Why Indonesia is still not a middle-class society (yet)


inequality picture

 

Investment banks, credit rating firms, and a lot other international financial institutions do seemingly have a penchant to studying about Indonesia’s economic outlook. On a positive note, it is remarkable that this country has recovered after being debt-ridden in the 1997/1998 Asian financial crisis, by which Indonesia was the hardest-hit one. The government successfully pushed down debt-to-GDP ratio from an all-time-high of 140% in 1997, all the way down to a little above 27% as of 2015. While I have to caution that this is based from government’s data (which may need further research and analysis), what makes Indonesia able to rebound after the crisis (and also survive the 2008 global recession and 2015 global currency meltdown) is the ability of the central bank to monitor and control capital mobility, in and out of country, relatively free of political interference. Economic growth, while unsatisfactory, still recorded annual rates of a little above 5% in 2014, and slightly 4.7% in 2015.

Nevertheless, if you refer to World Bank income-based classification of countries, Indonesia is still positioned as a ‘lower-middle-income’ country (which has a threshold between US$ 1,045 and US$ 4,125, as of July 2015 updates), at a level of approximately 3,600 US$, and is projected to have a GDP volume of approximately 940 billion US$ this year. Middle-class population, furthermore, while rapidly growing, is still significantly small, even if one compares with neighboring countries such as Malaysia and Thailand.

Even to define who is eligible to be in ‘middle-class’ will undertake serious debates. Various institutions have their own ways in classifying who are in this social stratum, and who are barely. World Bank utilizes two thresholds to differentiate ‘extremely poor’ and ‘poor’ or ‘lower income’: if one either earns below 1.90 US$ (to be considered extremely poor) or below 3.10 US$ (as either poor or low-income). But what about people who earn precisely at these income levels? Or changes in size of currency conversion per unit? Welcome to the grey territory. On the other hand, Japan’s Ministry of International Trade and Industry (MITI) sets ‘middle-class threshold’ at precisely 4 US$ / day, considering that those earning somewhere near that figure are classified as ‘lower-middle-class’. Pew Research Center takes an even more crude and arbitrary measure than the two institutions above by averaging the entire world’s middle-class income (literally), generating an approximated figure of 10.01 US$ per day. For those earning between 2.01 and 10 US$, they are crudely defined as ‘lower-income’.

Yet, as a reminder, I caution not to simply take the entire datasets as they are. For World Bank, the size itself is an estimate, based largely on random-sampling methods on various households across one respective country; some people may not report their actual incomes, either that they are overblown or most likely underestimated. Nonetheless, in spite of existing biases and inaccuracies, they are still pretty useful as a ‘reference work’ (which means such calculation can hardly be fully definitive). Furthermore, I won’t give a detailed explanation about why Indonesia’s middle-class population remains comparatively small, as the information below speaks ‘a bit’ volumes about the social context relating to the country, specifically income and wealth inequalities. I would rather, in this regard, encourage readers to share some thoughts and information based on the presented data below, which I already print-screened here.

The data below are enabled by PovcalNet, a widget tool built by World Bank by which everyone can ‘set their own poverty threshold’ and analyze extent of poverty on a country-by-country basis. The latest available data regarding Indonesia was from the year 2010; it is to be reminded that percentages have shifted, but to which extent they move remains unknown.

income threshold 1

income threshold 2

income threshold 3

income threshold 4

Try this interactive:

pew global middle class survey

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