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Editorial: Equity for sustainable growth

Outgoing Deputy Finance Minister Bambang Brodjonegoro has suggested that the incoming government of president-elect Joko “Jokowi” Widodo and vice president-elect Jusuf Kalla prioritize policy measures that can effectively reduce income inequality

The Jakarta Post
Fri, October 17, 2014

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Editorial: Equity for sustainable growth

O

utgoing Deputy Finance Minister Bambang Brodjonegoro has suggested that the incoming government of president-elect Joko '€œJokowi'€ Widodo and vice president-elect Jusuf Kalla prioritize policy measures that can effectively reduce income inequality.

The recommendation was made because the average annual economic growth of almost 6 percent under the outgoing government of President Susilo Bambang Yudhoyono between 2005 and 2013 was marred by a widening income gap, as indicated by the rising Gini coefficient ratio from 0.35 to 0.41 (with one reflecting perfect inequality).

Increasing inequality has not only occurred among the people. The geographical distribution of the gross domestic product (GDP) growth also showed a yawning disparity in that the country'€™s most-developed and densely populated island of Java accounted for 57.8 percent of GDP.

Another worrisome trend concerned the poor quality of growth, as the highest growth mostly took place in the service sector, covering financial, trading, transportation and communication services, which did not generate many jobs. Labor intensive sectors such as manufacturing and agriculture remained the laggards, growing slower than the GDP expansion rate.

Hence, we think the best way to fight inequality in the short run is to provide good jobs for working-class households and ensure through progressive taxation and corrective distribution that workers receive their fair share of the value of the output they produce. The government should fix the distributional problems that have allowed those at the top to capture more than their fair share of income.

The incoming Jokowi administration should expand the affirmative programs of the Yudhoyono administration that have been designed to increase the income of the poorest segment of the people and to enhance a more equitable asset ownership.

For example, national community-driven empowerment programs in subdistricts have contributed greatly to reducing poverty in rural and urban areas.

The government should ensure that Bank Indonesia'€™s ruling '€” requiring commercial banks to allocate at least 20 percent of their total lending to small- and medium-scale enterprises (SMEs) '€” is properly implemented. This requirement has been imposed to give SMEs easier access to credit financing.

Another affirmative program requiring quicker implementation is the regulation that requires plantation firms to serve as development agents for smallholders in their areas, as this cooperation arrangement in financing, processing and marketing has proven to be effective in enhancing a more equitable distribution of income.

Jokowi should also deliver his campaign promise to increase investment in the agricultural sector by expanding irrigation networks, helping farming extension workers to provide better services to farmers .

Such affirmative programs cannot serve as the driving force behind high growth but are necessary to secure socially and politically sustainable growth in the long run.

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