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Indonesia aiming for 80 percent middle class population in 2045: Bappenas

Jakarta Globe - March 6, 2024

Arnoldus Kristianus, Jakarta – In its pursuit of becoming a high-income country by 2045, the government sets a target to elevate the middle-class population to 80 percent, up from the current 20 percent.

"We must increase the middle class to 80 percent of the population. This is a characteristic of developed nations and will help us escape the middle-income trap. Currently, 80 percent are lower class, but by 2045 (Indonesia's centennial), we aim to reverse this," said Amalia Adininggar Widyasanti, Deputy of Economic Affairs at the National Development Agency (Bappenas), during a recent focus group discussion in Jakarta on Wednesday.

Widyasanti highlighted that the middle class forms the backbone of the economy, contributing significantly to economic acceleration. With the nation currently in a demographic bonus period, where the productive population exceeds the non-productive, she stressed the importance of ensuring quality employment opportunities.

To achieve this, Widyasanti urged a focus on elevating middle class incomes, taking advantage of the current economic stability and turning it into a stepping stone for future acceleration.

According to World Bank Data, the middle class in Indonesia has been growing faster than other groups; there are now at least 52 million economically secure Indonesians or one Indonesian in every five.

The Indonesian middle class has been a major driver of economic growth as the group's consumption has grown by 12 percent annually since 2002 and now represents close to half of all household consumption in Indonesia. Over the past 20 years, the majority of the poor and vulnerable have climbed out of poverty and into the aspiring middle class, where there are approximately 115 million people who belong in this category.

Yohanes Berchman Suhartoko, a lecturer at the Faculty of Economics and Business at Atma Jaya Catholic University, suggested that the government should provide financial security education for the middle class.

In the long run, Yohanes recommended subsidies for secondary needs impacting the middle class, such as interest rate subsidies for homeownership programs and others. Currently, some incentives enjoyed by the middle class include the value-added tax (VAT) incentive for housing and electric vehicles.

He noted that the government currently struggles to provide social assistance for the rapidly growing middle class in Indonesia, as the current state budget may not allow an increase in social assistance spending.

Enggartiasto Lukita, the former Minister of Trade (2016-2019) and Executive Chairman of B-Universe pointed out that Indonesia, despite experiencing considerable economic growth among G20 members, has not paid adequate attention to the middle class.

"Various incentives are given to attract investment at the top level. Then, subsidy is provided to those at the bottom through social assistance. Is this wrong? No. We believe that without social assistance, it would be problematic for the lower class. However, the middle class, not getting social assistance, lacks intensive attention," explained Enggartiasto.

Acknowledging that the government has made efforts to design pro-middle class policies, Enggartiasto emphasized the need for swift action.

"We know that the middle class has the potential to decline. Those who are moving from the bottom to the potential middle class can fall, why? Because various increases in staple prices result in higher expenditures than income. We cannot ignore this," he added.

Enggartiasto raised the issue following a discussion initiated by former Finance Minister Chatib Basri, referring to the Chilean Paradox – a social unrest among the middle class that occurred in Chile in 2019.

"In Chile, its mineral resources were only utilized as raw material, and exported. Those who received various incentives and attention were only the upper and lower classes. However, this middle group could not. That's where dissatisfaction and unhappiness occurred," he revealed.

Enggartiasto concluded that discussions on the middle class were triggered by Chatib Basri's writing, offering insight into the challenges faced by the middle class.

He emphasized that these discussions serve as an essential platform to address evolving issues comprehensively and objectively, facilitating well-informed decision-making for the benefit of the public.

Source: https://jakartaglobe.id/business/indonesia-aiming-for-80-percent-middle-class-population-in-2045-bappena