Lamborghini bikes a sign of Indonesia’s growing wealth gap

JAKARTA — Mr Tedi Kumaedi earns about US$87 (S$109) a month selling instant coffee from his rusty bicycle near Jakarta’s stock exchange.

At nearby TechnoBike, they have sold out of US$25,000 Lamborghini-branded bicycles.

Narrowing the gulf between workers like Mr Kumaedi, who toils for 14 hours a day outside a luxury hotel operated by Ritz-Carlton Hotel Co, and TechnoBike’s increasingly affluent customers will be among the biggest challenges facing the winner of Indonesia’s presidential election in July.

The wealth gap in the world’s fourth most populous country is widening, threatening President Susilo Bambang Yudhoyono’s goal of reducing poverty before he steps down after a decade in power. It is also restraining growth in South-east Asia’s largest economy, as consumption by the poorest half of the country stagnated last year, according to the World Bank.

Growing inequality has boosted the popularity of Jakarta Governor Joko Widodo, whose Indonesian Democratic Party of Struggle won the most votes in an April 9 parliamentary election, according to unofficial results and who leads opinion polls to succeed Mr Yudhoyono as leader of the world’s third-biggest democracy.

“There is a sense of the big end of town enriching itself,” Professor Hal Hill, who studies South-east Asian economies at Australian National University in Canberra, said. “Jokowi seems a man of the people, and that’s a powerful message,” he said, referring to Mr Widodo by his nickname.

The poorest half of Indonesians saw no growth or a slight decline in consumption expenditure between 2012 and 2013, compared with 4 per cent growth across the entire population and an average of 7 per cent for the richest 20 per cent, the Washington-based World Bank said in a 2013 report.

“The rate of poverty reduction has been slowing,” Mr Matthew Wai-Poi, a Jakarta-based senior economist for the World Bank, said in an interview on April 10. “The distribution of economic growth has been much more to the richest 20 per cent.”

At the Pacific Place mall near Mr Kumaedi’s coffee stand, a McLaren showroom features a US$750,000 MP-12C supercar and shoppers can win an orange Lamborghini parked between rows of designer-clothes stores. Drivers of the sports cars or the Lamborghini carbon-fibre bicycles made by BMC Switzerland AG and sold at TechnoBike would have to contend with barefoot beggars and the Indonesian capital’s crippling traffic jams.

The decline in the poverty rate over recent years may be masking increases in inequality because about three times more people are now classed as “vulnerable” rather than poor, said Mr Wai-Poi. About 16 per cent of Indonesians lived on less than US$1.25 a day in 2011, while 43 per cent lived on under US$2 a day, according to the World Bank.

“There’s a bunch missing out in terms of growth,” Mr Wai-Poi said. “There is a risk because higher inequality can lead to higher conflict.”

Rural areas where communities often have unrealistic expectations of the impact of resource-development projects are most at risk, said Mr Keith Loveard, head of risk analysis at Jakarta-based security company Concord Consulting. “There is certainly the potential for local issues creating tensions and violence,” he said.

Mr Yudhoyono’s successor will inherit an economy growing at the slowest pace since 2009, and a volatile rupiah that was Asia’s worst performing currency last year. That has raised the cost of imported staples such as fuel, soybeans and wheat. Mr Widodo has said he plans to focus on the country’s agriculture, the Jakarta Post reported on March 23.

“What you need to do is to have structural reform as early as possible as the window is closing” on the opportunity to exploit Indonesia’s demographic dividend, Mr Enrico Tanuwidjaja, a Singapore-based economist at Nomura Holdings, said. BLOOMBERG