Jakarta – Top government officials have agreed that Indonesia must develop the service sector if the country wants to avoid the middle-income trap, a situation that many international analysts fear might hinder Indonesia's objective to sustain its robust economic growth in the long run.

Trade Minister Gita Wirjawan believed that Indonesia would not fall into a middle-income trap if the country remained committed to allocating huge funds in education, which is the basis of the developing service sector.

"I'm not worried. We have ample fiscal space to allocate funds to education. Such an investment is necessary for the development of our human resources," he told reporters Friday during a discussion on the development of Indonesia's service sector held by the Indonesian Employers Association (Apindo).

The middle-income trap is a situation where an emerging economy, after enjoying a period of rapid economic growth, sees a stagnating gross domestic product (GDP) expansion due to soaring labor costs and decreasing productivity, with its citizens' income "trapped" in the middle level and fails to climb up to the high-income level.

During the discussion, Gita highlighted the importance for Indonesia to boost the share of the service sector in the economy if the country wanted to rise in status.

The developing service sector was especially necessary for Indonesia as preparation measures for the upcoming free labor movement in 2015, during which the integration of Southeast Asian countries under the ASEAN Economic Community (AEC) would take effect, he added.

Gita's views were echoed by his successor on the Investment Coordinating Board (BKPM), M. Chatib Basri, who argued that Indonesia offered vast investments opportunity in the service sector.

With its growing consumer classes, Indonesia should be an attractive market for investments in the health and education sectors.

"With hospitals, for example, rather than spending money in Singapore, Malaysia, why don't we have joint investment here? The same idea goes with education. For example, the [University of] Nottingham and Monash [University] opened campuses in Malaysia," said the BKPM chairman.

The trade minister said that the service sector accounted for 50 percent of Indonesia's GDP, with part of the percentage coming from unskilled workers in sectors such as construction. The percentage fared relatively low compared to Singapore, whose service sector accounted for 75 percent of its GDP, Gita added.

"The problem in developing the service sector [in Indonesia] lies in the regulations," Edimon Ginting, deputy country director of Asian Development Bank (ADB), said.

Edimon said Indonesia was the fourth-most restrictive country in terms of barriers against liberalization in service sector trade, lagging behind India, Pakistan and China, according to ADB's report published in October. (sat)