Inequality and Exclusion in Indonesia: Political Economic Developments in the Post-Soeharto Era

Abstract:This paper reviews the long-term trend of economic inequality and exclusion in Indonesia since the country embarked on its democratic transition in the late 1990s. While economic inequality was largely stable and relatively low during the high-growth New Order phase that lasted from the 1970s until the 1990s, it sharply increased during the first decade of the new millennium, reaching a record high in 2011 when the expenditure Gini coefficient touched 0.41. The Gini has started to decline since 2015, albeit slowly. Using earnings data from the labour force survey, six sources of exclusion are identified, including: belonging to the lower income group; low educational attainment; residing in a rural area; working in the informal sector; being female; and having a disability. In general, there has been no meaningful trend of inclusion for the identified groups relative to the reference groups. While Indonesia has placed more serious attention on tackling rising inequality, particularly by expanding infrastructure, connectivity and social assistance, policymakers need to start efficiently targeting those categorized as disadvantaged groups.