Introduction
The evolution of Indonesia’s economic and political landscape in the 21st century reflects a remarkable transformation similar to other nations like South Korea, Singapore, Brazil, India, and Chile, all of which have transitioned from varying degrees of economic development to positions of prominence on the global stage. South Korea’s journey from a war-torn nation in the 1950s to an economic powerhouse through rapid industrialization and modernization highlights the potential for strategic policies to drive growth. Similarly, Singapore’s transformation from a British colonial outpost to a global financial hub pinpoints the importance of visionary leadership and investments in education and infrastructure. Brazil’s shift from a predominantly agrarian economy to a diversified economic powerhouse showcases the potential of leveraging natural resources and sustainable development. India’s emergence as a global IT services hub from the 1990s onwards demonstrates the impact of technology-driven reforms on economic growth and competitiveness. Additionally, Chile’s economic turnaround in the late 20th century, driven by market-oriented reforms and liberalization, exemplifies the transformative power of policy-driven approaches in developing economies. Against this backdrop, Indonesia’s milieu reflects its departure from outdated classifications like the “Third World,” embodying a dynamic role on the global stage alongside major economic powers, characterized by resilience, growth, and transformation.
A Historical context
Mao Zedong’s “Three Worlds Theory” presents a distinct perspective on the global order compared to Western notions of the “Three Worlds” or “Third World.” In Mao’s framework, countries like China and India are identified as part of the Third World, characterized by Mao as nations subject to exploitation. This contrasts sharply with the Western classification, which positions China and India in the second and third worlds respectively. Mao’s theory emphasizes the solidarity of exploited nations against the dominance of first-world powers and advocates for non-interference in the internal affairs of other countries, aligning with sentiments expressed by movements like the Non-Aligned Movement (NAM) and the Group of 77.
The term “Third World” has evolved significantly since 1990, transitioning from a label for “under-developed” nations to those deemed “developing.” Historically, most Third World countries were former colonies that faced the task of nation-building and economic development independently after achieving independence. During the Cold War era, unaligned Third World nations were sought after as potential allies by both the First and Second Worlds, resulting in strategic alliances and support from great powers like the United States and Soviet Union. This period witnessed significant developmental aid and foreign assistance, with Third World countries becoming focal points for various development theories such as modernization theory and dependency theory. Despite its evolution and criticisms, the concept of the Third World continues to highlight economic disparities and development challenges faced by many countries across Africa, Asia, and Latin America.
The rapid pace of modernization and globalization has propelled many countries once labeled as Third World, such as Brazil, India, and Indonesia, towards significant economic growth, reshaping perceptions of poverty and development in the 21st century. Countries like Mexico, El Salvador, and Singapore exhibit distinct political systems that defy simple classification within the outdated Third World paradigm.
Modern Definition of Third World
Following the collapse of the Soviet Union in the early 1990s, the global geopolitical landscape experienced profound shifts as the Cold War era came to an end. The binary division of the world into opposing blocs led by the United States and the Soviet Union dissipated, necessitating a reevaluation of terms like “Third World” that had originated within that context.
Typically, “Third World” nations are characterized by lower income levels, limited access to resources, and higher poverty rates, confronting economic obstacles such as inadequate infrastructure, unemployment, and income disparity. These countries are non-industrialized, lacking advanced manufacturing sectors, and may rely heavily on agriculture, extractive industries, or services for economic sustenance.
Interestingly, some countries previously considered “Third World” have made substantial strides in industrialization and economic growth, earning them the designation of “newly industrialized countries”. Examples of such nations include South Korea, Taiwan, and Singapore, reflecting the dynamic nature of global economic development.
Indonesia’s Status
Indonesia’s economic trajectory in recent years highlights its dynamic growth and evolving landscape. In 2022, the country’s nominal GDP surged to $1,319.10 billion, marking an 11.18% increase from the previous year. This growth trend was consistent with 2021, where nominal GDP reached $1,186.51 billion, reflecting a 12.03% rise compared to 2020. However, 2020 saw a contraction, with nominal GDP at $1,059.05 billion, down by 5.37% from 2019.
In terms of per capita GDP, Indonesia’s purchasing power parity (PPP) per capita GDP stood at $4,788 in 2022, while the nominal per capita GDP was $5,108 in the same year.
The economic landscape is shaped significantly by sector contributions, with services maintaining dominance by contributing 43.4% to Indonesia’s GDP. Industry closely follows, accounting for 39.7% of the economy, while agriculture plays a smaller yet noteworthy role, contributing 12.8%.
Looking ahead to 2024, Indonesia’s GDP is projected to grow by 5.0% as per Asian Development Bank. This growth outlook signifies the economy’s resilience, with private consumption, business investment, and public spending serving as key drivers of expansion. As Indonesia continues its economic evolution, these factors are instrumental in shaping its trajectory towards further growth and development.
Indonesia is an emerging middle-income country
The World Bank’s semi-annual Indonesia Economic Prospects report highlights Indonesia’s resilient economic growth, with notable indicators like declining inflation and a stable currency. GDP growth is projected to slightly ease to an average of 4.9% over 2024-2026, down from 5% this year, largely due to a moderating commodity boom. Private consumption is anticipated to remain a key growth driver in 2024, supported by increased business investment and public spending resulting from reforms and new government initiatives.
Inflation is expected to decrease to 3.2% in 2024, aligning with Bank Indonesia’s target band, driven by softening commodity prices and a return to normal domestic demand growth post-pandemic. However, upward pressure on food prices due to the El-Niňo weather pattern may disrupt food production in certain areas.
Services exports are anticipated to benefit from tourism recovery, but exports of goods may face challenges due to lower commodity prices and global economic slowdown. Government revenues are forecasted to increase relative to GDP as tax reforms take effect, while government spending is expected to gradually return to pre-pandemic levels.
Despite Indonesia’s economic expansion, the country has yet to fully recover to its pre-pandemic trajectory, reflecting lingering impacts on labor markets and productivity growth.
The economic outlook is subject to downside risks, particularly external ones such as prolonged higher interest rates in major economies. To accelerate growth and achieve its high-income country vision by 2045, Indonesia should focus on implementing reforms that enhance efficiency, competitiveness, and productivity.
Gains in poverty reduction and political stability
Indonesia, the largest economy in Southeast Asia and a nation with rich cultural diversity, has achieved remarkable economic growth since overcoming the Asian financial crisis of the late 1990s. Today, Indonesia stands as the world’s fourth most populous nation and ranks 10th in terms of economy based on purchasing power parity. The country has made significant strides in poverty reduction, cutting the poverty rate by more than half since 1999 to under 10 percent in 2019, before the onset of the COVID-19 pandemic.
Indonesia is pursuing a comprehensive 20-year development plan spanning from 2005 to 2025, structured into five-year medium-term development plans. The current plan, the final phase of the 20-year vision, aims to bolster Indonesia’s economy by enhancing human capital and improving competitiveness on the global stage.
Indonesia has demonstrated leadership on the international stage by successfully concluding the G20 Presidency in November 2022 and holding the ASEAN chairmanship in 2023. These positions showcase Indonesia’s capacity to represent the interests of developing nations and collaborate strategically with developed countries to achieve sustainable post-pandemic recovery amidst global uncertainties.
In July 2023, Indonesia regained its upper-middle-income classification status according to the World Bank’s income grouping, rebounding after a decline in 2020 due to the economic impact of COVID-19. The country’s post-pandemic recovery has spurred progress in poverty reduction, with the poverty rate declining to 9.36 percent as of March 2023, down from 10.2 percent in September 2020.
The World Bank’s economic report in October 2023 highlights Indonesia’s economic growth driven by increased private consumption and positive terms-of-trade. GDP growth is projected at 5.0 percent for 2023 and an average of 4.9 percent over the medium term from 2024 to 2026. However, Indonesia faces significant downside risks from the global economic environment that could dampen growth prospects.
Despite progress, challenges remain, particularly in human capital development. While Indonesia has made strides in reducing stunting rates, more efforts are needed to ensure robust and productive human capital growth, especially given the learning losses caused by school closures during the COVID-19 pandemic.
Climate change poses significant challenges for Indonesia, affecting water resources, health, disaster risk management, and urban development, particularly in coastal areas. Indonesia’s vast natural resources, including tropical rainforests, peatlands, and mangrove forests, play a critical role in climate mitigation and sustainable development, supporting livelihoods and biodiversity.
The World Bank actively supports Indonesia’s climate action agenda, including efforts to mitigate and adapt to climate change in key sectors like land use, oceans, and energy. The Bank’s initiatives include support for the National Mangrove Program and the design of carbon pricing instruments to mobilize climate finance and enhance climate resilience across Indonesia.
In the 21st century, Indonesia has shed its classification as a “Third World” country, emerging as a symbol of political stability and rapid economic growth. Once viewed as potentially authoritarian, Indonesia is now recognized as the world’s third-largest democracy, with its economic expansion ranking among the fastest globally. Finance Minister Agus Martowardojo attributed this success to Indonesia’s ability to maintain a robust 6 percent economic growth rate amidst global crises, bolstered by a remarkable 24 percent increase in investment in 2012. This economic performance has garnered international acclaim, evidenced by Fitch Ratings’ stable outlook. Looking ahead, Indonesia’s trajectory points towards sustained growth, expected to reach 7 percent, supported by its strategic location for trade, membership in ASEAN, and increasing role in global initiatives like climate change mitigation, given its status as the third-largest producer of greenhouse gases. With these factors in play, Indonesia’s growing influence and strong economic footing position it as a key player alongside major global powers like the US and China, poised to shape the future landscape of global politics and economics.
Conclusion
In conclusion, Indonesia’s trajectory in the 21st century mirrors the transformative journeys of nations like South Korea, Singapore, Brazil, India, and Chile, all transitioning from diverse economic backgrounds to become significant global players. Indonesia has shed the antiquated classification of a “Third World” country, evolving into a symbol of political stability and rapid economic growth. This transformation underscores Indonesia’s ascent as the world’s third-largest democracy and a dynamic middle-income nation. Strategic economic policies, robust growth rates, and international recognition highlight Indonesia’s pivotal role alongside major global powers. Despite challenges, Indonesia’s trajectory remains promising, driven by its strategic location, membership in ASEAN, and commitment to initiatives like climate change mitigation, positioning it as a key influencer in the future landscape of global politics and economics.
