Indonesia needs a new business model: Jakarta Post

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JAKARTA (The Jakarta Post / ANN): Being relegated from an upper middle income country to a lower middle income country has undone some of the progress Indonesia has made in the two decades, when our economy has grown to bring greater prosperity to the nation and its people.

But rather than spoil this relegation in the ranking of the countries of the World Bank, it must be taken in stride, with humility and retrospection.

It also gives us the opportunity to take another look at the economic development model which has brought an average annual growth rate of 5%, but has failed to tackle inequalities, especially in the way fruits of development are shared.

Days after the World Bank (WB) released its new country classification on July 1, the Jakarta Post headlined an article that the Covid-19 pandemic had narrowed the wealth gap, citing a Credit Suisse report .

This article also reveals, however, that the Gini ratio of wealth inequality was at a staggering level of 0.77.

Meanwhile, the government expenditure inequality ratio stubbornly remains at 0.38, with 0 representing perfect equality and 1 representing perfect inequality for both indices.

Indonesia’s lower-middle rank was to be expected after the economy contracted 2.07% in 2020, the first time in two decades. It was also only last year that Indonesia, with a per capita income of US $ 4,050, entered the middle-upper income group.

According to the World Bank report, however, last year’s recession reduced the number of people in Indonesia to $ 3,870.

Additionally, the World Bank’s per capita income range for this group was between $ 4,046 and $ 12,535 last year, while the upper-middle income range for 2021 is between $ 4,096 and $ 12,535. $ 695.

The pandemic has shrunk the economic pie, and while it has hurt the rich more than the poor, statistically speaking, the reality is that the rich are better protected from its impacts. The poor ended up bearing most of the weight, many through the loss of jobs, and were only supported by massive government spending on Covid-19 social safety net programs.

Data from Statistics Indonesia (BPS) is more relevant than the averages used by economists, which show that the number of people living below the poverty line increased by 1.13 million to reach 27.55 million in September 2020.

This happened in the first six months of the pandemic. By the time the national statistics agency releases its next report on poverty, that figure is expected to have increased further, as the pandemic relegates many more households close to the poor to the poor category.

Rather than dismiss Indonesia’s new classification as a temporary setback and expect the country to bounce back into the upper-middle income group once the pandemic is over, we should use it to come up with a new model. economic growth that relies less on the engine of the rate of growth and more on ensuring that the whole nation walks towards prosperity, together.

We have not seen any conscious government movement in this direction. The Job Creation Law and its massive tax reform and public spending plans are still too focused on stimulating economic growth through investment and spending.

If there is one thing to learn from the economic fallout of the pandemic, it is that we cannot allow the poor masses of Indonesia to wait for the benefits to be felt, as they have in the past two years. decades. – The Jakarta Post / Asia News Network


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