Indonesia's Rising Middle Class Forms Backbone Of Robust Domestic Economy, Compensating For Lackluster Exports

Indonesia has every reason to freak out about China’s economic slowdown, as the Southeast Asian country depends heavily on exporting coal to China, but thankfully, the rising middle class is fueling a resurgent local economy, offsetting negative shocks from falling coal prices in China.

Indonesia is the world’s largest exporter of coal for power stations, and China is its biggest customer. Balikpapan, on the island of Kalimantan, is Indonesia’s coal capital, has seen the prices of coal tumble over the last few years, falling by as much as a third. Yet sales of posh apartments on the city's seafront are selling very well, the Financial Times reported on Wednesday.

“Most of the buyers are local residents and about 30 percent are involved in the coal industry,” said Nina Ristina, a property developer for the Borneo Bay Residences. But falling coal prices do not appear to have impacted Ristina’s business.

“Sales only began in July but we’ve already sold 500 out of 1,100 apartments,” Ristina added.

Indonesia’s growth has slowed considerably to 5.8 percent last year, the lowest since 2009. Aside from coal, commodity prices for palm oil and other natural resources, which all together account for around 60 percent of the country’s exports, have fallen as well along with those in other commodity producers like Australia and Brazil, pushing Indonesia’s current account into deficit.

But even so, analysts believe Indonesia’s domestic demand will remain upbeat, especially in secondary cities like Balikpapan, as the emerging middle class will continue to be the backbones of the local economies. The size of this group is growing as well. Boston Consulting Group predicts that the consuming class, defined as households that spend more than two million rupiah ($164) a month, will double from 74 million to 140 million by 2020, according to the Financial Times.

“We are not only dependent on coal,” said Dosi Samon, a resident on the island of Kalimantan who runs a construction and building supplies company. “The Indonesian economy is driven by our basic needs, which are still increasing.”