A desired economy should be stable in economic growth and inflation and shows decrease in disparity of regional economic. A stable economic growth requires policies that are favorable to economic growth for instance development of infrastructure and creation of competitive business climate. Besides, there is also need to identify the sectors in every region that have the potential to achieve high growth rates which should receive the support required to propel development in the regions.
Out of 33 provinces, 9 provinces record an increase on economic growth in 2012 to 2013. Jambi records highest growth (7.88%), DIY (5.4%), West Kalimantan (6.08%), Central Kalimantan (7.37%), Central Sulawesi (9.38%), Gorontalo (7.76%), NTB (5.92%), NTT (5.56%), and Papua (14.84%). Meanwhile, the rest of the provinces recorded decline in economic growth. It is interesting to note that some provinces that recorded high economic growth during quarter I-2014, based on year on year trajectory, recorded weakening growth. This was the case with DIY, West Kalimantan, Central Kalimantan, Central Sulawesi, NTT, and Papua. This phenomenon attests to the weak foundation of regional economies in Indonesia. Weakening in regional economy will undoubtedly have adverse impact on the national economy.
From the vantage point of quarterly growth, only 12 provinces were able to record positive growth in quarter I and II-2014. Provinces that were able to growth positively include DI Aceh (underpinned by Trading, Services, Hotel and Restaurants), Riau Islands, Lampung (manufacturing sector), DKI Jakarta (trading sector, Hotels and Restaurants; Transportation and Communications; and Services), Banten (Trading, Hotels and Restaurants), West Java (Trading, Hotels and Restaurants), Central Kalimantan (Mining and services), Bali (Agriculture and trading, Hotels and Restaurants), South East Sulawesi (Trading , Hotels, and Restaurants), NTT (Trading, Hotels and Restaurants and Services), Papua (Manufacture sector), and West Papua (Manufacture sector). It is worth noting that the rate of growth in Aceh and NTT was below national.
One of the policies that have had important influence on economic growth in the regions is the implementation of the law on Minerals. The Law on Minerals which was approved by the parliament on 16 December 2008 and was expected to contribute to valued added to mineral products in Indonesia. The law prohibits mineral commodities that follow under the regulated category to be exported in a raw material. It means that exporters are required to process of such mineral before export. The expectation was that by increasing value added of mineral commodities, the policy would have positive impact on public welfare. The policy, which has been rolled out since 12 January 2014, which was five years after its approval, has not generates expected outcomes. A lot of polemics have characterized the interlude between the approval and implementation of the law. Surprisingly many local governments are not yet ready to establish smelters and other processing facilities that are expected to process the raw minerals prior to export destinations. Consequently, the implementation of the law has led to serious disruptions in mining activities in many regions, which in turn have had adverse effect on regional economies. It gives great impact in such regions that have economies that rely heavily on mining activities such as Central Sulawesi.
The Law on Minerals has also had adverse impact on Indonesian relationship with key trading partners who have been important importers of Indonesian minerals output. During the current period of slow economic growth (which begun in 2012 and is expected to continue), any policies that impact oil and gas are likely to impact economic growth. This is especially so given the reality that in the wake of the implementation of the law on minerals, regions are required to establish requisite infrastructure for processing mineral output such as smelters so that exports of minerals have added value prior to export destination. To that end, the development of infrastructure is very vital for increasing the absorptive capacity of the economy if it is to achieve economic growth above 5%.
The high inflation in some provinces in Indonesia during quarter II-2014 are causing serious concern. This is because the 12 provinces have an inflation rate above the national average (hit 2% year-to-date from the start of the year until June 2014). The provinces are DKI Jakarta, Banten, Central Java, East Java, West Kalimantan, Central Kalimantan, South Kalimantan, Bali, Central Sulawesi, NTT, Maluku, and North Maluku.
Table 11: Economic Growth and Inflation in 33 Provinces
Economic growth in a number of provinces has weakened
Source: BPS and BI (2014)
The Human Development Index (HDI) in 2013 for various provinces in Indonesia shows an upward trend. This is an indication that the quality of life which consists of health, knowledge, and decent living is on the right track. Five out of 33 provinces in Indonesia with the highest HDI are DKI Jakarta (78.59), DI Yogyakarta (77.37), East Kalimantan (77.33), North Sulawesi (77.36), and Riau (77.25).
Income disparity in 2013 as reflected in the Gini ratio for various provinces in Indonesia shows an upward trend. The decline in income disparity occurs in 9 provinces, South Sumatera ( from 0.4 to 0.38), Riau (from 0.4 to 0.37), West Java (from 0.41 to 0.40), South Kalimantan (from 0.38 to 0.36), Bali (from 0.43 to 0.4), North Sulawesi (from 0.43 to 0.42), NTT (from 0.36 to 0.35), Maluku (from 0.38 to 0.37), and North Maluku (from 0.34 to 0.32). Provinces which have some of the highest Gini ratios are DI Yogyakarta (0.44), Gorontalo (0.44), and Papua (0.44). Meanwhile, Bangka Belitung had the lowest Gini ratio (0.31). It is interesting to note that DI Yogyakarta which has the highest HDI in Indonesia apparently also has one of the highest Gini ratios in Indonesia (0.44). Meanwhile Riau and North Sulawesi with highest HDI were able to reduce their income disparity (reflected in lower Gini Ratios).
Table 12: Income Disparity and Human Development Index (HDI)
In general Income disparity in various provinces in Indonesia shows an upward trend as is the HDI
Source: BPS (2014)