Tax Evasion, Corruption and the Jakarta Elite (From a Great Blog)

ASSET CONCENTRATION AND QUALITY OF GROWTH IN INDONESIA

Winarno Zain, AN ECONOMIST
Sumber : JAKARTA POST, 30 November 2011
 
 
The list of the 40 richest Indonesians as published by Forbes magazine recently revealed the extent of asset concentration in this country.
 
According to the magazine, the 40 richest Indonesians possess combined assets worth US$85.1 billion, which accounts for 15 percent of the Indonesian GDP. The top three on the list have amassed $35.1 billion among them. 

High asset concentration translates into high inequality of income. This is because the dynamics of the business are such that the higher the asset you deploy, the more rapid your income growth. 

As the gap in income distribution among Indonesians is widening, some intriguing questions about government policies are unavoidably raised. If the 40 richest people sold their assets today, they would receive more than the entire tax revenues received by the government in 2010. 

This perspective raises the question of the appropriateness of the amount of government tax revenue. Is tax revenue that ridiculously low? The question also indicates the extent of the problem of tax evasion and corruption and how vigorous are the bureaucratic reforms being pursued by the Finance Ministry.

The other question that arises from the above figures is how serious is the government in alleviating poverty? Because, how could the wealth of the three richest Indonesians be so much higher than the state budget allocated for building infrastructure and social spending this year? 

The government’s limited spending in fighting poverty, at a time when the richest are racing ahead at high speeds, means that income distribution would continue to widen. The unequal distribution of assets between different social groups is too glaring to escape attention from anybody. 

The uneven distribution of wealth started when a group of companies through political connections acquired economic resources and leases from the state. The close links between the state and conglomerates that generated the wealth concentration took several forms. 

Private companies benefited from the state-sanctioned barriers to competition, mainly through trade protection. The state also created officially sanctioned cartels, exclusive licensing and public sector dominance by a certain company through a government fiat, control and taxes on intra-country trade. 

Additionally, politically connected firms received benefits in other forms such as being awarded exclusive contracts, loans from state banks without having to provide appropriate collateral, bankruptcy bailouts and lax regulation. 

There were also several instances where state and military officials, both active and retired, could be found sitting on the boards of private companies. These activities were subject to rent-seeking with heavy losses to either the state-owned enterprises or the state.

As they acquire more assets, they grow faster than other groups. Unequal speeds in growth between various economic groups result in a higher asset concentration in the groups with higher assets at the start. 

One of the outcomes of asset concentration is reflected in the Jakarta Stock Exchange, where around 70 percent of the listed companies are family-controlled and about 57 percent of stock market capitalization is controlled by the top 10 families, the highest figure in East Asia.

 

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