Spurring Regional Economic Activity

According to the latest Statistics Indonesia report, expenditure inequality in Indonesia showed a downward trend, as reflected in the Gini ratio that declined from 0.384 in September in 2018 to 0.380 in September 2019.

KOMPAS/TOTOK WIJAYANTO

Children in their school uniforms walk through a semi-permanent settlement on Thursday (16/1/2020) in Muara Angke, Penjaringan, North Jakarta. Statistics Indonesia (BPS) recorded a poverty rate of 9.22 percent of the national population in September 2019, or 24.79 million people. The figure was 0.19 percent lower than the poverty rate in March 2019.

JAKARTA, KOMPAS – The concentration of economic activities in certain in cities has contributed to a widening rural-urban gap. Although the level of inequality continues to decrease, it remains high.

According to the latest Statistics Indonesia (BPS) report, expenditure inequality in Indonesia showed a downward trend, as reflected in the Gini ratio that declined from 0.384 in September in 2018 to 0.380 in September 2019.

Meanwhile, income inequality in Indonesia was also reflected in a decline in the Gini ratio from 0.384 in September 2019 to 0.380 in September 2019.

The Gini ratio was 0.391 in urban areas, higher than the 0.315 recorded in rural areas. The Gini ratio ranges from 0 (0 percent) to 1 (100 percent), with the bigger the ratio, the wider the inequality.

Meanwhile, the national poverty rate was 9.22 percent in September 2019, with a poverty rate of 12.6 percent in rural areas, almost double the urban poverty rate of 6.56 percent.

University of Indonesia rector Ari Kuncoro said that public infrastructure, such as roads that connect economic hubs, should be able to grow the economy in the areas they pass.

The toll roads should exit at adjacent centers of economic activities.

However, the problem was that economic growth occurred only in villages near areas with economic activities, like trade and manufacturing. "Those villages located close to traffic routes should be able to tap their economic potential. If not, the people who will benefit will be only those who live in centers of economic activity. As a result, the social gap between rural and urban areas is widening," he said in Jakarta.

Developing integrated economic areas to support production and provide employment in villages was needed to reduce rural-urban inequality. Toll roads could link the centers of economic activities.

"The toll roads should exit at adjacent centers of economic activities, such as culinary, tourism and trade [centers], so the village can benefit from the impacts of development," he said.

KOMPAS/P RADITYA MAHENDRA YASA

Vehicles pass along a toll road on Sunday (5/2/2019) in Bawen, Semarang regency, Central Java. Toll roads are one of the main modes of access in some regions.

Senior researcher T.M. Zakir Machmud of the Institute for Economic and Social Research (LPEM) at the University of Indonesia’s Economics and Business Faculty, said the establishment of new industries needed to be encouraged to reduce poverty and inequality.

The food and beverage (F&B) and textile industries, for example, could be developed in the regions to stimulate the local economy. Job creation and other resulting impacts could help drive the economy.

Industry Minister Agus Gumiwang Kartasasmita recently said that the F&B industry provided the largest number of jobs, employing 4.74 million people, followed by the clothing and apparels industry with 2.65 million employees.

The population and labor deputy at the National Development Planning Agency (Bappenas), Pungky Sumadi, said that labor productivity in urban areas was generally higher due to better education in urban areas than in rural areas, with the urban poor more literate and digitally savvy.

Steps must be taken to improve the business climate, the rule of law, debt management, and productivity to drive sustainable growth.

"If economic opportunities are available that can improve welfare, urban residents will generally have more [such] opportunities than rural residents," he said.

Pungky added that the government should make gradual efforts to reduce poverty in rural areas, including through the provision of the village funds. Other efforts include increasing the non-cash food assistance and expand internet access to villages. "The number of poor people in villages is higher, because the [rural population] is also greater than the [urban population],“ he said.

The World Bank (WB) has also warned that slowing economic growth would increase poverty. WB vice president for equitable growth, finance and institutions Ceyla Pazarbasioglu said that policymakers in developing countries must undertake structural reform to reduce poverty amid the risk of a global recession.

"Steps must be taken to improve the business climate, the rule of law, debt management, and productivity to drive sustainable growth," she said.