Economy

Falling from the Middle Class: Economic Challenges in Indonesia

Friday 15 November 2024 - 07:59

In Medan, North Sumatra, Indonesia, Halimah Nasution once enjoyed a comfortable life with her husband, Agus Saputra. Their wedding, graduation, and birthday rental business provided a stable monthly income of about 30 million rupiahs ($1,917), placing them in the upper tier of Indonesia’s middle class. This group, officially defined by monthly expenditures between two million rupiahs ($127) and 9.9 million rupiahs ($638), represented a significant segment of the population.

However, the COVID-19 pandemic disrupted their lives. As public gatherings were restricted, the couple’s business crumbled. “We lost everything,” Nasution recounted. Years later, they are still struggling to regain their footing, joining millions of Indonesians who have fallen out of the middle class.

According to the Central Bureau of Statistics, Indonesia's middle-class population dropped from 57.3 million in 2019 to 47.8 million in 2023. Meanwhile, those classified as the "aspiring middle class" grew from 128.85 million to 137.5 million, highlighting the vulnerability of this socioeconomic group. Together, these categories constitute about two-thirds of Indonesia's 277 million people.

Economists link this decline to the pandemic's long-term impacts and systemic shortcomings in social safety nets. Ega Kurnia Yazid, a policy expert with the National Team for the Acceleration of Poverty Reduction, pointed out that Indonesia’s middle class contributes significantly to tax revenue but receives limited social assistance. Most aid is distributed through formal mechanisms like employment-linked job security and health insurance, leaving many middle-class workers unsupported.

Nasution’s experience reflects these systemic gaps. During the pandemic, their financial struggles were met with little government aid. “We only received a small amount from the local village office—300,000 rupiahs [$19] a month—to buy groceries,” she said.

Despite Indonesia’s steady economic recovery, with a GDP growth of about 5 percent annually, challenges remain. The country's dependence on trade exposes it to global economic slowdowns. Declining demand from major trading partners, including the US, China, and Japan, has impacted Indonesian exports, adding pressure to the already strained middle class.

The plight of individuals like Nasution underscores the need for comprehensive social policies to protect vulnerable groups and ensure inclusive growth in the face of economic challenges.