After our lunch yesterday, my colleague S, his wife, and I were walking through the mall on the way to Starbucks before we headed to his BMW SUV, when S looked around us and said "I don’t feel like I’m in a poor country."

It’s true–anyone who visits Jakarta’s nicer areas would have no idea that Indonesia’s GDP per capita is about $4,000 US a year.  The clothes in the fancy stores cost as much as they do in the US.  The new mall I visited yesterday is approximately the size of King of Prussia, simply huge.  People dress well and have nice cars, their kids go abroad for college, it’s really quite comfortable.  But of course it’s not that way for the vast majority of Indonesians.  Most are quite poor by Western standards, and about 40% or so live on less than $2 per day.

This is interesting because over lunch, S and I were discussing the state of Indonesia’s economy, and the fact that so many Indonesians are concerned with inflation of basic goods’ prices.  The Indonesian media certainly conveys a sense that people are fed up with the economy, but my own sense is that things are still rather good in Indonesia.  The economy will grow by about 6% this year, which isn’t China-level growth but still is very good.  A large part of popular frustration with the economy stems from the fact that the Indonesian government, like other governments around the world, has had to cut the subsidies that its has long provided for gasoline and some basic goods.  This has resulted in mass protests and widespread criticism of the incumbent regime for forgetting the interests of the people (kepentingan rakyat).

Looking around the world, we see that everyone criticizes subsidy cuts.  I feel like a downright regime apologist by saying that governments the world over have little choice but to withdraw from interference in gasoline prices.  The amount of money that governments have to spend is fixed–maintaining subsidies in conditions of skyrocketing demand means that spending something else will have to be cut.  (The other way to go, simply declaring that prices will not rise by
administrative fiat, is a great way to turn your country into a
disaster; think Zimbabwe.)  Right now, it’s just an easy cheap shot for opposition politicians to challenge governments on subsidies.

At the same time, inflation in Indonesia is tangible.  Just in the past 6 months, I can confirm that the price for basic street food has doubled (10 tasty fried things used to cost 50 cents, now they cost 1 dollar).  Regular people in Indonesia certainly feel this, and certainly suffer from this inflation.  But with petroleum prices rising, it’s pretty much impossible to think of a good way to avoid this.  From what I can tell, this is just the bitter pill that the 40% of Indonesians living under $2 a day will have to face. One thing that is good to remember, though, is that it’s easy to forget this when you can afford to eat nice meals at fancy malls.