Jakarta \u2013 Reliance on domestic consumption and government spending is\nno longer sufficient to elevate Indonesia\u2019s economic growth to a higher\nlevel. The government needs to begin shifting its policy focus from\nstrengthening the domestic economy towards bolstering the external\nsector, making exports and industrial competitiveness the new engines of\ngrowth.<\/p>\n
Senior economist at the Institute for Development of Economics and\nFinance (Indef), Didik J. Rachbini, assesses that the inward-looking\norientation of economic policy has resulted in inadequate attention to\nthe external sector. Consequently, Indonesia\u2019s economic growth remains\nstuck at around 5%.<\/p>\n
\u201cThe weakness, shortcoming, or even error in economic policy\nregarding efforts to increase economic growth is essentially just one:\nneglecting the external sector,\u201d Didik said in a statement on Monday\n(10\/8\/2026).<\/p>\n
According to him, various government efforts have been mostly\ndirected at mobilising the domestic sector. However, this approach has\nnot been able to produce a significant acceleration in growth. \u201cAll\nefforts and dynamics so far have been too inward-looking. Only the\ndomestic sector is packaged with various policy controversies, but the\nresult remains moderate growth of around 5%,\u201d he said.<\/p>\n
Didik considers that one of the problems in the current growth\nstrategy is the excessive reliance on government spending as an economic\nbuffer. He noted that while government spending can help prevent a\ndeeper economic slowdown, it cannot serve as a source of long-term\ngrowth. The government\u2019s fiscal capacity also faces challenges on both\nthe revenue and expenditure sides, meaning state spending can only\nfunction as a short-term support. \u201cGovernment spending will not be\nsustainable because it only acts as a buffer to prevent economic growth\nfrom falling below 5%,\u201d he said.<\/p>\n
Furthermore, public consumption can no longer be fully relied upon to\ndrive growth. One factor of concern is the erosion of the middle class,\nwhich has traditionally been a key driver of domestic consumption.\nIndonesia does have a large domestic market due to its huge population,\nbut Didik argues that this advantage should not lead the government to\nfocus solely on the domestic market.<\/p>\n
Didik believes the main challenge is not simply how to increase\ndomestic consumption, but how to encourage national businesses to\nenhance their capacity and competitiveness to compete in the global\nmarket. He argues that Indonesian companies need the opportunity and the\npush to upgrade through international competition.<\/p>\n
Therefore, an outward-looking orientation is considered crucial to\nopening new sources of growth. By strengthening the external sector,\nIndonesia can not only expand the market for its national products but\nalso increase foreign exchange earnings. \u201cThis is where outward-looking\npolicies become important because they can push Indonesia to exist in\nglobal competition with the hope of earning substantial foreign\nexchange,\u201d Didik said.<\/p>\n
He assesses that the export sector has not yet become a sufficiently\nstrong growth engine to drive national industrial transformation.\nIndonesia possesses abundant natural resources and a large market base\nas capital to build competitive industries, but the domestic market\nalone is not enough to create industrialisation capable of competing\nglobally. \u201cTo get there, there is no other way but to manage the\nexternal sector with an export-oriented policy,\u201d he stressed.<\/p>\n
Didik also suggested that Indonesia should look at the experience of\nother countries that have successfully increased growth through export\norientation and integration with the global market. He cited Vietnam,\nwhich has recorded annual economic growth of up to 8.3%, as an example\nof the importance of a strategy that connects domestic industry with\ninternational markets. With policies still tending to be inward-looking,\nDidik believes Indonesia will struggle to achieve growth rates like\nVietnam\u2019s. Therefore, a comprehensive change in economic policy\norientation is necessary, covering investment policy, infrastructure\ndevelopment, bureaucracy, and the creation of a business climate that\nsupports export activities.<\/p>\n
A shift towards an outward-looking strategy is also seen as capable\nof increasing Indonesia\u2019s attractiveness as an investment destination.\nAccording to Didik, foreign investment will flow more easily if the\ngovernment provides a competitive incentive system, good infrastructure,\nand a friendly, efficient bureaucracy. \u201cBy transforming inward-looking\neconomic policies into outward-looking ones, foreign investment will\ncome in because there is an incentive system, good infrastructure\nsupport, and a friendly and efficient bureaucracy,\u201d he explained. The\nentry of foreign investment does not have to come at the expense of\ndomestic investment; both can grow simultaneously if the government\nbuilds export-oriented policies. Didik believes this strategy will\nprovide more room for the industrial sector to develop, supported by\nstrong national resources. He noted that Indonesia has the opportunity\nto develop resource-based industries integrated with the global\nmarket.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/without-export-orientation-indonesias-growth-will-stall-at-5-1786344627", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }