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nequality in Indonesia is considered high with a Gini ratio at around 0.39.

Inequality on the Gini scale is measured between 0, representing perfect equality, and 1, representing perfect inequality.

Inequality is getting higher at a time of high commodity prices as high income groups get more benefits from the commodities boom. Meanwhile, people in the bottom quantile get a low share of the economy.

High inequality is also related to the slowing down of the manufacturing sector, which many saw as a sign of deindustrialization. This is understandable as manufacturing is supposed to employ a large number of workers as an effective mechanism to reduce inequality.

Inequality also shows strikingly high in the financial sector, in which practically about 0.5 percent of depositors dominate around 75 percent of total banking deposits. As only around 30 percent of the population have access to formal financial institutions, the inequality in the financial sector keeps the overall inequality high. This is the power number at play here, with the rich getting richer, although the poor are not getting poorer as the poverty level shows a decline.

There are some indications that the economy has shown some improvement. The economy grew 5.01 percent in the first quarter this year as exports and commodity prices increased.

However, economic growth could hover at around 5 percent in the short run — probably in the next two years — and so the prospect for inequality would remain high.

This could give a wider implication not only to the economy but also social cohesion. In many countries, developing and developed economies, inequality plays a major role in drifting social and political dynamics into rising populism, which is anti-establishment, anti-immigrant and calls for protectionism. In Indonesia, inequality also has a significant role in fueling sectarian moves with serious sociopolitical implications.

One aspect that has contributed to the rise of populism is high inequality, and in developed countries this goes along with anti-immigrant views that contain anti-Islam views. In developing countries, populism come and go triggered by inequality and domestic interest bias and anti-foreign views.

In Indonesia, populism is largely associated with Islam. Large demonstrations in November and December last year against former Jakarta governor Basuki “Ahok” Tjahaja Purnama due to blasphemy charges shows the growing populism related to Islam in the political arena.

Although these demonstrations were not directly connected to inequality, inequality emerged as political tensions rose.

Even Vice President Jusuf Kalla himself has acknowledged that wide income disparity between citizens of Chinese descent and the indigenous people has led to social jealousy and the rise of anti-China views in the country, including investment from the country.

Populism can influence sociopolitical issues significantly as Jakarta’s gubernatorial election showed. However, populism is not an effective way to solve the real problem. Populism views tend to be broad, lack focus and highly emotional. The impact of this can tear down the social fabric of pluralism, which is the main characteristic of Indonesian society.

For that reason, inequality needs to be overcome in order to prevent populism from growing into sociopolitical conflict. At the same time, radical elements of populism should be curtailed to maintain pluralism in society. It should also be emphasized that the majority of Indonesian Muslims are moderate and committed to democracy and a pluralistic society.

Therefore, building and nurturing middle ground of the moderates is very important for the sustainability of democracy and pluralism in society, instead of having it fall into the dichotomy of Muslim and non-Muslim.

President Joko “Jokowi’ Widodo has responded to the issue of inequality seriously with several measures to overcome the problem, including through a program for land distribution for the poor, expanding education and healthcare for the poor and aggressive taxation on unutilized land. The last measure was abandoned before implementation. Land distribution almost certainly cannot be implemented effectively. This was tried by the previous administration without clear results.

Problems related to the availability of land to be distributed, the mechanism of land distribution and the determination of the recipients are complex issues.

An effective way to overcome inequality is through fiscal measures, especially fund transfers to lower income groups. Government efforts to aggressively increase compliance for taxpayers should be focused on high income taxpayers, not middle and lower-middle income taxpayers.

 Certainly, the creation of productive employment, especially in the manufacturing sector, is very important. Despite unemployment having declined to 5.3 percent, employment creation is mainly in the informal sector, where there are no minimum wage standards and job sustainability.

Opening up to foreign direct investment (FDI), especially in manufacturing based on the global supply chain, can lead to the creation of productive employment. Limiting FDI for worry of growing populism is not justified. On the contrary, FDI can create productive employment in the formal sector that can ease populism in a positive way.

The cost of inequality because of inadequate productive employment is much higher than the reaction against FDI that mainly comes from the inward looking elite. The ratio of FDI to gross domestic product (GDP) at just around 25 percent in Indonesia is considered low compared to other emerging economies, including China, Thailand and Vietnam.

Addressing the growth of populism is not done by heading toward inward-looking policies, but by adopting reasonable economic policies together with effective social programs. The common ground for the development of moderate and reasonable social groups should be facilitated, and polarizing one against the other should be avoided.

Furthermore, radicalism should be nonexistent in a democratic society. Radicalism is growing because there have not been enough efforts to nurture mutual respect and cooperation among different social and religious groups.
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The writer is a senior fellow at the Center for Information and Development Studies (CIDES) and the Habibie Center. The views expressed are his own.