Towards a Higher Growth Path for Indonesia

Indonesia in 2024 was characterised by political transition, occurring over an unusually long period of eight months between the presidential election in February and the inauguration in October. This afforded the president-elect, Prabowo Subianto, and his team time to develop and refine their economic agenda, including his signature policy, now called the Free Nutritious Meals program. Public debate focused on the government’s ability to fund this and other priorities within the legislated 3% deficit-to-GDP limit, and markets reacted adversely to speculation about increased debt levels, with the rupiah weakening and bond yields rising. The incoming and outgoing administrations emphasised continuity over change, agreed on a 2025 budget and committed to fiscal prudence. Still, Prabowo believes Indonesia can adopt a ‘more daring’ approach to achieve his ambitious economic growth target of 8%. He has identified some crucial factors such as the need for human capital development. But this target would require a significant uplift, as Indonesia’s growth trend has gradually moderated over the past 20 years to a steady 5%. To achieve a sustainably higher growth rate over the next 20 years and meet its vision of becoming a high-income economy by 2045, Indonesia will need to focus on aggregate supply by improving productivity, increasing investment, enhancing its global competitiveness and maintaining strong institutions.