Towards 6 Per Cent: Building Indonesia's New Growth Engine: State Address 14 August 2026
The 20ad2027 Draft State Budget (RAPBN) carries both the target and the challenge of 6% economic growth. The issue is not merely whether 6% can be achieved, but with what kind of growth engine that figure is reached. Because 6% growth cannot be achieved through acceleration alone; it also requires transformation.
For several years, Indonesia’s economy has grown at around 5%, providing a relatively good foundation of stability. However, we have been preoccupied with this growth rate for too long, especially as productivity has not yet increased, industrialisation is not deep enough, investment has not optimally flowed into productive sectors, and the added value of natural resources could still leap forward.
Therefore, the 6% target should not be articulated as simply a higher 5% figure, but must serve as a sign that Indonesia’s growth engine is being rebuilt.
The government recorded growth of 5.45% in the first half of 2026, inflation at 2.88%, state revenue growth of 21.3%, expenditure at 18.2%, and the state budget deficit until July at 0.91% of GDP. Indonesia’s macroeconomic foundations appear relatively well-maintained, which is an important asset, although achieving stability is not the finish line of the struggle.
In the ‘5% Trap’, I remind you that growth in the 5% range is indeed sufficient to keep the economy moving and stable, but it is not necessarily adequate to drive structural leaps. Therefore, the 6% target must be read not just as an increase in the growth figure, but as an effort to change the quality of growth. The government is beginning to move towards high-value-added economic activities through downstreaming and industrialisation, while simultaneously strengthening MSMEs, social protection, and support for farmers, fishermen, teachers, and vulnerable workers. The challenge is clear: grow faster, while still maintaining the foundations of stability that have been built.
To achieve 6% growth, Indonesia needs investment that is not only larger but also more productive. The 2027 Draft State Budget sets state revenue at Rp3,426 trillion, expenditure at Rp4,097.2 trillion, and financing at Rp671.2 trillion, based on three main principles: optimisation of revenue, efficient and productive expenditure, and innovative, prudent, and sustainable financing. This is where the State Budget needs to play a more strategic role, rather than merely financing government activities.
In my writing ‘Large Cushion, Large Illusion’, I remind you that fiscal space is a cushion, not a growth engine. A cushion provides space to face shocks, but thereafter, that space must be converted into economic capacity. Therefore, the question regarding the 2027 Draft State Budget is not merely whether a 2.40% deficit is still safe, but what is being built from that deficit.
If allocated to productive infrastructure, education, health, energy, industrialisation, and activities that increase production capacity, the deficit can become an investment for future growth. Conversely, expenditure that only drives demand without strengthening the production side will lose its momentum once the stimulus ends. Therefore, the measure of fiscal success should shift from how much of the budget is absorbed to how much productivity is generated.
The 6% target cannot rely solely on domestic consumption. Indonesia needs new production capacity capable of creating added value and strengthening competitiveness. Downstreaming is one such path. However, downstreaming must not stop at the question of whether raw commodities are processed domestically. More importantly, it is whether that processing can give birth to industries with technological mastery, strong supply chains, market access, and export capabilities.
In my writings ‘Large Cushion, Large Downstreaming’, and ‘Orchestration’, I remind you that downstreaming requires more than just investment projects. It requires capital, energy, infrastructure, technology, markets, and policy coordination that moves in a single direction.
The President’s speech reveals an interesting institutional step, namely the plan to operate the Strategic Mineral and Commodity Exchange starting 1 January 2027, aimed at establishing an Indonesia Reference Price for major export commodities. This step is vital because downstreaming is ultimately not just about what we produce, but also about who determines the price and captures the added value.
Indonesia cannot merely be an exporter of commodities that are simply processed more extensively within the country. We need to move further: from minerals to materials, from materials to components, from components to products, and from products towards technology and brands. That is where downstreaming finds its greater meaning: not just processing commodities, but building industrialisation.
There is no industrialisation without competitive energy. In ‘Structural Inflation and the Cost of Civilisation’, I remind you that the energy transition demands significant upfront investment, while the economic benefits are only felt in the long term.
The President’s speech offers the development of 100 GW of solar energy and the decommissioning of 13 GW of diesel power plants, with a potential production cost saving of approximately Rp73.9 trillion per year. If this agenda can be realised, the benefits will not stop at emission reductions. Cheaper energy can suppress production costs, reduce dependence on imported fuel, increase industrial competitiveness, and strengthen the external balance.
Therefore, the energy transition needs to be placed as part of the strategy for industrialisation and national competitiveness, not merely an environmental agenda. In an increasingly competitive global economy, the availability of cheap, stable, and sustainable energy can be a source of productivity advantage. Ultimately, energy is not just about how the lights stay on, but how industry thrives.