Chasing high growth: Indonesia’s risky economic leap

Prabowo has boldly set his sights on 8 percent growth by the end of his term in 2029. Purbaya, while slightly more conservative in tone, is no less ambitious, asserting that Indonesia could sustainably grow at 6-7 percent annually under his economic leadership. These targets are politically powerful and signal optimism, strength and forward momentum.

Yet these targets are misaligned with Indonesia’s fundamentals. Chasing high growth without structural reform, institutional strength and sound fundamentals risks imbalances, rising inequality and eroded credibility. The real challenge is not faster growth, but better growth: inclusive, sustainable and resilient.

Let us be clear: 6-8 percent growth is not impossible, but under Indonesia’s current conditions, it is highly improbable. For over two decades, the Indonesian economy has consistently grown at around 5 percent, with brief upward or downward deviations tied to commodity booms, election cycles or global crises.

Despite repeated attempts by various administrations to exceed this trajectory, Indonesia has repeatedly returned to this 5 percent path, what economists refer to as Indonesia’s “steady state” growth rate, or the sustainable pace of expansion absent cyclical fluctuations or external shocks.

The steady state is not a defeatist concept, nor a ceiling dictated by external constraints. It reflects a structural reality: an economy’s long-term potential is shaped by the productivity of its labor and capital, the quality of its institutions and its ability to innovate and move up the value chain.

Indonesia continues to face chronic underinvestment in human capital, inefficiencies in public and private investment, weak technological absorption and an overreliance on consumption and commodity exports to drive growth. Unless these constraints are addressed, pushing the economy to grow faster is not only unrealistic, but dangerous.

Growth driven solely by fiscal or monetary expansion may boost output temporarily but often leads to overheating, inflation and financial imbalances. Worse, it may also create an illusion of progress, while masking declining growth quality, especially if it is fueled by debt, subsidies and policy short cuts.

Yet that seems to be the direction Indonesia is currently heading. In the first year of Prabowo’s administration, the government’s economic agenda has been dominated by programs with large fiscal footprints but unclear productivity returns.

These include the national rollout of free nutritious meals, the construction of 3 million low-cost homes, the formation of rural “Red and White” cooperatives, the establishment of food estates and the expansion of downstream industrialization, alongside the creation of Danantara, a sovereign wealth-style SOE holding company.

Each of these initiatives may be defensible on its own terms. But taken together, they reflect a strategic pivot away from reform and toward expansion. The intention is clear that growth will come not from unlocking market efficiency or upgrading institutions, but from direct state-led spending and intervention.

Meanwhile, Minister Purbaya has quickly adopted a more aggressive fiscal stance. He drew down Rp 200 trillion (US$12 billion) from the Saldo Anggaran Lebih (SAL), idle cash held at Bank Indonesia (BI), and injected it into state-owned banks to spur credit and investment, framed as an innovative alternative to borrowing. This followed an even more concerning move: the revival of the pandemic-era burden-sharing scheme between BI and the Treasury.

To be fair, these actions are not without rationale. They aim to stimulate a sluggish post-pandemic economy, increase credit flow and mobilize underutilized fiscal resources. But they do little to alter the country’s underlying growth constraints.

Injecting liquidity into the financial system does not guarantee productive investment. Without institutional reform, better governance and stronger project pipelines, such injections may simply inflate low-return sectors, worsen misallocation or fuel asset bubbles.

This type of short-termism poses serious risks. When governments rely too heavily on fiscal tools to compensate for structural weaknesses, the results are rarely sustainable. Public debt tends to rise faster than output. Inflationary pressures mount. Inequality grows. And eventually, credibility erodes. Overall, growth becomes more volatile, less inclusive and increasingly subject to external shocks.

Indonesia is no stranger to this pattern. The post-1998 recovery, the commodity boom of the 2000s and the infrastructure push of the last decade all brought periods of higher growth, but without sustained improvements in productivity or resilience.

Each time, the country fell back toward its steady state once the temporary drivers faded. The lesson should be clear by now: without genuine structural transformation, high growth cannot be maintained.

So, what would a more credible growth strategy look like?

First, it should begin by acknowledging that ambition must be grounded in realism. Instead of scattering public resources across politically popular programs, the government should focus on high-impact interventions.

They include reforming the education and vocational training systems, improving regulatory quality, streamlining investment procedures, expanding digital and green infrastructure and strengthening the rule of law.

Second, fiscal and monetary policy must return to a rules-based, discipline-oriented framework. Stimulus is useful in a downturn, but used persistently without structural reform, it undermines stability.

The government must also resist the temptation to use state-owned enterprises as off-balance-sheet vehicles for politically driven spending. Institutions like Danantara must be governed by transparent mandates, clear accountability and strong safeguards against rent-seeking.

Third, Indonesia must build a stronger growth coalition, between the state, private sector and civil society, to ensure that reform is both technically sound and politically feasible. That means better consultation, more inclusive policymaking and stronger public communication. Economic transformation is not just about capital allocation, but it is also about trust, credibility and collective effort.

None of this will be easy. But it is necessary. The Prabowo administration still has time to shift from populist programs to productivity-oriented policies, and to align its growth narrative with long-term national capacity.

Indonesia’s leap toward high growth may be bold, but without the groundwork of institutional reform and productivity gains, it is a risky one. We must learn to walk, deliberately, consistently and structurally, before attempting to sprint. Otherwise, we risk falling harder than we imagine.

The writer is an economics researcher at the Centre for Strategic and International Studies (CSIS).