In my previous column, I outlined the emergence of a new and promising class of Indonesian consumers
that is most likely to bring a positive effect on the country's
economic growth in the years ahead. I also pointed out that the level of
prosperity of a population is an influential factor towards the state
(and future) of democracy in a country: the wealthier a population
becomes in terms of per capita GDP, the longer the life expectancy of
its democracy will be.
In the last six years, Indonesia has posted annual economic growth
of between 6.0 and 6.5 percent (with the exception of 2009 when amid
global turmoil the country grew 'only' 4.6 percent) and its per capita
GDP rose accordingly. In fact, the National Commission on Economics
(Komite Ekonomi Nasional, or abbreviated KEN) predicts that the level of
Indonesia's per capita income might reach USD $6,000 within the
time-span of three to four years.
However, despite this optimism there are
a number of matters that complicate (as well as frustrate) Indonesia's
current economic growth. Moreover, as I argued last week that economic
growth and democracy have a (complex) relationship, these matters thus
also form a risk for the state of democracy in Indonesia. These matters
include income distribution inequality, corruption, and weak state
institutions.
Firstly, income distribution inequality
needs to be mitigated. Indonesia's Gini coefficient, which measures
income distribution inequality, has been at 0.4 for the last two years.
For Indonesia, this is the highest figure in the last fifty years (a
coefficient of 0 indicates perfect equality, while a coefficient of 1
indicates perfect inequality). It implies that economic development has
favoured Indonesia's middle class, upper middle class and elite but not
the poorer segments of the country.
This situation cannot be ignored because the more unequal society
becomes, the more social problems will emerge and frustrate the economy
or bring major uncertainties along.
Secondly, corruption
should be dealt with. A study, conducted by Drury, Krieckhaus and
Lusztig (2006), concluded that in non-democratic countries corruption
will slow down economic development. Although in democratic countries
the influence of corruption is smaller, it will still impact negatively
on economic development. According to Transparency International 2012,
Indonesia is currently number 118 (out a total of 176 countries) on the corruption perceptions index. After 15 years of Reformation,
it does not represent a good performance. The battle against corruption
in Indonesia is difficult. Apart from technical constraints, the
politicization of corruption cases often make law enforcement agencies,
such as the Corruption Eradication Commission (Komisi Pemberantasan Korupsi, abbreviated KPK), not free to carry out their investigations optimally.
Lastly, Indonesia needs improvement of
its state institutions. An orderly democracy as well as economic
development are not possible without good-functioning state
institutions. Institutional reform should lead to reduced transactional
costs, the minimization of moral hazard, and the establishment of full
transparency and accountability. All of these matters are important
prerequisites for creating an atmosphere of good governance within the
state institutions.
Indonesia's new consumer force is
rising. It will be important not to let the three aforementioned
subjects become bottlenecks that impact negatively on Indonesia's
expanding consumer class as well as on its burgeoning democracy.
Agung Budiono is an analyst at Jakarta-based Pol-Tracking Institute
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