Indonesian Economist Urges Outward-Looking Policies for 8% Growth

Senior Economist Didik J. Rachbini from the Institute for Development of Economics and Finance (Indef) has criticized the economic policies under President Prabowo Subianto, describing them as overly inward-looking and neglecting the crucial role of international trade.

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The weakness, deficiency, or even mistake in the economic policy related to efforts to increase economic growth is primarily one: neglecting the foreign sector. All efforts and dynamics so far have been too inward-looking. Only the domestic sector has been packaged with various policy controversies, but the results have remained moderately growing around 5 percent.

Rachbini asserted that Indonesia needs to transition to an outward-looking economic strategy. He pointed out that the current focus on domestic affairs, despite various policy controversies, has only resulted in moderate growth of around 5 percent. He warned that government spending, which has been propping up the economy, is not a sustainable long-term solution due to fiscal challenges on both revenue and expenditure sides.

Furthermore, Rachbini noted that domestic consumption, a traditional pillar of growth, is becoming less reliable as the middle class shrinks. While Indonesia's large population offers a significant domestic market, he stressed that this alone is insufficient for developing world-class industries. The key, he argued, lies in enabling Indonesian businesses to compete on the global stage, thereby attracting substantial foreign exchange.

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The outward-looking policy becomes important because it can encourage Indonesia to exist in global competition with the hope of obtaining large foreign exchange.

An outward-looking policy, according to Rachbini, is essential for Indonesia to establish its presence in global competition and secure significant foreign exchange earnings. He cautioned that continuing with an inward-looking approach will likely keep economic growth stagnant at current levels, as exports have not yet become a strong enough engine to drive industrial transformation. He concluded that to achieve world-class industrialization, Indonesia must actively manage its foreign sector through export-oriented policies.

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To achieve that, there is no other way than to manage the foreign sector with an export-oriented policy.