Economist: Crucial Role of the Indonesian Middle Class

Like Brazil, but unlike China and India, Indonesia owes much of its success to nothing smarter or more high-tech than a commodities boom. Coal and gas go to China and India, palm oil to the world. Money is pouring into the country, yet little goes into fixing long-term problems that impede growth. Indonesia has a once-in-a-generation chance to move beyond its commodities-based economy. It is not clear it will take it.

At the moment, consumption accounts for almost half of GDP growth. Nomura, a Japanese bank, reckons Indonesia is creating a middle class (defined as one with disposable household income of over $3,000 per year) helter-skelter. The country’s bourgeoisie, 1.6m in 2004, now numbers about 50m. On Nomura’s measure, that is more than India and bigger than elsewhere in the region (see chart). The number could reach almost 150m by 2014, representing one of the world’s most enticing markets. Newly affluent Indonesians are certainly spending.

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