Indonesia has seen tremendous progressin poverty reduction over the past couple of decades and, asa result, has made a successful transition from low-incometo middle-income country status. As millions have moved outof poverty and extreme poverty, we have also witnessed therise of Indonesia’s middle class, which now accounts for 20percent of the total population, or 52 million Indonesians.This group important for Indonesia’s upward trajectory, butit still too small for the ambitions of Indonesia. Expandingthe middle class will boost economic growth, strengthen aninfluential constituency for better governance, and widenand deepen the tax base. An expansion of the middle class,if accompanied by continued growth in the incomes of thepoor and vulnerable, will also help to decrease inequalityand prevent polarization of the country. One of the keydevelopment questions that Indonesia faces is how to expandthe middle class. What will be required to bring the 115million people who are no longer in poverty andvulnerability into the middle class? The future of Indonesialies partly in the fate of this aspiring middle class, 45percent of the population, so that they can both share inand help to drive the country’s growing prosperity.Government policy can play an instrumental role in expandingthe middle class. This can be done by increasing the leveland quality of education, and the skills of the population,and making sure there are well-paid jobs waiting for thosein the aspiring middle class. It also means ensuring accessto social protection to help lift these aspirers into themiddle class and keep them there once they arrive, as wellas improving the quality of the public services upon whichthey currently depend. Resolve to expand the middle classwill place greater stress on government budgets. Thegovernment will need increasingly rely on the middle class,whose income taxes will finance much of the investment thata growing Indonesia will need. This will require a newsocial contract with the current – and future – middle classso that they will embrace the policies that both benefitthemselves while also helping to expand their ranks, ratherthan closing off opportunities for others, and creatingpolitical polarization—as has occurred in some countries inthe region in recent years.
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