Jakarta, Dec 14 (Antara) - Having been classified as a middle-income
country since the early 1990s, Indonesia needs about 30 years to come
out of what is called the 'middle-income trap' and move into the
high-income group of countries.
Indonesia, according to the Organization of Economic Cooperation and
Development (OECD) forecasts, is expected to shift from a middle-income
nation to a high-income, or advanced country, by 2042.
"That is much slower than Malaysia, which is expected to make that
transition by 2020, China (by 2026) and Thailand (by 2031)," the Head of
the Asia Desk, OECD Development Centre, Kensuke Tanaka, told
participants at a seminar last week.
The middle income trap refers to a situation in which a country that
has become a middle-income nation fails to become a high-income country
and experiences stagnation.
Based on international standards, a country is said to have fallen into
a middle-income trap if it stays at the middle income level for 42
years.
Indonesia, Tanaka said, is only leading the Philippines, which is
forecast to shift to an advanced nation by 2051, Vietnam by 2058 and
India by 2059, because of being late in carrying out institutional
developments and in anticipating changes.
"A number of middle-income developing countries are facing difficulties
in maintaining their long-term growth and in moving away from the
middle-income trap," noted Tanaka.
The OECD official said to escape the trap, developing countries must
change their basic economic structures and develop their modern service
sectors.
According to Indonesian Finance Minister Chatib Basri, of the 113
countries classified as middle-income nations since 1960, only 13 have
been successful in developing into high-income states. The others
remain caught in the middle-income trap.
He
cited Brazil, India and South Africa as examples of countries that
could not escape the trap. Japan, South Korea, Singapore and Ireland, on
the other hand, succeeded in moving into the high-income group of
nations.
"Indonesia has only been classified as a middle-income
state since the early 1990s. It is, therefore, still possible to avoid
the middle-income trap," he added, speaking on the sidelines of an
international seminar on the "Middle Income Trap" organized by the
finance ministry, the National Development Planning Board and Bank
Indonesia in Denpsar, Bali, on Thursday.
He added that Indonesia has a possibility of moving into the
high-income group of countries based on several factors, such as high
economic potential, including abundant natural resources, and a
population of up to 250 million people.
Demographically, he said Indonesia¿s population is dominated by the
productive, working-age group, which benefits the national economy.
This demographic pattern of a high proportion of working-age
individuals in the population is called the demographic dividend and
enhances a country's economic performance.
"Of course, it is not easy to jump from a middle-income group to a
high-income group. Even a World Bank study has shown that the number of
countries that have fallen into the middle-income trap is far greater
than the number of countries that entered the high-income group," he
noted.
The finance minister said that Indonesia, which had been classified as a
lower middle-income country since the 1990s and now had an average per
capita income of around US$5,170 a year, would never become an advanced
nation if it continued to depend on its natural resources and low labor
wages.
He added that technological innovation-based human resource development
is desperately needed to boost Indonesia's productivity and prevent the
country from falling into the middle-income trap. Better human
resources are required to turn Indonesia into a high-income and advanced
nation.
Chatib said one of the solutions to achieving these goals is boosting
productivity through the creation of technological innovations, such as
was done by South Korea, which became an advanced country in 15 years.
"We have to build good and capable human resources to boost
productivity. The transformation should be done so that we will not
depend on raw materials and low labor wages," the minister said.
In order to improve the quality of human resources, the Indonesian
government will provide a tax allowance for companies that conduct
research and development (R&D) for improving human resources.
"We
are considering a tax allowance for companies conducting R&D for
the improvement of human resources," the minister said.
Finance
Deputy Minister Bambang Brodjonegoro added that persistent income and
development disparities among regions could also push Indonesia into a
middle-income trap.
"Indonesia has to overcome not only the disparities in people's
incomes, but also gaps in the development of its regions," the finance
deputy minister said on Friday.
He noted that while Indonesia's economy over the past decades has been
relatively stable, the disparities between urban and rural areas
continue to increase. As a result, the underprivileged cannot enjoy the
benefits of national development.
"Jakarta's share in the gross domestic production (GDP) distribution
has been rising. In 1990 it was only 12.1 percent, but by 2010 it had
increased to 16 percent. So, 16 percent of Indonesia's economic output
is generated in Jakarta. In contrast, the shares of Java and Bali are
declining. This is not appropriate because the regional autonomy of
these regions has not created growth, causing people in the regions to
migrate to Jakarta," he noted.
Bambang suggested that major cities, such as Bandung, Surabaya and
other cities in Kalimantan and Sumatra, should be converted into new
growth centers to ensure more evenly distributed economic development.
It would also reduce the burden on Jakarta, he added.
"We should not let people migrate to Jakarta at will because it places a
burden on Jakarta, which is not good for Indonesia's economy," Bambang
said.
In order to overcome such disparities that can trap the country in the
middle-income group level, Indonesia has to undertake structural reforms
to evenly distribute growth.
According to Dody Budi Waluyo, executive director of Economic Research
and Monetary Policy Department of the Bank Indonesia (the central bank),
Indonesia needs to carry out structural reforms to accelerate its
high-value productivity program and to become an advanced country.
"The point is that Indonesia should carry out structural reforms to
support even growth stability and to coordinate certain sectors,
particularly the production sector," Waluyu said.
He added that Indonesia could avoid the middle-income trap because it
has the largest economic potential among developing countries. With this
potential, Indonesia, as a middle income nation, could overcome the
constraints it is facing to shift into the group of countries with high
income levels.
"Structural reforms will be a long process. Indonesia has actually done
it since it was affected by the 1997 crisis. Though it has not achieved
a maximal result, yet it has to continue to do it with a more
coordinated policy with Bank Indonesia," Waluyo said.***3**
(T.A014/INE)
(EDITED BY INE)
(T.A014/A/BESSR/A. Abdussalam) 14-12-2013 14:25 |
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