Indonesia's Middle Class Faces Real Pressure as Purchasing Power Declines
Indonesia’s middle class is experiencing a serious decline. Over the past decade, approximately 10 million people who were previously in the middle class have now fallen into lower economic brackets.
This fact was directly stated by Bhima Yudhistira Adhinegara, Director of the Center of Economic and Law Studies (CELIOS), as an alarm about the fragility of Indonesia’s domestic consumption foundation.
Bhima emphasized that the decline of Indonesia’s middle class is not because they are choosing a simpler lifestyle. It is purely due to declining purchasing power.
“Those who buy electric cars are mostly in the top 20 percent. Meanwhile, many in the middle class are going back to using motorcycles or public transportation — not because the transportation is good, but because their purchasing power has decreased,” said Bhima in a podcast interview with Helmy Yahya Bicara.
The ideal consumption pattern, which should gradually increase — from motorcycle to LCGC car, then to more premium vehicles — is now moving backward. Indonesia’s middle class, which should be the engine of national consumption, is now squeezed between rising living costs and stagnant incomes.
On the investment side, Bhima highlighted structural obstacles that still plague Indonesia, especially hidden fees in the business licensing process. He compared this to Vietnam, where competition between regions is actually a competitive advantage.
“In Hanoi, regional heads compete with each other to attract investors — like startups. Some offer land leases for 99 years, some for 150 years. This competition actually attracts investment. In Indonesia, this model has not happened much,” explained Bhima.
This is one of the reasons why Indonesia’s middle class is struggling to grow — quality jobs that should be created from industrial investment have not grown evenly.
Bhima also mentioned the burden of debt from the Jakarta-Bandung High-Speed Railway (KCIC) project, which he believes needs to be resolved through a debt swap mechanism. This scheme converts financial obligations into real projects that have a social impact — such as coral reef restoration, construction of affordable housing, or development of areas around stations.
“This is not a new idea. President SBY did it after the Aceh tsunami. The results can be win-win — debt is paid off, and development continues,” said Bhima.
The Younger Generation and the Burden of the Future
In the midst of economic pressures on Indonesia’s middle class, Bhima places great hope in the younger generation. However, he reminded young people not to lose their historical grounding and courage to think critically.
“Don’t be ashamed to imagine beyond today. But ask the right questions, all the time,” he said.