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Indonesia now upper middle-income country, World Bank says

Jul 03. 2020
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By Adrian Wail Akhlas
The Jakarta Post

Indonesia is now officially an upper-middle income country, an upgrade from its previous status as lower-middle income, according to the World Bank’s latest country classifications by income level published on Wednesday.

The classifications, which are updated annually on July 1, are based on gross national income (GNI) per capita. Southeast Asia’s biggest economy saw its GNI per capita rise to US$4,050 in 2019, surpassing the income threshold for upper-middle income, from $3,840 in 2018.

Upper-middle income status categorizes countries with a GNI per capita of $4,046 to $12,535, while lower-middle income status categorizes countries with a GNI per capita of $1,036 to $4,045. Countries with a GNI per capita of below $1,036 are considered low income and those with a GNI per capita of $12,535 are considered high income.

“Indonesia’s improved status is a proof of economic resiliency and maintained economic growth over the last few years,” the Finance Ministry said in a statement on Thursday. “This will strengthen the trust of investors and trading partners in Indonesia’s economy.”

The World Bank uses the indicator to decide whether a country may use the bank’s facilities, such as loan pricing.

Indonesia has made progress in poverty reduction over the past 15 years, with the poverty rate dropping below 10 percent. Meanwhile, the middle class population has grown from 7 percent to 20 percent of the population, with 52 million Indonesians currently belonging to the group, according to World Bank’s Aspiring Indonesia-Expanding the Middle Class report.

However, the report notes that 45 percent of the population, or 115 million people, are still considered aspiring middle class, free from poverty but who have yet to achieve full economic security.

“The government will continue to push for structural reforms to boost competitiveness, improve industry capabilities and reduce the current account deficit to empower the economy,” the Finance Ministry statement reads.

The coronavirus pandemic has upended the country’s economy this year, with the government expecting full year growth to reach only 1 percent under a baseline scenario or for the economy to contract 0.4 percent under a worst-case scenario. The World Bank projects zero percent growth for Southeast Asia’s biggest economy.

Indonesia booked its lowest GDP growth in 19 years in the first quarter at 2.97 percent, with the COVID-19 outbreak pressuring people to stay at home and disrupting economic activity.

More than 3.06 million Indonesians had either been laid-off or furloughed as of May 27, according to Manpower Ministry data. The government predicts up to 5.5 million workers could lose their jobs, while 4 million could fall below the poverty line.

Meanwhile, Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah was pleased with the announcement, saying it was an indicator of improved domestic economic performance.

“We should acknowledge that there has been a significant improvement in the country’s economy despite the challenges put forward by the coronavirus outbreak, which will hit GDP,” Piter told The Jakarta Post via text message.

However, Piter warned there were risks that Indonesia could fall into a middle-income trap.

“We should really prepare for structural reform post-coronavirus pandemic to speed up recovery and avoid becoming stuck as a middle-income country,” he added.

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