Without Export Orientation, Indonesia's Growth Will Stall at 5%
Jakarta – Reliance on domestic consumption and government spending is no longer sufficient to elevate Indonesia’s economic growth to a higher level. The government needs to begin shifting its policy focus from strengthening the domestic economy towards bolstering the external sector, making exports and industrial competitiveness the new engines of growth.
Senior economist at the Institute for Development of Economics and Finance (Indef), Didik J. Rachbini, assesses that the inward-looking orientation of economic policy has resulted in inadequate attention to the external sector. Consequently, Indonesia’s economic growth remains stuck at around 5%.
“The weakness, shortcoming, or even error in economic policy regarding efforts to increase economic growth is essentially just one: neglecting the external sector,” Didik said in a statement on Monday (10/8/2026).
According to him, various government efforts have been mostly directed at mobilising the domestic sector. However, this approach has not been able to produce a significant acceleration in growth. “All efforts and dynamics so far have been too inward-looking. Only the domestic sector is packaged with various policy controversies, but the result remains moderate growth of around 5%,” he said.
Didik considers that one of the problems in the current growth strategy is the excessive reliance on government spending as an economic buffer. He noted that while government spending can help prevent a deeper economic slowdown, it cannot serve as a source of long-term growth. The government’s fiscal capacity also faces challenges on both the revenue and expenditure sides, meaning state spending can only function as a short-term support. “Government spending will not be sustainable because it only acts as a buffer to prevent economic growth from falling below 5%,” he said.
Furthermore, public consumption can no longer be fully relied upon to drive growth. One factor of concern is the erosion of the middle class, which has traditionally been a key driver of domestic consumption. Indonesia does have a large domestic market due to its huge population, but Didik argues that this advantage should not lead the government to focus solely on the domestic market.
Didik believes the main challenge is not simply how to increase domestic consumption, but how to encourage national businesses to enhance their capacity and competitiveness to compete in the global market. He argues that Indonesian companies need the opportunity and the push to upgrade through international competition.
Therefore, an outward-looking orientation is considered crucial to opening new sources of growth. By strengthening the external sector, Indonesia can not only expand the market for its national products but also increase foreign exchange earnings. “This is where outward-looking policies become important because they can push Indonesia to exist in global competition with the hope of earning substantial foreign exchange,” Didik said.
He assesses that the export sector has not yet become a sufficiently strong growth engine to drive national industrial transformation. Indonesia possesses abundant natural resources and a large market base as capital to build competitive industries, but the domestic market alone is not enough to create industrialisation capable of competing globally. “To get there, there is no other way but to manage the external sector with an export-oriented policy,” he stressed.
Didik also suggested that Indonesia should look at the experience of other countries that have successfully increased growth through export orientation and integration with the global market. He cited Vietnam, which has recorded annual economic growth of up to 8.3%, as an example of the importance of a strategy that connects domestic industry with international markets. With policies still tending to be inward-looking, Didik believes Indonesia will struggle to achieve growth rates like Vietnam’s. Therefore, a comprehensive change in economic policy orientation is necessary, covering investment policy, infrastructure development, bureaucracy, and the creation of a business climate that supports export activities.
A shift towards an outward-looking strategy is also seen as capable of increasing Indonesia’s attractiveness as an investment destination. According to Didik, foreign investment will flow more easily if the government provides a competitive incentive system, good infrastructure, and a friendly, efficient bureaucracy. “By transforming inward-looking economic policies into outward-looking ones, foreign investment will come in because there is an incentive system, good infrastructure support, and a friendly and efficient bureaucracy,” he explained. The entry of foreign investment does not have to come at the expense of domestic investment; both can grow simultaneously if the government builds export-oriented policies. Didik believes this strategy will provide more room for the industrial sector to develop, supported by strong national resources. He noted that Indonesia has the opportunity to develop resource-based industries integrated with the global market.