Reform deficit risks middle-income trap for Indonesia

Subject

Economic prospects.

Significance

With per capita income of some 3,600 dollars, Indonesia is at the lower end of the World Bank's 1,000-12,700 dollar range for middle-income countries. There is growing concern that rising protectionism and uncertainty regarding economic and administrative reforms could impede gains in productivity, innovation and competitiveness. A sustained decline in competitiveness would risk a 'middle-income trap' as investment and growth slow, and incomes stagnate.

Impacts

• Indonesia's inward-looking economic policy risks impeding progress on infrastructure, skills and industrial innovation.
• Competitors such as Malaysia and Thailand would gain if Indonesia fails to boost its competitiveness.
• Stagnant education and skills levels carry instability risks given Indonesia's youth bulge.