Indonesia is included in the ranks of 108 countries that are threatened by the middle-income trap and find it difficult to become a developed country according to the World Bank report.
The ranks of these 108 countries are based on the latest report from the World Bank entitled World Development Report 2024: The Middle Income Trap. The World Bank highlights the biggest challenges faced by countries in the world and proposes a comprehensive strategy to overcome them.
A number of countries including Indonesia, China, India, Brazil and South Africa are included in the middle-income category with a Gross Domestic Product per capita ranging from US$1,136 -US$13,845 (Rp223 million).
All of these countries cover 75 percent of the global population and generate more than 40 percent of the World’s GDP. These countries are facing major challenges in achieving high-income country status.
Indermit Gill, Chief Economist at the World Bank, said the struggle towards global economic prosperity will largely be won or lost by middle-income countries.
The World Bank identifies several factors that have caused middle-income countries to become trapped in economic stagnation, including population aging, increasing protectionism, and the need for an energy transition.
“But too many of these countries have relied on outdated strategies to become developed countries. They have relied on investment for too long − or they have turned too early to innovation,” Gill said.
Gill explained that this condition has caused middle-income countries to lose in the race to create a fairly prosperous society by the middle of the 21st century.
With current trends, Indonesia will need almost 70 years to reach a quarter of the per capita income of the United States (US).
The World Bank then proposed a three-phased strategy as a solution to help countries escape the middle-income trap. This strategy corresponds to the stage of economic development of each country.
Gill explained that these countries need a new, gradual approach, such as focusing on investment, then emphasizing the infusion of new technology from abroad, adopting a three-pronged strategy that balances investment, infusion, and innovation.
In the first or investment phase, low-income countries need to focus on increasing public and private investment to build a strong economic foundation.
Second, infusion, after reaching lower-middle-income status, countries need to adopt technology from abroad and cause it throughout the economy.
At the upper-middle income level, countries must move to the last phase, innovation, countries no longer borrow ideas from the boundaries of global technology, but push those boundaries.
Meanwhile, Indonesia is very optimistic that it can escape the middle-income trap. Airlangga Hartarto, Coordinating Minister for the Economy is very optimistic that Indonesia can escape the middle-income trap.
This optimism can be seen from a number of cities in Indonesia that have recorded a gross regional domestic product per capita of US$20,927 in 2023. While in the new Capital City of Nusantara (IKN) it has reached US$13,996.
“This is achievable and very possible. Therefore, the next challenge for our Coordinating Minister’s office will be to map all provinces,” Airlangga said on July 25, 2024.
Airlangga also said that the gross regional domestic product for Central Jakarta has been equivalent to Singapore, reaching US$50,000 per year last year.
