Kadek Swarniati, Jakarta – Indonesia's current account deficit pressures the middle class, forcing them to use their savings. The rupiah's volatility has increased import costs, reducing household expenditure. Additionally, 81,290 layoffs between 2024 and 2025 and a significant decrease in middle-class spending, from 21.45 percent in 2019 to 17.13 percent in 2024, reveal a bleak outlook for the country's economy.

The World Bank warns that the current account deficit could exceed pre-pandemic levels, projected at 1.4 percent of gross domestic product (GDP) in 2025 and 1.6 percent in 2026–2027. This raises the stakes for external financing and threatens the stability of the rupiah.

The combination of rising layoffs, a widening deficit and a shrinking middle class casts doubt on the new government's ambition to expand the middle class by 38 percent by 2029. Quick fixes such as labor-intensive industries might create jobs, but without efforts to boost domestic demand, the impact could be short-lived. Given all of this, the government's targets seem increasingly out of reach.

Relying only on exports is insufficient given the fluctuating rupiah and global commodity prices, and creating strong domestic demand becomes increasingly crucial. A thriving local market may trigger an economic ripple effect that reaches everything from household incomes to small businesses.

That said, export initiatives should align with policies that boost domestic consumption, such as increasing purchasing power through subsidies, incentives or skill development programs. This move may transform the labor-intensive industries' short-term impact to a sustainable driver of economic growth that benefits all segments of society.

The Jakarta administration has already had this plan in mind. In November 2024, during a focus group discussion by the Jakarta Development Agency that I attended, the Accelerating Poverty Alleviation Agency presented a plan to establish a labor-intensive ecosystem to break the poverty cycle.

The plan includes policies that empower communities, boost incomes and promote safety nets; from government-backed land, training and employment to free nutritious meals and cooperative savings.

This model leverages farmland and a semi-closed supply chain, engaging people experiencing poverty in production and distribution while funding small and medium enterprises (SMEs) and social enterprises.

Sure, the free meals program is still in its early stages and requires extensive evaluation to ensure its effectiveness and sustainability. However, the key takeaway from this initiative is the potential to transform its labor-intensive supply chain model into a broader, demand-driven ecosystem that could help the aspiring middle class, those vulnerable to poverty and even the poor to transition into the middle class.

There are several labor-intensive sectors we can leverage.

As of August 2024, the agriculture, forestry and fishing industries employed 28.18 percent of Indonesians aged 15 and above. Food remains a core component of household spending, especially for the middle class, which spent 41.3 percent of their income on food in 2023, which is up from 36.6 percent in 2014.

Programs such as free school meals, community food subsidies and microfinance for smallholder farmers help stabilize food prices while boosting demand. Investments in food processing add value, generate jobs and improve food security across regions.

The manufacturing industry, particularly textiles and garments, contributed over 18 percent to GDP in 2023, rising to 19 percent in 2024. This sector employed 13.83 percent of the workforce in August 2024. Strategic investment in textile manufacturing boosts exports and domestic production and employs women and low-skilled workers.

Construction remains another key sector, contributing 9.43 percent to 10.06 percent of GDP and employing 6.55 percent of the workforce. Public investment in subsidized housing, rural infrastructure and school revitalization creates jobs and raises living standards. Promoting local materials like bamboo can further enhance sustainability while lowering construction costs.

Tourism and the creative economy also drive job creation, particularly in rural areas. Through 6,109 tourist villages, communities have built local economies around cultural heritage and domestic travel. Campaigns like Visit Indonesia and community-run homestays help boost tourism, while training and digital platforms help artisans and creatives reach broader markets.

Technology is another emerging frontier. As of 2023, 99.08 percent of Indonesians accessed the internet via mobile phones, and the ICT Development Index rose from 5.85 in 2022 to 5.9 in 2023. Developing labor-intensive IT industries through workforce training, digital entrepreneurship and increased access to tech infrastructure can generate jobs in software development, IT support and digital content creation.

The World Bank highlights how over-relying on low-wage, labor-intensive sectors may stagnate the economy, thereby stunting skill development and limiting innovation. To maintain global competitiveness, economies should prioritize creating skilled, high-quality jobs that lower dependence on low-wage sectors.

Younger generations may have to work in low-paying jobs while automation replaces more labor if education and skill development are not prioritized. Left unaddressed, this could lead to social stagnation, increased inequality and a weakened economy and environment.

2023 research by the education and culture ministry indicates that automation in data processing and machine operations is changing the employment sector. Workers without improved skills risk being replaced by technology.

Innovation, public-private partnerships and investments are needed to address these issues. Cross-sector collaboration, such as integrating agriculture into tourism or using technology in construction, may cultivate resilience.

Indonesia can learn from other countries' success stories in developing labor-intensive, demand-driven businesses that can boost employment and transform the economy.

Vietnam, for instance, has managed to become a footwear and electronics manufacturing center drawing large foreign capital and creating millions of jobs with its growth model. Thailand's rice subsidy, meanwhile, has gained praise from the World Bank as a program that guarantees consistent incomes for smallholder farmers, thereby strengthening the agriculture sector as a primary economic pillar.

Indonesia can also learn from Thailand's cooperative-based food production networks that guarantee fair pricing for farmers and hence enhance food security while emphasizing a stronger demand mechanism.

Success stories from India might also help Indonesia expand its textile industry through organized, demand-based government procurement initiatives supporting local garment businesses and creating consistent employment.

As for rural regions, focused microfinance programs for small companies may help increase local demand and stimulate grassroots activities.

By aggressively concentrating on industries with high domestic demand, Indonesia can promote labor-intensive, sustainable development that helps middle class consumers as well as companies.

[The writer is a statistician at Statistics Indonesia (BPS). The views expressed are personal. The article is published under a Creative Commons license.]

Source: https://www.thejakartapost.com/opinion/2025/04/14/reviving-the-middle-class-with-jobs.htm