The document outlines Indonesia's agenda to address the risks of falling into the middle-income trap. It discusses Indonesia's economic growth and development goals, including becoming a high-income country by 2025. Two key masterplans are highlighted: MP3EI focuses on accelerating economic growth through infrastructure development and other strategies. MP3KI aims to accelerate poverty alleviation through expanding social programs, improving livelihoods, and ensuring inclusive growth. Macroeconomic stability through managing inflation and exchange rates is also emphasized as important for sustaining growth.

1. Ministry of National Development Planning/
National Development Planning Agency
Indonesia’s Agenda:
How to Address the Middle Income Trap
Presented at 2nd OECD-AMRO Joint Asian Regional Roundtable
Singapore, 19 July 2013
Dr. Prasetijono Widjojo MJ, MA
Deputy Minister for Economic Affairs

2. KEMENTERIAN PPN/
BAPPENAS
1. Middle Income Countries: An Overview
2. Indonesia’s Priority inAddressing Middle IncomeTrap
3. MP3KI: Masterplan forAcceleration and Expansion of Poverty Alleviation
4. MP3EI: Masterplan for Acceleration and Expansion of Indonesian
Economic Development
5. Financial Inclusion
6. Conclusion
Outline

3. KEMENTERIAN PPN/
BAPPENAS
Middle Income Countries: An Overview

4. KEMENTERIAN PPN/
BAPPENAS
Middle Income Countries: An Overview
16.3%
26.0%
25.1%
18.6%
14.0%
Low Income
Lower middle income
Upper middle income
High income: nonOECD
High income: OECD
• 51.1 percent (or 110 out of 215 countries ) are
classified as lower and upper middle income
countries. 32.6 percent of the countries in the
category of high income countries; whereas only 16.3
percent of it is classified as low income.
• Contribution of Middle income countries’ GDP
(nominal) to the world is 33.2%
• Therefore, middle income countries’ are very
important in supporting the global development and
as the engines of world economic growth:
• contribute to global economic resilience
• Attractive investment location
Category:
• Low income: $ 1,005 or less
• Lower middle income: $ 1006 - $ 3975
• Upper middle income: $ 3,976 - $ 12,275
• High income: $ 12,275 or above
Distribution of Country Category
(based on income, number of
countries)

5. KEMENTERIAN PPN/
BAPPENAS
Indonesia: A Low Middle Income Country
449
515
578
641
705
752
840
926
1041
1154
1078
470
680
790
757
910
1076
1161
1273
1601
1871
2178
2272
2947
3471
3557
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
USDperCapita
low income high income Indonesia
Middle income
High incomeIncome per Capita

6. Other Countries’ Experiences:
Development of Income Per Capita
0
5,000
10,000
15,000
20,000
25,000
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
USDpercapita
low income
high income
Korea
Korea
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
USDpercapita
Brazillow income
high income
Brazil
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
USDpercapita
Chile
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
USDpercapita South Africa
Korea and Chile have succeeded to mitigate from the middle income trap, but Chile took longer time than
Korea did
On the other hand, Brazil and South Africa are still struggling in middle income category for quite a long
time

7. KEMENTERIAN PPN/
BAPPENAS
Other Country Experiences:
Korea and Chile
• Korea did investments in
infrastructure and education.
• Korea has proven that building a
high-quality education system
which encourages creativity and
supports breakthroughs in
science and technology is key.
The biggest challenge is moving from resource-driven growth that is
dependent on cheap labor and capital to growth that is based on high
productivity and innovation
KOREA
• Chile was transforming its
economic development with
pursuing more balanced income
distribution
• Chile over the past decades has
restricted government power and
relentlessly fought corruption
CHILE

8. KEMENTERIAN PPN/
BAPPENAS
A Risk of Middle Income Trap:
Does Indonesia need to be worried?
Source: Statistics Indonesia (modified by Bappenas)
5.0
5.7 5.5
6.3
6.0
4.6
6.2
6.5
6.2 6.3 6.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014*
%
Average growth =5.9
projectionIndonesian Ecoomic Growth
Effect of
Global Crisis
• It is noticed that Emerging Asia, including Indonesia, is potentially susceptible to the ‘middle-
income trap,’ a phenomenon where economies are stagnant at middle-income levels and fail
to graduate into the high income economy.
• However, the history of Indonesian economic growth shows that Indonesia has been
experiencing a quite stable growth over the time. Furthermore, after 2009, Indonesia can
maintain its economic growth at the rate of above 6%.

9. KEMENTERIAN PPN/
BAPPENAS
A Risk of Middle Income Trap:
Does Indonesia need to be worried?
Source:World Development Indicator (projection calculation by Bappenas)
3,881
4,238
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013*
2014*
IncomeperCapita(USD)
Income per
capita of
Indonesia is
increasing
• Since 2002, Indonesia has been experiencing a significant increase of its income per
capita.This trend seems to continue in the next period
• The income per capita of Indonesia in 2013 and 2014 is projected to be around USD
3881 and USD 4238.
projection

10. KEMENTERIAN PPN/
BAPPENAS
Indonesia’s Priority in Addressing Middle
IncomeTrap

11. KEMENTERIAN PPN/
BAPPENAS
Indonesia’sVision
“Propelling Indonesia to become a high-income country, to be one of the 10 world largest
economies by 2025, and to be one of the 6 world largest economies by 2050 through
accelerated, sustainable, and inclusive economic growth”
2011-2014: 6,4 – 7,5 %/year 2015-2025: 7,5 – 9 %/year
~ 10 world largest economies
~ 6 world largest economies
2050

12. KEMENTERIAN PPN/
BAPPENAS
The most important problem to be addressed
Source: Statistics Indonesia
0.32
0.36
0.33
0.36
0.35
0.37
0.38
0.39
0.41
0.2
0.25
0.3
0.35
0.4
0.45
Gini index is increasing, showing
the inequality problem is rising…
16.66
15.97
17.75
16.58
15.42
14.15
13.33
12.49
11.66
9.86
11.24
10.28
9.11
8.39 7.87
7.14 6.56 6.14
0
2
4
6
8
10
12
14
16
18
20
2004 2005 2006 2007 2008 2009 2010 2011 2012*
Poverty Rate Unemployment Rate
Poverty Rate and Unemployment Rate
is decreasing , but the decreasing rate is
getting slower…..

13. KEMENTERIAN PPN/
BAPPENAS
Indonesia’s Agenda to Address the Risk of Middle
IncomeTrap: Sustainable Growth with Equity
Addressing the
Risk of Middle
IncomeTrap:
SUSTAINABLE
GROWTH WITH
EQUITY
Addressing the inequality problem
Macroeconomic
Stability
1. Improving infrastructure
2. Improving the quality of human
capital through:
• Training of skilled labour
• Formal education
3. Improving Research and
Development (Technological
Innovation)
4. Improving Health of the society
Improving
Productivity to
sustain growth
Affirmative
Actions
1
2
3
1. Exchange Rate Stability
2. InflationStability

14. KEMENTERIAN PPN/
BAPPENAS
Macroeconomic Stability

15. KEMENTERIAN PPN/
BAPPENAS
Exchange Rates and Inflation Stability
• Indonesia apply managed- floating exchange rate policy and inflation targeting
framework
• Bank of Indonesia keeps stabilizing the rupiah exchange rate to make sure that it moves
around its fundamental value to maintain inflation and to support economic growth.
Inflation Rates
3.7
3.6
4.0
4.5
4.5
4.5
4.6
4.6
4.3
4.6
4.3
4.3
4.6
5.3
5.9
5.6
5.5
5.9
0.0
5.0
10.0
15.0
Jan
Feb
Mar
Apr
Mei
Jun
Jul
Agu
Sep
Okt
Nop
Des
Jan
Feb
Mar
Apr
Mei
Jun
2012 2013
Inflation y-o-y (%)Nominal Exchange Rates

16. KEMENTERIAN PPN/
BAPPENAS
MP3KI:
Masterplan of Acceleration and
Expansion of Poverty Alleviation

17. KEMENTERIAN PPN/
BAPPENAS
DESIGN FRAMEWORK
PROSPEROUS, FREE FROM ABSOLUTE POVERTY AND HAS HIGH CAPABILITY TO SUSTAIN
THE LIVELIHOOD
•To create national social protection system
•To increase basic services for the poor and the vulnerable
•To develop the livelihood of the poor and the vulnerable
Preparation of the
institutionalization of
BPJS (social protection
implementation agency)
and the supply side
support
Expansion of targeted
programs
Development of
corridors of islands and
special zones in growth
center and non-growth
center areas
• Requirements of MP3KI Supporting Institution and Implementation
• Requirements on economic condition: growth and economic stability
INDEPENDENT, ADVANCED, FAIR
AND PROSPEROUS
MP3KI Vision
Main Strategy
Implementation
Strategy
MP3KI Mission

18. KEMENTERIAN PPN/
BAPPENAS
- Strengthening the
integrated Poverty
Alleviation Program;
- Universal coverage of
Social Safety Program.
SUSTAINABILITY
(YEAR 2021-2025)
- Poverty Alleviation
Program transformation;
- Expand the coverage of
social safety to reach
universal coverage;
- Completion of BPJS of
employment security
sector;
- Strengthening
sustainable livelihood.
TRANSFORMATION AND
EXPANSION (YEAR 2015-2020)
- Reduce Poverty Rate
to 8% - 10% in 2014;
- Synergize existing
Poverty Alleviation
Programs
- Implementation of
Sustainable livelihood
and its link with the
MP3EI
- Completion of BPJS of
health sector in 2014 .
RECONSOLIDATION
(YEAR 2013-2014)
STAGES OF MP3KI IMPLEMENTATION

19. SCENARIO TO ACCELERATE AND TO EXPAND POVERTY REDUCTION
IN INDONESIA (P3KI)
Outlook of
Economy and
Poverty
Target
Poverty
Alleviation
Strategy
2012 2015 2020 2025
PDB/ capita (US$)Poverty
Level
3.543
6.097
10.278
14.963
10,5-11,5 %
8-10%
6-7%
4 - 5 %
Strategic Program
Target Groups
Near poor HH, poor HH and
very poor House Holds (HH)
(the lowest 40 % of PPLS
2011)
The lowest 30 % of
PPLS 2014/2017
The lowest 20 % of
PPLS 2017/2020
The lowest 10
% of PPLS 2023
EXISTING POVERTY
ALLEVIATION
PROGRAMS
Cluster I
Social Protection/ Security and
Social Assistance
Cluster II
Community Empowerment
Klaster III
Credits for Small and Medium
Entreprises
Klaster IV
Pro-People Programs
SOCIAL PROTECTION PROGRAM
Social Security:
 Health Insurance
 Death Insurance
 Old-Aged Security
 Pension Plan
 Accident Insurance
Social Assistance:
 Temporary (economic crisis, natural
disaster)
 Reguler (food security, scholarship the
poor, etc.)
TRANSFORMATION OF SOCIAL
PROTECTION PROGRAM
467
DEVELOPMENT OF SUSTAINABLE LIVELIHOOD
OF THE POOR/ THE VULNERABLE
Empowerment/Human Resources Capacity Building
Financial Access f(or micro entrepreneurs)
Mainstreaming Programs/Activities

20. KEMENTERIAN PPN/
BAPPENAS
THE WAY FORWARD: CONTINUING SUSTAINABLE
POVERTY REDUCTION
1. Continuing more integrated and well coordinated poverty reduction programs within
each clusters and among clusters
2. Promoting pro-poor economic growth:
• Promoting growth in sectors that have significant impact on poverty reduction;
• Utilization of local resources to promote local economic activities;
• Improve the capacity of pro-poor planning and budgeting;
3. Improve the effectiveness of poverty reduction program at the local levels, including:
• Empowerment of informal sector, SMEs, and cooperatives at the local level
• Diversification of businesses in rural areas through agroindustry supported by
utilization of local resources and rural infrastructure
• Promoting development in the remote and border areas
4. Carefully design the expansion:
• PNPM: refocus the intervention toward the poor (incl. the marginalized groups).
• PKH: prioritize areas where health & education indicators are low
5. Promote greater involvement—and responsibility—of other stakeholders (LGs, NGOs,
CSR)

21. KEMENTERIAN PPN/
BAPPENAS
MP3EI:
Masterplan of Acceleration and Expansion of
Indonesian Economic Growth

22. MP3EI
Objective : Accelerated Growth with
Equity
Goal : Achieving GDP per capita
USD 14.000-16.000 in 2025
Approach :
- Increase in value-added corridor-based
flagship commodities
- Involvement of Government, State-
Owned Enterprises, and Private Sector
Strategies :
- Economic Corridor Development
- Human Resources and Technology
Development
- Strengthening National Connectivity
MP3KI
Objective: Accelerated Poverty Alleviation
Goal : Reducing poverty rate to 4 -5% in 2025
Approach:
- The fulfillment of basic services/needs and
increase in income
- Involvement of Government, State-Owned
Enterprises, Private, People (P4: Public-
Private-People Partnership).
Strategies:
- Comprehensive Social Safety Net
- Improving basic services to the poor and
vulnerable
- Improving the livelihood of the poor and
vulnerable
LONG-TERM NATIONAL DEVELOPMENT PLAN
Main Strategy: Pro-Growth, Pro-Job, Pro-Poor, Pro-Environment
MEDIUM-TERM NATIONAL DEVELOPMENT PLAN
The Alignment of MP3KI and MP3EI:
Integrated Planning Documents
Slide
22

23. KEMENTERIAN PPN/
BAPPENAS
Framework Design Of Mp3ei

24. THEME OF EVERY ECONOMIC CORRIDOR
Denpasar
Mataram
Jakarta
Medan
Pekanbaru
Jambi
Lampung
Semarang
Banjarmasin
Palangkaraya
Pontianak
Makassar
Manado
Kendari
Gorontalo
Manokwari
Jayapura
Serang
Mamuju
Surabaya
Merauke
Kupang
Samarinda
Ternate
Wamena
Sorong
Ambon
Palu
Padang
Palembang
Bengkulu
Jogjakarta
Banda Aceh
Pangkal Pinang
Batam
KALIMANTAN :
center for
production and
processing of
national minning &
energy reserves"
SUMATERA: center
for production and
processing of
national resources
as nation’s energy
reserve
JAVA: Driver for
national industry
and service
provision
BALI: gate way for tourism
and supporting national
food support
PAPUA – MALUKU: Center
for development of food
production, fisheries,
energy and national
minning”
SULAWESI:
center for production and
processing of national agricultural,
plantation, fisheries, oil and gas, &
minning.
24

25. KEMENTERIAN PPN/
BAPPENAS
Progress of MP3EI Implementation
Groundbreaking Projects in 2011
In 2011, 111 projects have been groundbreaking,
which consist of:
• Government: Rp77,14 trillion (22 projects),
• SOEs: Rp80,24 trillion (37 projects),
• Private: Rp159,78 trillion (42 projects)
• PPP: Rp94,46 trillion (10 projects)
Groundbreaking Projects in 2012
In Sulawesi, 7 of 11 projects have been groundbreaking;
but the rests are the high-valued projects.
Some projects that havent been groundbreaking in
Sumatera and Papua-Maluku are high-valued investment
In 2012, 71 projects have been
groundbreaking, which consist of:
• Government: Rp42 trillion (21 projects),
• SOEs: Rp41,65 trillion (20 projects),
• Private: Rp115,56 trillion (28 projects),
• PPP: Rp11,97 trillion (2 projects).

26. KEMENTERIAN PPN/
BAPPENAS
Financial Inclusion

27. KEMENTERIAN PPN/
BAPPENAS
27
SUPPLY SIDE:
 Information asymmetry
 Dealing with small customers is not very profitable
 Some financial products are designed for people with a certain
minimum amount of income
DEMAND SIDE:
 Some customers face a complexity in dealing with financial institutions
 Some poor households believe that financial institutions are intended
for modern and progressive people
 Other demand-side barriers such as low level of financial literacy, lack of
formal identification system, and inability to track an individual’s track
history
Some Issues in Financial Inclusion

28. KEMENTERIAN PPN/
BAPPENAS
Financial
Inclusion
Financial
Education
Financial
Eligibility
Policy and
Regulation
Distribution
Channel
Public
Finance
Consumer
Protection
Six Pillars of Financial Inclusion

29. KEMENTERIAN PPN/
BAPPENAS
• Financial literacy and financial capability improvement
– National campaign “Let’s go to the Bank”
• Potential customers identification
– Financial Identity Number (FIN) is a unique number for unbanked community
(poor households and SMEs) to reduce information asymmetry issue
• Saving services provision
–TabunganKu which has less requirements and administrative costs
•Credit services provision
– Kredit Usaha Rakyat
– Perusahaan Penjaminan Kredit Daerah (Local Credit Guarantee Corporations) which
guarantee credit for SMEs
– Credit rating services for SMEs which enables banks to select potential customers for
loans
Some Examples:
Initiatives to Promote Financial Eligibility

30. KEMENTERIAN PPN/
BAPPENAS
Conclusion
1. Indonesia’s economic growth is still maintained at the
high rate
2. To address the risk of Middle Income Trap, Indonesia
will focus on promoting Sustainable Growth with
Equity; aiming at solving the inequality problem and
in the same time to sustain the economic growth
3. For this, Indonesia seriously implements
MP3EI,MP3KI, and promotes financial inclusion, as
well as maintaining stability of macroeconomic
condition.

31. KEMENTERIAN PPN/
BAPPENAS
THANKYOU

32. KEMENTERIAN PPN/
BAPPENAS
ATTACHMENT

33. THE MAIN ECONOMIC ACTIVITIES IN
EACH CORRIDOR
Sumatera
Jawa
Kalimantan
Sulawesi
Bali – Nusa
Tenggara
Papua – Kep.
Maluku
Palm oil Ruber
Coal
Shipping Steel
Region
Strait
Sunda
Textile Food-
beverage
Equipment
and
machine
Telematics
Main tools
of weapon
systems
Shipping
Jakarta
Metropolitan
Area
Palm oil Timber Oil & gas Steel Bauxite
Coal
Food estate Cocoa Fishery Nickel Oil & Gas
Tourism Livestock Fishery
Food
agriculture Fishery Cooper Nickel Oil &
gas
33

34. KEMENTERIAN PPN/
BAPPENAS
TRANSFORMATION TO SUSTAINABLE LIVELIHOOD
2012
Cluster II, III, IV
•PNPM
•Small Credit
•Housing for the poor
•Clean water for the people
•Low cost electricity for the
poor
•Provide public transportation
for the people
•Increase coastal livelihood
•Increase livelihood for urban
poor
2025
Sustainable Livelihood
• Credit assistance, Training for small
enterprise, and market integration
(financial asset)
• Labor worker training (in
collaboration with Industry,
Certification, Universal Education
(human asset)
• Village improvement, easy to use
electricity and clean water system
(infrastructure asset)
• Environment protection and
pollution overcome (natural asset)
• Participatory planning for
community (social asset)