Indonesia’s current account deficit pressures the middle class, forcing them to use their savings. The rupiah’s volatility has increased import costs, reducing household expenditure. Additionally, 81,290 layoffs between 2024 and 2025 and a significant decrease in middle class spending, from 21.45% in 2019 to 17.13% in 2024, paint a bleak outlook for the country’s economy.
The World Bank warns that the current account deficit could exceed pre-pandemic levels, projected at 1.4% of GDP in 2025 and 1.6% in 2026–2027. This raises the stakes for external financing and threatens the stability of the rupiah.
The combination of rising layoffs, a widening deficit, and a shrinking middle class casts doubt on the new government’s ambition to expand the middle class by 38% by 2029. Quick fixes — such as labour-intensive industries — might create jobs, but without efforts to boost domestic demand, the impact could be short-lived. Given all this, the government’s targets seem increasingly out of reach.
Creating demand for sustainable success
Relying only on exports is not sufficient given the fluctuating rupiah and global commodity prices, and creating strong domestic demand becomes increasingly crucial. A thriving local market may trigger an economic ripple effect that reaches everything from household incomes to small businesses.
That said, export initiatives should align with policies that boost domestic consumption, such as increasing purchasing power through subsidies, incentives, or skill development programs. This move may transform the labour-intensive industries’s shor-term impact to a sustainable driver of economic growth that benefits all segments of society.
Jakarta’s provincial government, for instance, has already had this plan in mind. In November 2024, during an FGD by the Jakarta Provincial Development Agency I attended, the Accelerating Poverty Alleviation Agency presented a plan to establish a labour-intensive ecosystem to break the poverty cycle. The plan includes policies that empower communities, boost incomes and promote safety net – from government-backed land, training, employment to free nutritious meals and cooperative savings.
This model leverages farmland and a semi-closed supply chain, engaging people experiencing poverty in production and distribution while funding SMEs and social enterprises.
Sure, the free lunch program is still in its early stages and requires extensive evaluation to ensure its effectiveness and sustainability. However, the key takeaway from this initiative is the potential to transform its labour-intensive supply chain model into a broader, demand-driven ecosystem that could help the aspiring middle class, the vulnerable to poverty, and even the poor transition into the middle class.
Key Sectors for labor-intensive growth
There are several labour-intensive sectors we can leverage.
As of August 2024, the agriculture, forestry, and fishing industry employed 28.18% of Indonesians aged 15 and above. Food remains a core part of household spending, especially for the middle class, which spent 41.3% of their income on food in 2023—up from 36.6% in 2014.
Programmes such as free school meals, community food subsidies, and microfinance for smallholder farmers help stabilise food prices while boosting demand. Investments in food processing add value, generate jobs, and improve food security across regions.
The manufacturing industry — particularly textiles and garments — contributed over 18% to GDP in 2023, rising to 19% in 2024. This sector employed 13.83% of the workforce in August 2024. Strategic investment in textile manufacturing boosts exports and domestic production and employs women and low-skilled workers.
Construction remains another key sector, contributing 9.43% to 10.06% of GDP and employing 6.55% of the workforce. Public investment in subsidised housing, rural infrastructure, and school revitalisation creates jobs and raises living standards. Promoting local materials like bamboo can further enhance sustainability while lowering construction costs.
Tourism and the creative economy also drive job creation, particularly in rural areas. Through 6,109 tourist villages, communities have built local economies around cultural heritage and domestic travel. Campaigns like Visit Indonesia and community-run homestays help boost tourism, while training and digital platforms help artisans and creatives reach broader markets.
Technology is another emerging frontier. As of 2023, 99.08% of Indonesians accessed the internet via mobile phones, and the ICT Development Index rose from 5.85 in 2022 to 5.90 in 2023. Developing labour-intensive IT industries through workforce training, digital entrepreneurship, and increased access to tech infrastructure can generate jobs in software development, IT support, and digital content creation.
Long-term risks of quick-fixes
The World Bank highlights how over-relying on low-wage, labor-intensive sectors may stagnate the economy – stunting skill development and limiting innovation. To maintain global competitiveness, economies should prioritise creating skilled, high-quality jobs that lower dependance on low-wage sectors.
Younger generations may have to work in low-paying jobs while automation replaces more labour if education and skill development are not prioritised. Left unaddressed, this could lead to social stagnation, increased inequality, and a weakened economy and environment.
A 2023 Ministry of Education and Culture research indicates that automation in data processing and machine operations is changing the employment sector. Workers without improved skills risk being replaced with technology.
Innovation, public-private partnerships, and investments are needed to address these issues. Cross-sector collaboration, such as integrating agriculture into tourism or using technology in construction, may cultivate resilience.
Global success: Nations with demand-driven models
Indonesia can learn from other countries’ success stories in developing labour-intensive, demand-driven businesses that can boost employment and transform the economy.
Vietnam, for instance, has managed to become a footwear and electronics manufacturing centre drawing large foreign capital and creating millions of employment with its growth model. Thailand’s rice subsidy, on the other hand, has gained praises by the World Bank) as a program that guaranteed consistent incomes for smallholder farmers and strengthened the agriculture sector as the main economic pillar.
One project Indonesia can learn from Thailand may be creating cooperative-based food production networks to guarantee fair pricing for farmers and hence enhance food security — this time with a stronger demand mechanism.
Success stories form India might also help Indonesia expand its textile industry through organised, demand-based government procurement initiatives supporting local garment businesses and creating consistent employment.
As for rural regions, focused microfinance programs for small companies may help increase local demand and stimulate grassroots activities.
By aggressively concentrating on industries with high domestic demand, Indonesia can promote labor-intensive, sustainable development that helps middle class consumers as well as companies.
Kadek Swarniati tidak bekerja, menjadi konsultan, memiliki saham, atau menerima dana dari perusahaan atau organisasi mana pun yang akan mengambil untung dari artikel ini, dan telah mengungkapkan bahwa ia tidak memiliki afiliasi selain yang telah disebut di atas.
This article was originally published on The Conversation. Read the original article.
