Last week, the World Bank upgraded Indonesia's status from a lower middle income country to an upper middle income country. The World Bank raises the status of Indonesia based on the latest assessment. Indonesia's Gross Domestic Product (GNP) per capita in 2019 recorded an increase to US$ 4,050 dollars from US$ 3,840 dollars in 2018. The World Bank classifies countries based on GNP per capita in 4 categories: Low Income (US$1,035), Lower Middle Income (US$, 036 – US$4,045), Upper Middle Income (US$4,046 – US$12,535) and High Income (more than US$12,535).
The World Bank uses this classification as one of the factors to determine a country eligible to use World Bank facilities and products, including loan pricing.
Upgrading Indonesia from Lower Middle to Upper Middle income country will provide several benefits, such as strengthening the confidence and perceptions of investors, trading partners, bilateral partners and development partners for the resilience of the Indonesian economy, increasing foreign investment both directly and indirectly, improving the performance of the current account which is still in deficit. In addition, the benefits can boost economic competitiveness and strengthen financial support. This is an important point in the strategic stages and a solid foundation towards Indonesia Forward in 2045.
In return of the benefits achieved by Indonesia with the upgraded rating, there is a challenging factor. Take for example; in terms of international trade, an increase in status has consequences for Indonesian products that might get fewer tariff relief facilities. The United States might revoke GSP (Generalized System of Preferences) facilities or import duty exemption facilities. In fact, many Indonesian products have benefited from the GSP facilities such as textiles, apparel, agriculture, fisheries, cacao and wood products. The increase in status will also have a significant impact on debt financing. With the status of an upper middle income country, Indonesia is considered capable to pay at a higher interest rate. While creditor countries will prioritize loans for countries that earn less than Indonesia, especially low-income countries. The increase in status will also threaten employment if not accompanied by changes in economic structure. This means that Indonesia does not need to be proud of this new status because there are still many challenges to be faced ahead.