What Indonesia Needs to Achieve 7 Percent Economic Growth

August 10, 2026 | 01:53 pm

TEMPO.CO, Jakarta - Didik J. Rachbini, an economist at the Institute for Development of Economics and Finance (Indef), urged the government to shift its economic policy toward an export-oriented or "outward-looking" approach to achieve 7 to 8 percent economic growth. He argues that current policies remain too domestically oriented, or "inward-looking." 

He noted that government policies rely heavily on the domestic market, import substitution, resource control, and domestic consumption. "Only the domestic sector is being packaged with various policies, yet the result is that the economy continues to grow only moderately, at around 5 percent," Didik said in a written statement on Sunday, August 9, 2026.

Didik argues that exports have not yet served as a growth engine strong enough to drive industrial transformation. While Indonesia's large population makes the domestic market important, he believes it is insufficient to generate world-class industrialization.

Therefore, managing the external sector through export-oriented policies is crucial. Such policies would enable Indonesian businesses to "move up a level" by compelling and empowering them to compete in the global market.

"This is where an outward-looking policy becomes vital; it can enable Indonesia to establish a presence in global competition, with the hope of generating substantial foreign exchange earnings," said Didik, who also serves as the Rector of Paramadina University.

According to Didik, shifting to an export-oriented policy would attract foreign investment, driven by incentive systems, infrastructure support, and efficient bureaucracy. Such policies would also allow domestic investment to grow in tandem as the industrial sector thrives.

Didik noted that Indonesia implemented an outward-looking strategy in the 1980s, actively promoting export-oriented investment and industry. During that period, the economy grew by 7 to 8 percent. Drawing on these past policies, Didik added that government spending cannot be relied upon to drive high economic growth.

Such spending is unsustainable if used merely as a buffer to prevent growth from falling below 5 percent. Moreover, current fiscal conditions face challenges in both revenue and expenditure; thus, this approach cannot last long and serves only as a short-term cushion.

"Meanwhile, household consumption can no longer be relied upon because the middle class has been eroded and its numbers have declined, thereby hindering economic growth from the consumption side," he said.

The government recorded economic growth of 5.29 percent in the second quarter of 2026. This figure is lower than the 5.61 percent growth recorded in the first quarter. Despite the slowdown, Coordinating Minister for Economic Affairs Airlangga Hartarto stated that the achievement continues Indonesia's success in maintaining economic growth above 5 percent for seven consecutive years.

Citing Antara, Airlangga noted that Indonesia's economy grew above the global average despite pressures ranging from geopolitical conflicts and trade wars to technological disruptions.

Meanwhile, Finance Minister Purbaya Yudhi Sadewa expressed optimism that Indonesia's economic growth could approach 6 percent in the second half of 2026. He stated that the government is optimizing all economic engines to accelerate the pace of expansion. These measures include increasing market liquidity and encouraging a reduction in deposit interest rates.

"This includes pushing down the interest rates demanded by Special Mission Vehicles (SMVs) under the Ministry of Finance to low levels, so that banks can place funds or provide loans at lower interest rates," Purbaya said on Wednesday, August 5, 2026, as cited by Antara.

Read: Diverging Paths for Fiscal and Monetary Authorities

Click here to get the latest news updates from Tempo on Google News

Why Is CSIS Raising Concerns Despite Indonesia's 5.29% Growth?

3 hari lalu

Bank Indonesia Maintains 2026 Growth Forecast at 4.9-5.7%

3 hari lalu

Which Sectors Drive Indonesia's Economic Growth in Q2 of 2026?

4 hari lalu

BPS: Bali Logs Highest Economic Growth in Q2 of 2026

4 hari lalu

Indonesia's Q2 2026 Economic Growth Slows to 5.29%

4 hari lalu

Indonesia's Financial Sector Stable for Q2 of 2026, Says Purbaya

6 hari lalu

CORE Forecasts Indonesia's Q2 Economic Growth Below 5%

8 hari lalu

Why Prabowo Gathered 150 Kadin Leaders at the Palace

9 hari lalu

Eurozone Sees Highest GDP Growth Since 2025

10 hari lalu

Will Indonesia's Economic Growth Exceed 5% in Q2 of 2026?

11 hari lalu