Unravelling the Crust of Economic Inefficiency

President Prabowo Subianto’s statement regarding Indonesia’s high Incremental Capital Output Ratio (ICOR) at 6.5 is not merely a statistical complaint, but an alarm signalling the urgency of the national economy’s structural issues. This figure reveals the bitter reality that our economic engine operates very inefficiently: Rp 6.5 in capital is needed to produce Rp 1 in additional output. In comparison, neighbouring ASEAN countries such as Vietnam and Thailand manage to run faster with much lighter capital burdens, averaging between 4 and 5. This disparity explains why national economic growth seems stuck at 5 percent despite continuous efforts to attract foreign investment. The ICOR problem is not a technical issue on paper for executives, but a reflection of systemic inefficiency rooted in bureaucratic behaviour and the business ecosystem. This phenomenon manifests in the form of high logistics costs, regulatory uncertainty, and rent-seeking practices that make investors reconsider long-term capital commitments. Without the courage to dissect the root causes, the government’s targeted economic growth of 8 percent will remain a mirage because the economic engine is too heavy to run. Simple economic logic states that efficiency is the key to competitiveness. However, in Indonesia, inefficiency has become a hardened structure. Lowering the ICOR means performing a major operation on the capital distribution channels, from central-level permitting to execution in remote areas. This issue is urgent to address as it concerns the nation’s dignity in the global competition arena. If the current level of inefficiency is maintained, we will not only lag behind our neighbours but also be trapped forever in the middle-income trap because available capital is absorbed by sectoral egos and corrupt behaviours. Bureaucracy is often the main scapegoat, but in the context of ICOR, President Prabowo’s accusations find a strong argumentative basis. The problem does not lie in the absence of digital systems like the Online Single Submission (OSS), but in the mentality of “bureaucratic digitalisation” that merely transfers manual desks to computer screens without shortening the long chain of command. As often criticised by several economists, inefficiency stems from the high cost of doing business.