What Indonesia Needs to Achieve 7 Percent Economic Growth

Economist Didik J. Rachbini from the Institute for Development of Economics and Finance (Indef) has urged the Indonesian government to adopt an export-oriented economic policy in order to achieve 7 to 8 percent economic growth. Presently, Indonesia's policies are too consumer-focused and lack necessary external focus, causing the economy to grow at a sluggish 5 percent rate, according to Didik.

The economist argues that exports have yet to function as a growth engine capable of driving industrial transformation. While the domestic market is of importance due to Indonesia's large population, it is not sufficient to facilitate world-class industrialization. Hence, an outward-looking policy would empower Indonesian businesses to compete on a global scale and generate substantial foreign exchange earnings.

Didik believes that such an approach would also lead to increased foreign investment due to incentive systems, infrastructure support, and efficient bureaucracy. In addition, domestic investment would grow in tandem with the thriving industrial sector. He notes that Indonesia implemented an outward-looking strategy in the 1980s, during which the economy grew by 7 to 8 percent.

However, Didik cautions against relying on government spending as a means to drive high economic growth, as it is unsustainable and only provides a short-term cushion. The current fiscal conditions face challenges in both revenue and expenditure, making this approach impractical for long-term success. Additionally, household consumption cannot be relied upon anymore, as the middle class has declined, further hindering economic growth from the consumption side.

The economy grew by 5.29 percent in the second quarter of 2026, which is lower than the 5.61 percent growth in the first quarter. Coordinating Minister for Economic Affairs Airlangga Hartarto stated that Indonesia has maintained economic growth above 5 percent for seven consecutive years despite global pressures like geopolitical conflicts and trade wars.

Finance Minister Purbaya Yudhi Sadewa expressed optimism that Indonesia's economic growth could approach 6 percent in the second half of 2026, with the government optimizing economic engines to accelerate the pace of expansion.