Commodity Prices, 2009–15
140
120
100
Crude oil
Copper
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
80
PO
60
Coal
40
Rubber
20
0
Jan-2009
May-2010
Sep-2011
Jan-2013
May-2014
Sep-2015
Source: Data from the IMF (2015b).
Note: January 2011 = 100. PO = palm oil.
manufacturing sector in the second and third quarters is still slower than it was
in most of 2014. Moreover, economic growth in wholesale and retail trade, one of
the most important non-tradable sectors, was only 1.5% in the third quarter, down
from 4.0% in the irst quarter and 1.8% in the second. In previous quarters, it was
activity in this sector that prevented a greater slowdown in growth. Wholesale
and retail trade constitutes 14% of total value added in Indonesia’s GDP (about
the same as agriculture). Slow growth in this sector is worrying because it indicates weak domestic demand.
In the second and third quarters, on the expenditure side of GDP, underlying
the trends in aggregate economic growth are trends in exports, investment, and
government consumption. Indonesia’s export contraction continued, but this
trend needs to be viewed in the context of falling global commodity prices and
slower growth in China. The global prices of commodities that matter most to the
Indonesian economy have been declining since early 2011. Nickel and aluminum,
two base metals that serve as indicators of global demand, are close to six-year
lows, which is bad news for Indonesia. The primary cause of weak exports was
declining commodity prices for Indonesia’s main export commodities—notably,
crude oil, palm oil, copper, coal, and rubber (igure 1). In May 2015, Indonesia’s
exports to China were half the value of what they were at their peak in December
2013, while Indonesia’s exports to Japan, which have also been on a downward
trajectory, were a third of the value of what they were in mid-2011.
Improvements in investment trends in Indonesia over the last year have been
constrained by weak investor conidence, itself owing to the weakening of economic growth prospects. Policy reforms may stimulate investment. In the last few
quarters, private consumption, the largest expenditure component of GDP, has
been growing slightly faster than GDP itself, and to some extent maintaining economic growth. BI’s consumer conidence index, however, fell to 99.3 (a negative
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
328
Arief Anshory Yusuf and Andy Sumner
outlook) in October 2015 from 112.6 (a positive outlook) in August 2015. The index
is now at its lowest point since 2010.5 Private consumption remained stable at 5%.
The government looked to boost demand by introducing expansionary iscal measures in social policy and by exempting certain goods from luxury taxes. Although
the former method is likely to increase household consumption, one could ask
whether the latter method is the best way to boost aggregate consumption.
In the third quarter, investment and government consumption picked up
because of faster realisation of planned expenditure, after a delay in previous
quarters. Government consumption growth jumped to 6.6% (from 2.1% in the
second quarter) and investment growth increased to 4.6% (from 3.7%). Imports
contracted strongly in the second quarter (by 7.0%) and the third quarter (by 6.1%).
In the second quarter, the biggest import contraction was, worryingly, in capital
equipment, which fell by 22% in value and 32% in quantity (BI 2015). That said,
exports contracted less in the second and third quarters than in the irst.
Inlation, Interest-Rate Policy, and the Exchange Rate
Annual headline inlation has been stable but relatively high, at around 7.0%,
since May. In September, however, it fell slightly, to 6.8%, and continued to fall
in October, to 6.2%. The increase in fuel prices drove up headline inlation during February–May. Rising headline inlation during June–August, however, was
triggered by factors unrelated to fuel prices or ‘administered’ inlation (of items
less affected by market forces). Although the price of diesel has been cut slightly
as part of recent economic policy packages,6 other fuel prices have changed little
since April 2015 and, accordingly, administered inlation has been stable. ‘Volatile’
inlation—that is, inlation of prices of items most susceptible to shocks, such as
food, fuel, and electricity—was 6.3% in April, climbed to 9.7% in August, but fell
back to 7.0% in October (igure 2). The mid-year increase in volatile inlation is
likely to have played a major role in raising poverty estimates.
Prices of staple foods have increased rapidly in recent months. The price of
rice, for example, rose by 16.2%, year on year, to 1 October, and the price of sugar
rose by 13.3% (igure 3). Although core inlation is stable, at around 5.0%, BI has
indicated that it will focus on maintaining inancial stability, rather than boosting
aggregate demand by reducing interest rates. It lowered its oficial rate slightly in
January, to 7.50% (from 7.75%), but has since left it unchanged. It is entirely possible for base money to expand even when interest rates are constant or rising, yet
BI has insisted on maintaining its position on rates—despite slowing growth—
because of the risk of capital outlow and its impact on the already weakened
rupiah.7 In the year to September, the rupiah depreciated against the US dollar by
5. This index surveys 4,600 middle-class households in major cities, representing an estimated 80% of GDP. An index score above 100 indicates an improving outlook and a score
below 100 indicates a worsening outlook.
6. The recent adjustment in the price of diesel fuel, by Rp 200, or 3.0%, was part of the third
of ive economic policy packages announced by the government in September and October.
7. BI also uses other measures to maintain a stable exchange rate. It issued, for example, Regulation 17/3/PBI/2015 and Circular Letter 17/11/DKSP/2015, which obligate
traders to use the rupiah in quotes for the provision of goods and services (Tempo, 2 July
2015). It is uncertain how these measures will reduce the rupiah’s volatility.
Growth, Poverty, and Inequality under Jokowi
329
FIGURE 2 The Fuel Price and Inlation, 2014–15
(%)
20
Rp ’000/L
9
8
Fuel price (premium) (lhs)
16
7
14
6
Administered
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
5
12
10
4
Volatile
8
3
Headline
6
2
Inflation target
Core
1
0
Jan-2014
18
Apr-2014
Jul-2014
Oct-2014
4
2
Jan-2015
Apr-2015
Jul-2015
0
Oct-2015
Source: CEIC Indonesia Premium Database.
FIGURE 3 Price Index of Selected Staples, 2014–15
125
120
Rice
Sugar
115
110
105
Beef
100
95
Egg
Chicken
Apr-2015
Jun-2015
90
85
Oct-2014
Dec-2014
Feb-2015
Source: Data from the Ministry of Trade (2015).
Note: 1 October 2014 = 100.
Aug-2015
Oct-2015
330
Arief Anshory Yusuf and Andy Sumner
FIGURE 4 Exchange-Rate Index against US Dollar, Selected Countries, 2015
105
Yuan devaluation
CN
100
PH
95
TH
ID
85
MY
80
-2
ct
O
p-
20
01
5
15
5
Se
-2
ug
A
Ju
l-2
01
01
5
15
20
nJu
-2
ay
M
pr
-2
01
01
5
5
5
A
ar
-2
01
15
M
20
bFe
n-
20
15
75
Ja
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
90
Source: Data from the IMF (2015a).
Note: 6 January 2015 = 100. CN = China. PH = Philippines. TH = Thailand. ID = Indonesia. MY = Malaysia.
around 14% (igure 4). On 28 August, the nominal exchange rate exceeded the socalled psychological threshold of Rp 14,000 per dollar (there is no evidence to support such a threshold, other than its association with the 1997–98 Asian inancial
crisis). Slowing growth and a weakening outlook for Indonesia have lowered market expectations and weakened the rupiah, which is also burdened by the large
outstanding external debt held by corporate borrowers. As the rupiah depreciates, the servicing costs of external debts increase. Indonesian corporate debt has
doubled since 2010, reaching $170 billion in August 2015. A quarter of this amount
is short-term borrowing with a maturity of under one year and—worryingly, if
the rupiah depreciates further—with 96% held in foreign currency. In total, it is
estimated that Indonesian companies have $42 billion in foreign-currency loans to
roll over in the next 12 months. Foreign debt held by local developers is a particular concern, as it is denominated in US dollars and the fall of the rupiah has left
much hedged debt unprotected (Financial Times, 4 Oct. 2015). On reaching 14,700
per US dollar in early October, its lowest level ever, the rupiah started to rebound
(along with other currencies), after the US Federal Reserve hinted that it would
continue to hold rates at a low level while economic growth in the United States
remained in a risky phase. By 9 October 2015, the rupiah had returned to the level
it was before China devalued its currency. Some argue that the announcement in
September of the government’s second economic policy package also contributed
to the rebound (MetroTVNews.com, 10 Oct. 2015).
Exchange-rate depreciations can be good for economic growth if they generate
an export boom. Until June 2014, the nominal exchange rate was highly correlated
with the real exchange rate (igure 5). From June 2014 to January 2015, however, the
depreciation of the nominal exchange rate was followed by an appreciation of the
Growth, Poverty, and Inequality under Jokowi
331
FIGURE 5 Exchange Rate and Real Effective Exchange Rate Index, 2013–15
Rp ’000/$
8
105
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
100
9
REER index (lhs)
95
10
90
11
85
12
80
13
Exchange rate (rhs)
75
70
Jan-2013
Sep-2013
May-2014
Jan-2015
14
15
Sep-2015
Source: CEIC Indonesia Premium Database.
Note: 2010 = 100. REER = real effective exchange rate.
real effective exchange rate, because the currencies of almost all Indonesia’s main
trading partners also depreciated against the US dollar. As a result, Indonesia’s
exports did not become more competitive. Indonesia’s real effective exchange rate
has recently begun to depreciate, however, which may stimulate exports and provide a much-welcome boost to economic growth.
Fiscal Policy
Fiscal policy is likely to be important for economic stimulus in the immediate
future, given global events and their downward pull on growth. The revised 2015
budget (table 2) includes a projected increase of almost 20% in tax revenues; a
decrease of 61% in energy subsidies, which would save the government more
than Rp 200 trillion; an increase of Rp 115 trillion in capital expenditure; and
a reduction of the iscal deicit from 2.3% to 1.9% of GDP, well below the legal
limit (3.0% of GDP).8 In the irst three-quarters of the year, however, the budget’s
implementation was hampered by poor revenue collection and spending.
The government’s tax-revenue target is deliberately ambitious, owing largely
to an expected decline in oil and gas revenue. By September, the government
had reached only 54% of its target for overall tax-revenue and 47% of its target
for value-added-tax revenue (which is closely linked to economic growth), compared with 65% and 59%, respectively, last September. Yet nominal tax revenues
have started to grow, year on year, and it is important to look at the budget from
8. The 3.0% igure refers to the consolidated deicit (which includes subnational deicits).
Since the regions have been running high surpluses, the central government could book
an even larger deicit.
332
Arief Anshory Yusuf and Andy Sumner
TABLE 2 Budgets for 2014 and 2015 (Rp trillion)
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
2014
2015
Revised
To
budget Sept.
% of
revised
budget
REVENUES & GRANTS
Domestic revenue
Tax
Domestic
Income tax
Value-added tax
Other
International trade taxes
Non-tax
Natural-resource revenues
Proits of state-owned
enterprises
Other
Grants
1,635.4 1,081.3
1,633.1 1,079.9
1,246.1
807.2
1,189.8
773.0
569.9
388.3
475.6
280.9
144.4
103.7
56.3
34.3
386.9
272.7
241.1
163.3
%
Revised change
budget on 2014
To
Sept.
66.1
66.1
64.8
65.0
68.1
59.1
71.8
60.9
70.5
67.7
1,761.6
1,758.3
1,489.3
1,439.9
679.4
576.5
184.2
49.3
269.1
118.9
7.7
7.7
19.5
21.0
19.2
21.2
27.6
–12.4
–30.4
–50.7
989.8
989.3
800.9
775.3
397.5
271.7
105.9
25.7
188.4
82.6
56.2
56.3
53.8
53.8
58.5
47.1
57.5
52.1
70.0
69.5
34.0
75.4
1.4
85.0
71.3
60.9
37.0
113.2
3.3
–7.5
7.0
43.5
35.1
70.8
0.4
94.9
62.5
12.1
EXPENDITURE
Personnel
Material
Capital
Interest
Subsidies
Energy
Fuel
Electricity
Transfers to regions
Village funds
Other
1,876.9 1,234.7
258.4
184.4
195.2
98.3
160.8
59.8
135.5
103.3
403.0
283.2
350.3
254.7
246.5
183.4
103.8
71.4
596.5
440.7
65.8
71.4
50.4
37.2
76.2
70.3
72.7
74.4
68.8
73.9
5.7
13.4
22.3
71.5
14.9
–47.4
–60.7
–73.8
–29.6
11.4
127.4
65.0
51.0
1,984.1
293.1
238.8
275.8
155.7
212.1
137.8
64.7
73.1
664.6
20.8
144.0
1,248.9
212.6
108.2
76.8
122.8
148.8
104.7
59.3
45.4
511.2
16.6
68.5
62.9
72.5
45.3
27.8
78.9
70.2
76.0
91.7
62.1
76.9
79.8
47.6
BALANCE
(% of GDP)
–241.5
2.3
–153.4
1.5
63.5
–222.5
1.9
–7.9
–259.2
2.2
116.5
40.0
105.8
2.3
13.0
% of
revised
budget
Source: CEIC Indonesia Premium Database.
Note: Discrepancies are due to rounding.
another perspective: that the new government was aware that oil and gas revenue would decline owing to falling commodity prices and lowered its target
accordingly.
On the spending side, fuel subsidies are still large—contrary to popular perceptions that they had been eliminated. By September, 63% of the total government
budget line had been spent, compared with 66% last year. That said, although
capital expenditure in this year’s budget increased by 71% on last year’s budget,
only 28% of the capital-spending budget line had been spent by September 2015
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
333
(compared with 37% by September 2014). In nominal terms, Rp 77 trillion of capital spending had been realised by September 2015, compared with Rp 60 trillion
by September 2014. The government plans to spend as much as Rp 276 trillion on
capital expenditure this year. If realised, it would be the largest annual increase in
planned capital expenditure in Indonesia’s history. Even if the inal realisation of
the planned capital expenditure in the budget is low, it will still be a substantial
amount, which will be positive for Indonesia’s medium-term growth prospects. It
is also usual, though not optimal, for more than half of capital spending to be realised towards the end of the year. One also needs to allow time for a new administration to settle into government. The slow realisation of spending is partly due to
a protracted process of parliamentary approval and the reorganisation of government agencies. In Indonesia, in general, signiicant spending starts in the second
quarter. The slow realisation of spending has, however, delayed the disbursement
of cash compensation intended to protect the poor from the impact of the fuelsubsidy reform. This has contributed to a rise in poverty. One positive indication
that infrastructure spending has begun in earnest was the 17% jump in August in
annual cement production.
Balance of Payments
Indonesia’s trade balance showed a $4.1 billion surplus in the second quarter (in
contrast to a year ago, when it was in deicit), largely because of much lower levels of merchandise imports in the irst and second quarters (table 3). The decline
in imports is mainly due to a large decline in the value of oil and gas imports. To
some extent, the reduction in oil imports can be attributed to domestic fuel-price
reform. Oil and gas imports in the second quarter were $6.8 billion, compared
with $10.7 billion in the same quarter in 2014 (before the domestic fuel-price
adjustment was implemented in November 2014). Non–oil and gas imports,
however, also recorded lower values than they did in the same quarter last year.
This indicates at least two things: that the exchange-rate depreciation has had
an effect, and that investment and production activities have slowed because
Indonesian imports predominantly comprise capital goods and raw materials. Foreign-exchange reserves declined by $3.6 billion in the second quarter
but remain healthy, at $108 billion. BI noted that the decline in foreign reserves
was a result of the government’s foreign-debt repayments. BI also acknowledged that some of these reserves were used to support the rupiah. In nominal
terms, exports of goods rose owing largely to non–oil and gas exports, which is
encouraging.
There was a notable change in the second quarter in the overall net inancial
account, which recorded only $2.5 billion of net capital inlows. The overall current account deicit is $4.5 billion, while the overall deicit is $2.9 billion. The
decline in net capital inlows during the second quarter was due in part to lower
portfolio-investment inlows and large capital outlows. Portfolio investment fell
by $3.0 billion in the second quarter because of large net sales of domestic stock
by foreign investors and because of relatively low levels of foreign acquisition of
government bonds (BI 2015). Capital outlows included negative ‘other investment’ of $6.9 billion, driven mainly by lower levels of new corporate external debt
(owing to economic uncertainty and weaker growth prospects) and the payment
of outstanding corporate and government debts.
334
Arief Anshory Yusuf and Andy Sumner
TABLE 3 Balance of Payments, 2014–15 ($ billion)
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
2014
2015
Q2
Q3
Q4
Total
Q1
Q2
–9.6
–0.4
44.5
36.7
7.5
0.3
–44.9
–34.2
–10.7
0.0
–2.8
5.7
–8.6
–7.9
1.5
–7.0
1.6
43.6
36.0
7.3
0.4
–42.0
–31.6
–10.4
0.0
–2.5
5.7
–8.2
–7.3
1.2
–6.0
2.4
43.2
36.6
6.4
0.3
–40.8
–31.6
–9.2
0.0
–2.6
6.2
–8.8
–7.2
1.4
–27.5
7.0
175.3
145.0
28.8
1.5
–168.3
–127.7
–40.6
0.0
–10.0
23.5
–33.5
–29.7
5.2
–4.1
3.1
37.8
33.1
4.4
0.4
–34.8
–29.1
–5.6
0.0
–1.9
5.5
–7.3
–6.7
1.4
–4.5
4.1
39.7
34.7
4.6
0.3
–35.6
–28.8
–6.8
0.0
–2.6
5.0
–7.7
–7.4
1.4
13.9
3.7
8.0
2.2
14.7
6.0
7.4
1.3
8.9
3.0
1.9
4.0
44.6
16.0
26.1
2.6
6.3
2.3
8.8
–4.8
2.5
3.6
5.8
–6.9
Errors & omissions
0.0
Overall balance (change in reserves)
4.3
Foreign reserves
107.7
–1.2
6.5
111.2
–0.6
2.4
111.9
–1.9
15.2
111.9
–0.9
1.3
111.6
–0.9
–2.9
108.0
3.0
2.7
3.1
1.9
2.1
Current account
Goods
Exports
Non–oil & gas
Oil & gas
Other goods
Imports
Non–oil & gas
Oil & gas
Other goods
Services
Exports
Imports
Primary income
Secondary income
Capital & inancial account
Direct investment
Portfolio investment
Financial derivatives & other
Current account (% of GDP)
4.3
Source: CEIC Indonesia Premium Database.
Note: Discrepancies are due to rounding.
Macroeconomic Policy
Declining commodity prices and a slowdown in China are the immediate causes
of slower economic growth in Indonesia, but underlying problems remain. During
the Yudhoyono years, growth was based on a commodity boom—as Sadli’s Law
argues, good times may produce bad policies (Hill and Thee 2008, 154)—and
almost no signiicant reforms were introduced before the end of the boom.
Jokowi faces three structural problems that have hindered economic development in Indonesia since the 1997–98 Asian inancial crisis: low infrastructure
investment, weak manufacturing performance, and weak growth in foreign direct
investment. These were all major drivers of structural change prior to the late
1990s. Infrastructure investment is still only half of what it was before the crisis,
and is lower than that of other high-performing Asian economies. Indonesia’s
manufacturing performance has become less competitive since the crisis and a
process of premature deindustrialisation may have begun, if one considers the
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
335
proportion of manufacturing value added in GDP and the proportion of employment in manufacturing (See Rodrik 2015 for a discussion). Indonesia, unlike many
of its neighbours, has yet to take advantage of global value chains; manufacturing
has been held back by labour-market policies and low levels of labour productivity (Hill and Aswicahyono 2014). Foreign direct investment, meanwhile, has
been hindered by bureaucracy and economic nationalism, though no more than
in some other middle-income developing countries.
Against this backdrop, we evaluate to what extent the new economic policies,
the fuel-subsidy reform, and the cabinet reshufle can address these structural
problems that hinder industrialisation. One of the most important economic policies of the Jokowi government has been the fuel-subsidy reform (see Damuri
and Day 2015). By reallocating the fuel subsidy, Indonesia was in a position to
increase government capital spending (mostly in infrastructure) by 70% in the
2015 planned budget—an important aspect of Jokowi’s medium-term economic
strategy. Capital investment is likely to make a difference, though more so in the
medium term.
Jokowi’s politically bold reshufle of economic ministers in August seems
to have already had an impact; in September and October, the government
announced ive economic policy packages. They include revising more than 130
regulations deemed detrimental to businesses; simplifying the application process for investment permits and planning permits, land acquisitions, and procurement; accelerating strategic projects; creating a new village fund to inance
a cash-for-work program; extending the subsidised Rice for the Poor (Raskin)
program from 12 months to 14 months; supplying new subsidised credit, via
cooperatives, to support small and medium enterprises in rural areas; raising
the tax-free threshold to a level that will cover most unskilled workers; revising
corporate tax policy and introducing tax holidays of up to 20 years (which may
later erode tax revenue); supporting the operational costs of domestic industries
by reducing the prices of fuel, electricity, and gas (which may in the irst instance
seem contrary to fuel-subsidy reform but—so far at least—relates only to the
price of diesel and, given the state of the economy, is not unreasonable as a temporary measure); changing how the minimum wage is set; and introducing a set
of inancial reforms.
Judging by the components of the packages, these measures are intended
to raise domestic public and private and international investment by cutting
bureaucratic procedures, reducing operational costs, and providing tax breaks;
to stimulate domestic demand by providing subsidised credit to households
and small and medium enterprises as well as by accelerating the village fund;
to help industries import raw and capital goods and give iscal incentives for
exports; to reduce inancial volatility, particularly exchange-rate volatility; and
to make minimum-wage adjustments more predictable by overhauling the current regime (in which setting minimum wages involves negotiating with labour
unions, district leaders, and industry). The ifth package, in late October, covers
three areas of deregulation. It obligates companies to revalue their assets in light
of inlation and the rupiah devaluation; this is expected to improve performance
by giving irms a better understanding of their assets and debts. It eliminates
double taxation for investment funds in real estate, property, and infrastructure,
with the aim of attracting funds to Indonesia’s capital market. It also attempts to
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
336
Arief Anshory Yusuf and Andy Sumner
simplify the regulatory and licensing procedures for Sharia banking and inance
products.
Will these policies boost the economy? It seems there is something for everyone. International investors will beneit from less bureaucracy and from shorter
processing times for investment permits. The domestic business sector will
welcome the introduction of credit for small and medium enterprises and the
increased support for the operational costs of domestic industries. The manufacturing labour force may see minimum wages rise at a slower rate, although many
workers will no longer pay income tax. The poor will beneit from increased consumption, thanks to additional funding for the government’s cash-for-work and
Raskin programs. The policy packages are comprehensive, but questions remain
about their transformative power and how they will reinvigorate the manufacturing sector, which has historically been the engine of Indonesia’s economic development and growth. The fourth package, which changes how minimum wages
will be set, may go some way in this direction. From January 2016, a new wage
formula will aim to give more certainty to businesses and workers. It will calculate changes to the annual minimum wage in each province by pegging increases
to inlation and GDP growth. Workers will then be guaranteed to see their real
wages improve during periods of economic growth.
These policy packages are Jokowi’s irst substantial set of reforms. Of course,
their effectiveness in stimulating the economy will depend on the nature and
extent of their implementation and what happens outside Indonesia in terms of
China’s growth and commodity prices. If even half of these policies are put in
place, the impact on the economy, in both the short and medium term, should be
tangible.
POVERTY AND INEQUALITY UNDER JOKOWI
Distribution and Economic Growth
Jokowi’s election platform and his previous policies as mayor of Solo and governor of Jakarta suggest that he has a speciic interest in improving the living standards of the poorest and raising people out of poverty. These objectives require
policies on growth and, often, short-run transfers, as well as changes to social
policy and entitlements. They can also require greater medium-term investment
in education and health care, for example, to redistribute the beneits of economic
growth and create opportunities. The question of which part of Indonesian society has beneited most from economic growth and trends in inequality during
democratisation was raised in mid-2014, during the presidential campaign, not
only because Jokowi was known for enacting speciic social policies as mayor and
governor but also because of his humble background. During the campaign, he
came to be viewed as a pro-poor igure.
Questions about the distribution of economic growth are increasingly viewed
in the development literature as an instrumental concern. In particular, they relate
to mathematical identity: that high or rising income (or consumption) inequality
is associated with lower rates of poverty reduction at any given poverty line. The
ongoing debate in the econometrics literature on the relation between inequality and growth received a detailed review in Cunha Neves and Tavares Silva’s
(2014) article. Although numerous methodological issues remain, an emerging
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
Growth, Poverty, and Inequality under Jokowi
337
consensus is that inequality may support growth at low levels of average income,
but rising or high inequality can hamper growth at the middle level. Brueckner
and Lederman (2015), for example, found that, on average, if the Gini, a common measure of inequality, rises by one percentage point, GDP per capita will fall
by 1.1% over ive years. Importantly, however, they also found that increases in
inequality raise GDP per capita in low-income countries but reduce it in middleincome countries. For these reasons, there is an instrumental case for governments
in middle-income countries such as Indonesia to—at a minimum—be concerned
about rapid and substantial rises in inequality, owing to the potential impact of
these rises on future growth and the rate of poverty reduction.9
Such matters resonate with the government’s National Medium-Term Development Plan in that, for the irst time, an explicit target for the Gini coeficient, of
0.36 in 2019 (it is now 0.41), has been set alongside the target for a national poverty
rate, of 7%–8% by 2019. The government will look to reach these targets by creating employment, providing basic services, and implementing social-protection
policies (Bappenas 2014). One causal mechanism for reducing inequality is the
attempt to improve human capital and, in doing so, raise the future incomes of
those at the lower end of the distribution. In the shorter term, generating employment and introducing direct-transfer policies as part of the social policy and welfare regime are likely to address inequality.
It is commonly thought that Indonesia’s Gini is low. This is the case if one
takes at face value the consumption Gini from the National Socio-economic
Survey (Susenas) data and compares it internationally. However, the mismatch
between the Susenas data and the national accounts suggests that Susenas may
be weak at capturing top incomes; Susenas reports that only approximately 10%
of Indonesians consumed more than $10 per day in 2012 (in 2011 purchasingpower-parity [PPP] dollars) (Edward and Sumner 2015). Further, Indonesia’s
Gini is based on consumption inequality, so adjusting consumption to income
would raise inequality estimates considerably (see Lahoti, Jahadev, and Reddy
2014). And adjusting the estimate of inequality using the taxation data of top
incomes shows that the share of income to the richest is generally much greater
in Indonesia than in other countries (see Leigh and Van der Eng 2009) and challenges the perception that Indonesia is relatively egalitarian.
Indonesia is also well known for its record on poverty reduction, but its national
poverty line is one of the lowest in the world—comparable, in PPP dollars, to
those of the poorest countries of sub-Saharan Africa—despite GDP per capita in
Indonesia of $10,500 (in 2011 PPP dollars). As is well documented, many people
in Indonesia live not far above the national poverty line; median consumption,
using Susenas data, in Indonesia in 2012 was approximately $4 per day, in 2011
PPP dollars (Edward and Sumner 2015). Perhaps a quarter to half of the population are therefore potentially vulnerable to falling back into poverty if, for example, growth slows or rice prices spike, as has happened recently.
9. In a similar vein, Dabla-Norris et al. (2015, 6–7) showed that a higher net Gini is associated
with lower output growth in the medium term, and found an inverse relation between economic growth and the national income share of the rich. They also found that as the income
share of the richest quintile increases, GDP slows in the following ive years. Conversely, an
increased share of national income to the poorest quintile increases future growth.
338
Arief Anshory Yusuf and Andy Sumner
FIGURE 6 Growth, Inequality, and Poverty in Indonesia, 2001–19 (%)
9
45
Gini (rhs)
8
40
7
35
6
30
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
5
25
Economic growth (lhs)
4
3
20
15
Poverty incidence (rhs)
2
10
1
5
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
0
Sources: Data from BPS and Bappenas (2014).
Note: The dashed lines are the targets in the National Medium-Term Development Plan 2015–2019.
In light of the above, what has happened to inequality and poverty since
Jokowi’s inauguration? Of course, little over a year has passed, so our assessment
is necessarily preliminary.10 Much may depend on the distributional impacts of the
reallocation of highly regressive fuel subsidies to infrastructure and social spending and what happens to the price of staple foods such as rice. For this reason, we
consider the social policies that are likely to have medium-term impacts on poverty
and inequality, as well the outcomes based on data available in the second quarter.
The new president inherited consumption inequality that was on an upward
path (at least to 2011), slowing GDP growth, and a slowing rate of poverty reduction (igure 6). New data released in the second quarter point towards stable
inequality but stagnant poverty reduction. From September 2014 to March 2015,
Indonesia’s Gini coeficient remained at 0.41 (where it has been since 2011, after
having risen from 0.33 in 2001). This change in the trend coincided with the end of
the commodity boom and suggested that growth driven by commodity prices may
have been the main cause of Indonesia’s increasing inequality. Commodities such
as oil, gas, and coal are capital-intensive, so this hypothesis has a theoretical logic.
The Gini coeficient in urban areas remained at 0.43; in rural areas, it fell by a small
amount, from 0.34 in September 2014 to 0.33 in March 2015. The Gini increased in
13 provinces (table 4) but decreased in 20, suggesting considerable variation.
New Poverty Data
Recent data from Badan Pusat Statistik (BPS 2015b), Indonesia’s central statistics agency, reported a rise in the poverty headcount of almost 1.0 million people, from 27.7 million to 28.6 million, or from 11.0% of the population to 11.2%,
10. At the time of writing, the latest Susenas raw data were not available, preventing us
from comparing the growth incidence curve under Jokowi with that of the Yudhoyono era.
Growth, Poverty, and Inequality under Jokowi
339
Downloaded by [Universitas Maritim Raja Ali Haji] at 23:16 17 January 2016
TABLE 4 Gini Coeficient by Province, September 2014 and March 2015
Aceh
North Sumatra
West Sumatra
Riau
Riau Islands
Jambi
South Sumatra
Bangka-Belitung
Bengkulu
Lampung
DKI Jakarta
West Java
Banten
Central Java
DI Yogyakarta
East Java
West Kalimantan
Central Kalimantan
South Kalimantan
East Kalimantan
North Sulawesi
Gorontalo
Central Sulawesi
South Sulawesi
North Sulawesi
Southeast Sulawesi
Bali
West Nusa Tenggara
East Nusa Tenggara
Maluku
North Maluku
West Papua
Papua
Gini,
September 2014
Gini,
March 2015
Change
(2014–15)
Urban Rural Total
Urban Rural Total
Urban Rural Total
0.38
0.33
0.35
0.41
0.43
0.35
0.40
0.31
0.38
0.38
0.44
0.41
0.43
0.41
0.44
0.43
0.42
0.40
0.35
0.36
0.45
0.44
0.41
0.43
0.43
0.44
0.45
0.45
0.38
0.31
0.35
0.37
0.40
0.28
0.28
0.28
0.32
0.31
0.32
0.32
0.25
0.33
0.28
0.00
0.29
0.29
0.36
0.38
0.34
0.36
0.33
0.29
0.30
0.37
0.44
0.28
0.43
0.34
0.36
0.34
0.31
0.28
0.29
0.26
0.35
0.38
0.34
0.31
0.33
0.38
0.44
0.34
0.38
0.30
0.36
0.33
0.44
0.40
0.42
0.39
0.43
0.40
0.40
0.36
0.33
0.36
0.44
0.45
0.35
0.45
0.38
0.40
0.44
0.39
0.35
0.33
0.32
0.41
0.46
0.37
0.36
0.36
0.39
0.36
0.38
0.39
0.29
0.41
0.40
0.43
0.43
0.41
0.42
0.44
0.44
0.35
0.37
0.38
0.31
0.39
0.42
0.43
0.42
0.39
0.41
0.38
0.40
0.33
0.31
0.28
0.34
0.34
0.29
0.30
0.30
0.33
0.29
0.34
0.31
0.26
0.35
0.35
0.00
0.32
0.27
0.33
0.33
0.34
0.30
0.29
0.30
0.29
0.32
0.37
0.33
0.38
0.35
0.37
0.33
0.33
0.29
0.32
0.26
0.48
0.38
0.33
0.34
0.34
0.36
0.36
0.36
0.36
0.28
0.38
0.38
0.43
0.41
0.40
0.38
0.43
0.42
0.33
0.33
0.35
0.32
0.37
0.42
0.37
0.42
0.36
0.40
0.38
0.37
0.34
0.34
0.28
0.44
0.42
–0.01
0.03
0.01
–0.02
–0.07
0.03
–0.01
–0.02
0.03
0.02
–0.01
0.02
–0.02
0.01
0.00
0.01
–0.07
–0.03
0.03
–0.05
–0.06
–0.02
0.02
–0.01
–0.04
–0.03
–0.07
–0.05
–0.05
0.00
–0.07
–0.03
–0.06
0.01
0.02
0.02
0.01
–0.02
0.02
–0.01
0.01
0.02
0.07
0.00
0.03
–0.02
–0.03
–0.05
0.00
–0.06
–0.04
0.01
–0.01
–0.05
–0.07
0.05
–0.05
0.01
0.01
–0.01
0.02
0.01
0.03
0.00
0.13
0.00
–0.01
0.03
0.01
–0.02
–0.08
0.02
–0.02
–0.02
0.02
0.05
–0.01
0.01
–0.02
–0.01
0.00
0.02
–0.07
–0.03
0.02
–0.04
–0.07
–0.03
0.02
–0.03
–0.02
0.00
–0.06
–0.02