Indonesian Middle Class: Trap or Rescue?

There are many factors that determine the economic growth of a country such as natural resources, human resources, technology and infrastructure development, as well as the political and security climate. When we talk about the economy and its relevance to politics and security, we also see that for the last few years some countries have experienced political turmoil.

Some examples are red-shirt protester riots in Thailand in 2010, demonstrations in Turkey in June 2013, massive clashes in Egypt in 2011 and 2013, and unrest in Sudan and Syria. Those situations have a definite impact and often cause material losses and economic crisis. Although the “environmental” demonstrations in Turkey lasted “just” about two weeks, Turkey suffered economic losses up to U.S. $ 10 million. Riots in Egypt in 2013 are estimated to have caused losses of 120 billion Egyptian pounds or more than Rp. 211 trillion. These figures do not include the loss of state revenues from various sectors such as transportation, tourism, and business investment. Political shocks and disturbances obviously affect the economy of a country, even globally. Then a decrease in currency exchange rates, a stock market slump, and high-rising prices are inevitable. Is this what will happen in Indonesia ahead of the 2014 general elections?

There are more than a few who have predicted the Indonesian economy will be weakened by the political climate warming in the 2014 elections. Adler Manurung, Dean of Universitas Siswa Bangsa Internasional, has stated that the 2014 elections will make economic growth in Indonesia a little bit slower as investors and business people prefer to wait until they find out the winner of the election and how that will determine the future direction of economic policy. A discussion titled, “Evaluation of 2013 – Predictions 2014: Economic Recession and Unrest Potential,” held by the Indonesian Economic Development Studies, even predicted potential of social unrest in 2014. In addition, because of the election, social unrest in 2014 is indicated by the value of the rupiah against the dollar, which is not so stable lately, and massive layoffs carried out by mining companies and contractors due to the falling price of coal and the implementation of the Mining Act, which prohibits the export of raw minerals.

But it seems that Indonesian citizens do not have to panic from all the predictions. Thanks to the role of the middle class, there are some predictions that economic growth in Indonesia will continue to be among the highest in the world. It is true that at the end of 2013 economic growth tends to be slow, but actually it is meant to minimize the trade deficit. This was said by the Special Staff of the President for Economic Affairs, Prof. Firmanzah, Ph.D. Dr. Firmanzah, who is also Professor of the Faculty of Economics at the University of Indonesia, suggested that the reason for Indonesian economic growth was largely due to domestic consumption of the middle class.

But the high levels of consumption have not been accompanied by domestic productivity; therefore, the supply of goods is fulfilled through imports. The high purchasing power of the middle class in fact triggered the high number of imports, while export figures remain low. That’s what led to our trade balance deficit . Then slowing economic growth was carried out in order to balance supply and demand, also in order to keep the economy stable.

According to Coordinating Minister for the Economy, Hatta Rajasa, in 2010 the Indonesian middle class comprised only 36% of the population, but in 2013 it rose significantly to 56.5%. The increase was due to the economic growth of the country, which is quite high compared to others. In early 2013, Swa magazine’s research revealed that Indonesia’s middle class population reached 130 million and had a consumption potential value of Rp. 130 billion a month.

Based on that fact and as noted in the previous paragraph, the Indonesian middle class could be either a dangerous trap or a major driver of economic growth. With their strong purchasing power, the middle class has made Indonesia a promising place for investors. Strong purchasing power of the middle class has also kept Indonesia safe from the effects of the financial crisis that hit Europe and America. But this purchasing power could also threaten the rising of the trade deficit if the government fails to increase domestic production. The key to the solution is in the government’s hand. The development that promotes economic growth should be followed by efforts to increase domestic productivity to meet the needs of the improving purchasing power.

Economy and politics are two different things that are strongly related to each other. We have seen political turmoil caused by economic crisis and vice versa. But the Indonesian middle class with their established and rational characteristics has the potential to be the “savior” of the situation that threatens the national stability. No matter how bad the predictions are, this is what will happen in this country no matter what the cause.

About Ika 12 Articles
Ika Virginaputri is an independent writer and current-affairs observer for the Dekker Center. She lives in Jakarta and writing for the Dekker Center and national and international media.

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