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Opinion Briefing: Indonesia's Economic Emergence

Opinion Briefing: Indonesia's Economic Emergence

by Steve Crabtree

WASHINGTON, D.C. -- Indonesia's steady GDP growth since the Asian financial crisis of the late 1990s has earned it widespread consideration among the next group of rising economic powers. But as with all emerging markets, Indonesia's rapid growth raises questions about how those gains are changing the lives and outlook of its 250 million-strong population. Gallup's tracking studies since 2006 offer insights on how the country's progress is affecting the well-being and economic potential of its people.

Quick Summary: Indonesians' average life ratings have improved significantly since 2008, as have their perceptions that their living standards are rising. Importantly for the country's ability to leverage its "human capital" for long-term economic growth, satisfaction with local healthcare and education services has risen considerably since 2006. However, widespread perceptions of corruption and broad regional disparities in well-being point to ongoing challenges for policymakers seeking sustainable, broad-based prosperity.

Well-Being, Economic Optimism on the Rise: When Indonesians were asked in 2006 to rate their own lives -- a key summary indicator of well-being -- the results showed they were just as likely to be "suffering" as they were to be "thriving." The trends converged again with the onset of the global financial crisis in 2008, but since then, the percentage thriving has generally climbed even as the suffering percentage has mostly dropped. In 2012, Indonesians were four times as likely to be thriving (20%) as suffering (5%). However, the majority (75%) continue to fall into the middle range of life ratings, and are characterized as "struggling."

"Thriving" on the Rise in Indonesia, 2006-2012 Trend

Life evaluations can be influenced by many factors, but they are often related to residents' perceptions of their current financial status and the economic opportunities available to them. Indonesia's economy weathered the global recession far better than its regional neighbors; its GDP growth fell somewhat to 4.6% in 2009, but quickly rebounded and has been at 6% or more since 2010. Gallup data suggest the recovery has been felt broadly by Indonesians; in 2012, about half (49%) felt their standard of living was getting better, up from 19% in 2008. In 2012, 14% said their standard of living was getting worse.

Right now, do you feel your standard of living is getting better or getting worse? 2006-2012 trend in Indonesia

Significant Gains in Satisfaction With Local Healthcare, Education Services: Indonesians have also been increasingly likely to express satisfaction with community-level public services, particularly healthcare and education, suggesting that gains in national income are being effectively translated into improved economic potential among millions of residents. In 2006, about six in 10 adults were satisfied with the availability of quality healthcare in their areas (57%) and the quality of local schools (59%); just six years later, both figures had risen to about eight in 10 (80% and 82%, respectively).

In the city or area where you live, are you satisfied or dissatisfied with the educational system/availability of quality healthcare ? 2006-2012 trend in Indonesia

A healthier and better-educated citizenry should further promote Indonesia's long-term economic prospects and make the country a more attractive place for foreign investment. Improvements in local education systems are also likely to encourage growth through entrepreneurship. Among Indonesians interviewed in 2010 and 2011, 31% of those with a post-high school education said they were planning to start their own business in the next year, vs. 21% of those with a secondary education and 10% of those with a primary education only.

Corruption Perceptions, Well-Being Disparities Raise Red Flags

These positive trends notwithstanding, Gallup analyses also highlight commonly cited challenges that threaten to impede Indonesia's economic development. These include the country's ongoing struggle with endemic corruption, particularly in the public sector. The Indonesian government's Anti-Corruption Commission has had little impact on public perceptions of corruption since Gallup began tracking them in 2006. In 2012, 88% of Indonesians said corruption was widespread in the country's government, while 82% said it was widespread within its businesses; among Southeast Asian countries where the question was asked, only Thailand produced similarly high figures. Indonesians' perceptions have likely been influenced by numerous graft allegations leveled at government officials, including members of the ruling Democratic Party.

Is corruption widespread throughout the government/business in this country, or not?

Economists note that systemic corruption is bad for economic development. One of the most common forms, bribery of government officials, raises average transaction costs and tends to hurt the poor, who are typically less able to pay and less likely to have political connections to draw on. The result is that deeply entrenched patterns of income inequality become even more difficult to overcome. This is another of Indonesia's major challenges to broad-based economic development; Gallup's 2012 studies find that the average annual household income of the richest 20% of Indonesians is $8,364 (in International Dollars) -- almost four times the $2,346 average income of the remaining 80%.

This disparity may also be reflected in broad regional differences in well-being scores across Indonesia. In the booming tourist haven of the Bali region, 43% of residents rated their lives so highly in 2012 that they were considered thriving; by contrast, in the less developed region of Kalimantan, just 4% were thriving.

Thriving, Struggling, and Suffering Percentages by Region, Indonesia, 2012

Implications: The Association of Southeast Asian Nations (ASEAN) has the goal of establishing regional economic integration by 2015, including a much freer movement of goods, services, investment, and skilled labor across member countries. Indonesia may stand to benefit greatly from the new ASEAN Economic Community (AEC) -- but only if it can be seen as a hospitable place for business and investment relative to other attractive destinations in the region such as Singapore and Malaysia.

Several of Gallup's recent trends from Indonesia -- including residents' improving economic outlook and rising satisfaction with healthcare and education -- suggest the country is enhancing its competitive position by empowering more of its citizens to drive economic development. However, ongoing corruption and extreme income inequality continue to undermine Indonesia's economic potential by increasing the risks for investors, foreign and domestic.

More broadly, Gallup's data demonstrate the value of tracking and analyzing a variety of well-being and economic empowerment indicators, not just at the country level, but -- particularly in a country as diverse and geographically segmented as Indonesia -- among different population subgroups and regions. The resulting insights will offer policymakers key strategic advantages in continually working toward long-term stability and prosperity.

Survey Methods

Results are based on face-to-face interviews with approximately 1,000 adults living in Indonesia, aged 15 and older, conducted in August 2006, April 2007, March 2008, April-May 2009, April 2010, May 2011, and February, May, and September 2012. Results from other Southeast Asian countries are based on face-to-face interviews with 2,000 adults each in the Philippines, Vietnam, and Thailand, and 1,000 each in Singapore, Cambodia, and Malaysia. For results based on each total sample of adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

For more complete methodology and specific survey dates, please review Gallup's Country Data Set details.

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