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Only the richest 20 percent benefiting from economic growth

Kompas.com - August 9, 2012

Jakarta Ė Economic growth, which reached 6.4 percent in the second quarter of 2012, is largely being enjoyed by the middle- and upper-class, because it is not quality growth.

Economics professor Mudrajad Kuncoro, from the Gadjah Mada University Faculty of Business and Economics, said that economic growth has risen and per capita income (PCI) has reached 3,540 US dollars annually.

However the indications of an imbalance are visible from the results of the current national development process. This can be measured by the imbalance in distribution of income that is steadily widening as reflected by the gini coefficient (a measure of inequality), which rose from 0.33 in 2002 to 0.41 in 2011.

"The irony is, there has been a decline in the [share] of the national cake enjoyed by poorest 40 percent of the population, which has been accompanied by an increase in the [share] of the national cake enjoyed by the richest 20 percent", said Kuncoro when contacted in Jakarta on Tuesday August 7.

Indonesian Employers Association (Apindo) general chairperson Sofjan Wanandi is of the view that economic growth is only being enjoyed by the middle- and upper-classes, while lower-class society is being ground down by various obstacles and is simply trying to survive.

"Even though [they] benefit, the lower-classes' gains are becoming smaller because they have to deal with the high price of materials and have to face high bank interest rates", said Wanandi.

Wanandi confirmed that current economic growth rates are being sustained by people's consumption during the fasting month and Idul Fitri holiday celebrations. On the questing of increased investment, Wanandi said this is not something new.

Wanandi said that current investment, particularly by foreign investors, appears to be sustained, and represents a process that has been going on for two years. It is not the pace of investment that has recently been ventured, such as the investment by Foxconn from Taiwan, which is still struggling to find industrial land.

Not much change

Fishing communities and trade unions admit they have felt little impact from the high level of growth in the second quarter.

Cornelius Mahuze (32), a traditional fisher from the Marind Kampung Mbuti ethnic group in Merauke district, Merauke regency, Papua, concedes that his life is not heading in a better direction. "Yeah, it's just like this, [I] can only net prawns. [I] don't have a boat, donít have any capital", he said on Tuesday.

Every day Cornelius works netting prawns on at the Mbuti beach. If it is the prawn season, he can catch 10-20 kilograms a day. Prawns sell for 15,000 rupiah a kilo. If it's not the prawn season, he can only catch 1-2 kilograms a day. "If itís the hot season or big wave season, [I] don't have any income", he said.

Laurensius Mahuze (50), another traditional fisher from the Mbuti village, also relies on netting prawns from the beach because he does not own a motor-boat to catch fish at sea. His income depends upon the season. "If it's not prawn season, I just sell young coconuts for 5,000 rupiah each", he said.

Meanwhile according to Jamaluddin, a labour activist from the East Java provincial capital of Surabaya, economic growth has yet to raise workers' living standards and only provides profits to business and employers. This is reflected in the growth in the number of outsourced workers so that benefits that company owners are obliged to provide, such as the right to a pensions, healthcare allowance and children's schooling costs, are in fact non-existent.

"Workers' wages in Indonesia are the lowest compared with Thailand, Singapore, the Philippines and Malaysia. Meaning that economic growth is not directly proportional with workers' incomes, never mind farmers or fisherpeople", he said.

Meanwhile, an economic observer from the Airlangga University in Surabaya, Subagyo, said the gains from all this are actually being enjoyed by foreign investors who already control shares in almost all business sectors. "Economic growth is not impacting directly on the little people, but rather the owners of capital", he said.

National Planning and Development Minister and National Development Planning Board (Bappenas) chief Armida Alisjahbana said that economic growth in the second quarter of 2012 is being driven by growth in domestic consumption and investment. The government is targeting an investment growth of 11 percent, which could realistically reach 12 percent.

"How to maintain the momentum and minimalise declining exports. So as to get the best contribution for the agricultural sector. That will be the driving force. Our hope is, all of this can be translated into ordinary people's living standards and reducing unemployment", he said. (RWN/ETA/EVY/ATO/OSA/IDR/BEN)

[Pertumbuhan Dinikmati Kelas Menengah - Kompas.com. Kamis, 09 Agustus 2012. Translated by James Balowski.]

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