Indonesia Could Fail To Get Rid Of Middle Income Trap Due To COVID-19

Photo illustration (Angga Nugraha / VOI)

JAKARTA - The COVID-19 pandemic has sharply lowered Indonesia's economic outlook throughout 2020. In fact, due to the pandemic, the unemployment and poverty rates in the country have increased.

The Ministry of Finance (Kemenkeu) said that this condition was a threat for Indonesia to exit the Middle Income Trap (MIT) or stagnant income growth. Finance Minister Sri Mulyani Indrawati said the government must take strategic steps to respond to this problem.

Even so, he admitted that there were other factors that led to stagnation in domestic income growth. The factors in question are the quality of Human Resources (HR), the gap in infrastructure, and the low level of technology adoption which is the cause of low productivity in Indonesia, including the factor of education.

Sri said, the low quality of Indonesian human resources was also caused by the large middle class in their productive age but still vulnerable to socio-economic conditions and working in the informal sector. Not only that. Sri also said that in demographic factors, there is a factor of gender inequality and the beginning of the aging population.

"In addition, the unfavorable business climate as well as inefficient regulations and bureaucracy have resulted in a high cost economy which hinders the competitiveness of the Indonesian economy, including the competitiveness of export products," he said, during the main agenda of the 2021 fiscal policy, quoted on Friday, December 25. .

The state treasurer said that in 2021 his party strives to continue realizing President Joko Widodo (Jokowi) 's five strategic directions, namely human resource development, infrastructure development, simplification of the bureaucracy, simplification of regulations, and economic transformation, able to overcome fundamental challenges so that Indonesia can be separated from MIT.

As is known, prior to the COVID-19 pandemic, Indonesia's economic growth was able to be maintained at around 5 percent per year. This condition is able to encourage community welfare indicators as shown in the reduction of the poverty level, the open unemployment rate (TPT), and the Gini ratio.

Since March 2018, the single-digit poverty rate is at 9.82 percent with a trend that continues to decline to reach 9.22 percent in September 2019. Meanwhile, the Open Unemployment Rate (TPT) has also decreased from 5.94 percent in 2014 to 5.28 percent in August 2019.

Likewise, the Gini ratio, which was stagnant at the level of 0.41 in the 2012-2015 period, decreased to 0.380 in 2019. In fact, the Human Development Index (HDI) also showed a significant improvement from 68.90 in 2014 to 71.92 in 2019.

However, the challenge of improving this welfare indicator is getting bigger when the pandemic in early 2020 hits Indonesia. The COVID-19 pandemic has had a fundamental impact on the Indonesian economy.