Indonesia's economy needs outward-looking policy for growth, expert says

Indonesia's economic growth is hampered by an "inward-looking" policy that overlooks the crucial foreign sector, according to Prof. Didik J. Rachbini, an economics expert and Rector of Universitas Paramadina. He argues that current economic strategies, overly focused on domestic affairs, have resulted in only moderate growth of around 5%, falling short of the potential seen in countries like Vietnam, which has achieved annual growth rates of up to 8.3%.

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The weakness, deficiency, or even error in economic policy related to efforts to increase economic growth is primarily one thing: neglecting the foreign sector. All efforts and dynamics so far have been too inward-looking.

Rachbini asserts that a fundamental shift towards an "outward-looking" economic policy is essential for Indonesia to achieve higher growth. Such a transformation, he explains, would create a system of incentives, improve infrastructure, and foster a more efficient and welcoming bureaucracy, thereby attracting significant foreign investment. Simultaneously, domestic investment would flourish alongside foreign capital inflows, driven by an export-oriented policy framework.

This strategic reorientation would significantly benefit Indonesia's industrial sector, allowing it to develop far more robustly than at present, supported by strong national resources. Rachbini emphasizes that achieving growth rates of seven or eight percent, comparable to Vietnam's, is impossible without this change in economic orientation. Relying solely on the domestic market will likely keep growth rates at a modest 5% or even lower.

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If this policy weakness can be overcome and economic policy is transformed to be outward-looking, then foreign investment will come because there is a system of incentives, good infrastructure support, and a friendly and efficient bureaucracy.

While acknowledging that Indonesia does engage in foreign trade, attract foreign investment, and pursue downstream processing, Rachbini stresses that the foreign sector has not been prioritized as the primary engine for structural transformation and industrialization. Current policies remain too focused on the domestic market, import substitution, resource control, and domestic consumption. He calls for a reversal to policies that penetrate international markets with strong industrial competitiveness, export orientation, and the utilization of global investment and supply chains.

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To achieve growth of seven or eight percent like Vietnam, a change in economic policy orientation from inward-looking to outward-looking must be absolutely done.

Rachbini concludes that higher economic growth is unattainable without a strategic re-evaluation of the foreign sector and the implementation of effective export-oriented policies. He argues that for a country as large as Indonesia, the domestic market is important but insufficient on its own to foster world-class industrialization. The key to achieving this lies in effectively managing the foreign sector through export-focused policies.

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The problem is that the foreign sector has not been made the main engine of structural transformation and industrialization. Policies are still relatively too oriented towards the domestic market, import substitution, resource control, and domestic consumption.