Indonesia identifies four keys to escaping the middle-income trap

Indonesia’s government is intensifying efforts to lift economic growth and move the country out of the middle-income trap. Home Affairs Minister Muhammad Tito Karnavian said countries that become advanced economies generally manage to pass through that stage by maintaining high growth.

Tito identified four components that central and local governments must strengthen together: household consumption, government spending, investment and exports. He spoke while chairing an inflation-control coordination meeting linked to the release of second-quarter 2026 economic growth figures for districts and cities in Jakarta on September 7.

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We want to move out of the developing-country trap of middle income. One of the keys is that economic growth must be high, if necessary, in double digits.

He said household consumption remains central because it depends closely on people’s purchasing power. When purchasing power strengthens, people spend more and support economic activity. Tito said consumption contributes almost 50 percent of economic growth, making it essential for both levels of government to protect household purchasing power.

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That contributes almost 50 percent of economic growth. Do people have purchasing power, so that they spend and consume? It is the largest contributor, and this involves both the central and regional governments.

Government spending formed the second pillar. Tito urged central and local authorities to ensure that budgets are spent according to target. The Home Affairs Ministry regularly evaluates spending in each region, reminds areas with low realization rates and sends teams to monitor implementation.

“Government spending is very important because it ensures that government money circulates among the public and can attract and stimulate the private sector,” Tito said. He also described domestic and foreign investment as a source of multiplier effects through jobs, additional capital and increased circulation of money. The government, he said, must create a more attractive investment climate. He added that growth should be high, “if necessary, in double digits.”

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Government spending is very important because it ensures that government money circulates among the public and can attract and stimulate the private sector.