The Fragility of Middle Class

Indonesia has had a long and steep experience in escaping the middle-  income trap and becoming a high-income developed country. The  middle-income trap describes a condition where a country no longer has  competitiveness in the labor-intensive sector due to high wage levels but  cannot compete in industries with high-value-added products due to low  productivity and a weak domestic innovation system. The result is  increasingly slowing economic growth and stagnant levels of population  welfare.

Indonesia’s economic revival during the New Order era, which initially  proceeded quickly and was supported by oil revenues, was halted by the  fall in world oil prices in 1983. After a series of significant economic  reforms since the mid-1980s, Indonesia was first able to escape from the  status of a low-income country and officially held the position of a lower-  middle-income country in 1993.

After recovering from 2001, Indonesia returned to the status of a lower  middle-income country in 2003. In 2019, for the first time, Indonesia  upgraded its status to become an upper-middle-income country. But this  new status is concise. The pandemic forced Indonesia to fall back into a  lower-middle-income country in 2020. Most recently, with economic  growth reaching 5.31 percent and per capita income reaching US$ 4,784  in 2022, Indonesia is estimated to return to the upper-middle-income  status in 2022.