Exclusive: Indonesia’s rise: from agrarian poverty to an influential middle power

By Mushfiq Ahmed

KARACHI, Pakistan (MNTV) — Indonesia’s transformation since independence has been “quite remarkable,” according to economist Asep Suryahadi, who has watched the country move from widespread poverty and illiteracy to an upper-middle-income economy with a growing role in regional and global affairs.

The journey has been marked by economic crises, political upheaval, and institutional weaknesses, but also by sustained growth, social protection, infrastructure development, and democratic reform.

Suryahadi, a senior research fellow at the SMERU Research Institute, described Indonesia’s socioeconomic transformation since independence in 1945 as “quite remarkable.” 

“From a war-torn, largely agrarian society with widespread illiteracy and extreme poverty, Indonesia has evolved into an upper-middle-income country,” he said ahead of the country’s Independence Day, celebrated on Aug. 17.

At independence, Indonesia was among the world’s poorest countries, its economy devastated by the Great Depression, World War II, and the struggle for independence. 

Most Indonesians lived in absolute poverty.

Under the New Order government, which began in 1967, the state prioritized macroeconomic stability, agricultural modernization, and basic education. 

Suryahadi said the national poverty rate was roughly 60 percent in the early 1970s but fell to about 15 percent by 1990, helped by sustained growth and investment in rural agriculture.

But that progress suffered a major reversal during the 1997–98 Asian Financial Crisis, a decisive turning point in Indonesia’s modern history.

Crisis and reform

Siwage Dharma Negara, principal fellow and co-coordinator of the Indonesia Studies Programme at the Singapore-based ISEAS-Yusof Ishak Institute, called the crisis the most consequential turning point in modern Indonesia. 

“The crisis destroyed the economic as well as the political model that had for decades laid the foundation for growth in exchange for authoritarian control,” he said.

Julia Lau, principal fellow and coordinator of the same programme, said the reforms that followed 1998 became a major part of Indonesia’s 21st-century development story.

“Each successive government has left its mark on the Indonesian republic,” she said, adding that the 2008–09 global financial crisis and the COVID-19 pandemic also forced administrations to introduce reforms and protect Indonesian welfare. 

“The present geopolitical and geoeconomic instability are proving to be challenging for the Prabowo administration,” she said.

The 1997–98 crisis contributed to mass unrest, ethnic violence, and the fall of President Suharto after more than three decades in power. 

It also triggered the Reformasi (reformation) period, bringing liberal democracy and decentralization.

Suryahadi said the crisis demonstrated the importance of social protection. Indonesia subsequently developed programs including conditional cash transfers — payments to poor families tied to conditions like keeping children in school — food assistance, and universal health coverage to protect vulnerable households.

From poverty to vulnerability

Today the official national poverty rate stands at about 8 percent, Suryahadi said, though he cautioned that many Indonesians remain vulnerable. 

The country’s transformation has extended beyond poverty reduction: life expectancy has risen from an estimated 35 years at independence to 72.67 years in 2025, while literacy has climbed to about 96 percent. He also pointed to gains in health, nutrition, infrastructure, and digital connectivity.

The post-1998 period brought a major expansion of the social safety net. 

Programs such as the Program Keluarga Harapan family-welfare scheme, food assistance, and the BPJS Kesehatan national health-insurance system have helped protect millions of households from economic shocks, with emergency cash assistance rapidly expanding during the pandemic. Infrastructure investment has been another driver, with successive governments expanding toll roads, ports, and airports, including outside the main island of Java.

Yet Suryahadi warned that Indonesia’s next phase will be considerably harder. Growth has not produced enough high-quality formal employment, while the middle class has contracted — shrinking by approximately 9.4 million people between 2019 and 2024, he said, leaving many households in a vulnerable “aspiring middle class.” The labor market remains heavily informal, regional inequality still divides Java from parts of Eastern Indonesia, and wealth is concentrated, with the richest 1 percent controlling roughly one-fifth of the country’s wealth.

Indonesia’s challenge, he said, is to move from extensive growth based on infrastructure and resources toward more productive, innovative, and inclusive growth. “Moving forward, Indonesia’s primary challenge is not just generating GDP growth, but improving the quality of that growth,” he said.

A rising middle power

Lau said Indonesia’s development has also been shaped by its changing position in the world. 

Successive presidents have maintained a commitment to bebas aktif, or a “free and active” foreign policy designed to preserve strategic autonomy. 

In the years after independence, Indonesia and other newly independent Southeast Asian states focused on domestic resilience while navigating tensions left by colonial rule and the emerging Cold War. 

Indonesia’s Konfrontasi, or confrontation, with neighboring countries eventually gave way to peaceful coexistence, with the establishment of the ASEAN regional bloc in 1967 providing a foundation for cooperation.

Under President Sukarno, Indonesia hosted the 1955 Bandung Conference, a landmark gathering of Asian and African nations; under Suharto, it became a founding member of ASEAN. “Today’s Indonesia is a more confident rising middle power, led by a president who has set his sights on engaging all of the world’s major powers,” Lau said. 

She noted the international environment is now more complex than during the Cold War, but the fundamental objective — preserving strategic autonomy — has not changed.

After Reformasi, Indonesia increasingly presented itself as an example of how Islam, democracy, and pluralism could coexist within a large and diverse nation. 

“Indonesia has been trying to play an active role in regional and global affairs since its independence,” Negara said. Its membership in the G20, growing peacekeeping role, and mediation efforts have reinforced its position as a middle power.

Lau said Indonesia’s role as the world’s largest Muslim-majority country creates both opportunities and diplomatic challenges. 

It faces a difficult balancing act over conflicts in the Middle East while seeking to maintain relations with major partners such as the United States; its willingness to serve as a mediator and offer peacekeepers reflects the administration’s ambition to act as a responsible middle power. 

But Lau cautioned that geographical distance limits its influence over those conflicts.

Under President Prabowo Subianto, Indonesia has sought a still more visible global role, joining groupings including BRICS. Negara described its broad engagement with APEC, the Organization of Islamic Cooperation, the G20, and BRICS as a shift from traditional non-alignment toward “multi-alignment.” 

That strategy brings challenges: Indonesia’s growing economic dependence on China, particularly through its nickel-processing industry, has complicated Jakarta’s balancing act amid intensifying U.S.-China rivalry.

Road to 2045

Suryahadi said the economic challenge is equally formidable. Indonesia wants to become a high-income country by 2045 but must avoid the “middle-income trap” — where developing economies stall before reaching wealthy status — by investing in education, innovation, and high-value industries while creating secure jobs. 

Lau said the current global environment would make that harder, as Indonesia seeks to preserve momentum while responding to an increasingly unstable world.