Abstract
This study examines data on regional inequality in Indonesia to help explain regional unrest. Analysis indicates that the New Order regime's equalization policies produced low levels of welfare inequality by transferring wealth from resource-rich provinces to poor communities on the one hand and to Jakarta on the other. Many in the subsidizing provinces resent this strategy which has held back their regions' development. They therefore exhibit an aspiration to inequality as they seek to stop such wealth transfer and to acquire greater control over their own resources. Yet policy emphasis on the economy over development of political institutions has left the political system with no effective means to address regional grievances, which are now manifest in vertical conflicts between the centre and the regions. We therefore propose a new philosophy for equalization policies. Rather than using a development fund to distribute wealth evenly across the regions, policy should aim to equalize people's opportunities and guarantee a minimum standard of basic services for all Indonesians, without impeding the growth potential of regions.
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