By Ryan Kiryanto, Senior Economist and Associate Faculty Member at the Indonesian Banking Development Institute
Recently, a public debate has emerged regarding the results of evaluations by two international rating agencies—Fitch Ratings and Moody’s Ratings—whose assessments of Indonesia’s credit rating have been deemed “unwelcome” by some parties, particularly policymakers in the country.
Various statements have emerged from government policymakers, essentially expressing “disagreement” with the assessments released by the two rating agencies. Among independent economists, most have voiced agreement and urged policymakers to carefully consider the critical and constructive feedback from Fitch and Moody’s and to act on it promptly so that the views or perceptions of these two rating agencies improve and are not followed by other international rating agencies, such as Standard & Poor’s (S&P).
Fitch Ratings revised Indonesia’s credit rating outlook to negative from previously stable, while maintaining the long-term foreign-currency issuer default rating (IDR) at “BBB.” This report was released last Wednesday (March 4, 2026).
A month earlier, Moody’s Ratings had already downgraded Indonesia’s outlook to negative from stable, although it maintained Indonesia’s debt rating at Baa2, an investment-grade rating with medium risk.
The decision by both rating agencies to revise their outlooks followed rising policy uncertainty and the weak consistency and credibility of Indonesia’s economic policy mix, particularly amid signs of “centralized decision-making.”
Fitch views such dynamics as having the potential, if sustained, to weaken the medium-term fiscal outlook, shift investor sentiment from positive to negative, and place further pressure on Indonesia’s external resilience.
Moody’s explicitly noted that governance practices that do not yet meet best standards and rising fiscal risks—including the potential widening of the 2026 State Budget (APBN) deficit to 2.9 percent of gross domestic product (GDP)—are the primary factors behind the “adjustment” of the credit outlook.
Regarding the need for immediate improvements in governance—which aligns with the TARIF principles (Transparency, Accountability, Responsibility, Independence, Fairness)—Moody’s also highlighted the issue of increasingly unpredictable government policies (policy uncertainty).
In fact, Moody’s highlighted the suboptimal synchronization, harmonization, and coordination among policies—including the lack of consistency in communication with the market and the public sphere. Thus, the outlook revision was driven by concerns over fiscal discipline and could lead to downward revisions in the outlook projections for a number of state-owned enterprises.
Nevertheless, Fitch assesses that Indonesia still possesses a number of relatively strong economic foundations. A track record of macroeconomic stability and resilience, solid medium-term growth prospects, a government debt ratio that remains moderate, and external risk mitigation deemed still sufficiently adequate are the key factors keeping Indonesia’s rating at the investment-grade level.
However, Fitch also underscores that these fundamental strengths remain constrained by several structural weaknesses, including a relatively low government revenue ratio, a high debt interest burden, and governance indicators (within the government and government-owned institutions or agencies) that still lag behind those of other BBB-rated countries, which limit Indonesia’s fiscal flexibility.
Fiscal Management Credibility
Fitch notes a degree of uncertainty regarding the direction of fiscal policy. So far, Indonesia has continued to adhere to its long-standing fiscal discipline rules, namely by limiting the budget deficit to a maximum of 3 percent of GDP. Fitch believes that the Indonesian government will continue to uphold this policy.
The issue is that Fitch observes that pressures on fiscal management are becoming increasingly evident. The government has set a high economic growth target of 8 percent with an extremely low poverty rate of 0 percent—a political target that urgently requires a larger, targeted, and measured boost in government spending.
At the same time, various social programs continue to expand, reflecting an increasingly evident “populist policy” that is straining government spending. The Free Nutritious Meals (MBG) program, for example, is estimated to account for approximately 1.3 percent of GDP during the 2025–2029 period. If this spending is accelerated in the first half of 2026, the risk of a widening deficit will almost certainly materialize.
A further issue is that, to finance these large-scale social programs—whether consciously or not—there is a gradual tendency to “relax” (read: loosen) the mix of fiscal and monetary policies with a consistent “pro-growth” stance.
This would not be a serious issue if its implementation remained within the framework of sound governance and policy-making principles. Otherwise, there is cause for concern that it could increase systemic risks to macroeconomic stability and the financial system. This is the key point highlighted in Fitch’s report.
In Fitch’s projection, Indonesia’s fiscal deficit is expected to reach 2.9 percent of GDP in 2026, higher than the government’s target of 2.68 percent, with an absolute value of Rp689.1 trillion. Fitch’s projection stems from more conservative revenue assumptions, primarily because economic growth is expected to stall or even slow—due to rising geopolitical risks and falling commodity prices in global markets—as well as short-term impacts from the weakening purchasing power of the middle class, which is suppressing aggregate demand and affecting business performance, thereby limiting efforts to boost tax revenue.
In line with Fitch, Moody’s also highlighted potential fiscal risks as a consequence of public spending policies and social programs that tend to be expansive through budget reallocation and cuts in other budget items—including the infrastructure budget, which could actually sustain the pillars of economic productivity in a sustainable manner.
The capital- and labor-intensive nature of infrastructure development, as well as its multi-year scope, is considered appropriate to prioritize once again in order to support economic activity broadly—due to the multiplier effect of infrastructure development and its leverage on the economy. This is because such projects will create jobs, absorb labor, increase public income, and boost domestic consumption, thereby enabling the achievement of solid, inclusive, and sustainable growth above 5 percent.
Given the above, it is appropriate for the “positive input” from these two international rating agencies to serve as a reference for improving governance—from policy formulation, implementation, monitoring, to post-implementation evaluation—so that budget management can be more optimal, productive, and credible.
In other words, it is neither the time nor the place for anyone to (continue to) make excuses regarding the “valuable input” from Fitch and Moody’s, as such “defenses” are out of step with the expectations of market participants and the public. Market participants (i.e., businesspeople, investors, economic actors) and the public (i.e., civil society) are certainly following the developments unfolding amid the nation’s struggle to advance to the ranks of an industrialized nation by 2045, when the “Golden Age of Indonesia” is realized.
Optimizing Revenue Sources
At a time when efforts to expand the budget to support various costly social programs are being intensified, there has been almost no convincing statement regarding efforts to boost government revenue in order to achieve a healthy, credible, and resilient budget balance. Here, Fitch estimates that government revenue will only amount to 13.3 percent of GDP in the 2026–2027 period, which is significantly lower than the average for BBB-rated countries, which typically reach around 25.5 percent of their respective GDPs.
Government revenue in 2025 is projected to weaken due to a series of factors, namely suboptimal tax collection, the cancellation of nearly all planned 0.1 percent value-added tax (VAT) hikes as mandated by law, the redirection of state-owned enterprise (SOE) dividends amounting to approximately 0.4 percent of GDP to a new sovereign wealth fund (SWF) named Daya Anagata Nusantara (known as Danantara), as well as various tax refunds (restitutions) that are likely temporary.
For the record, Danantara is an Investment Management Agency (BPI) owned by the Indonesian government that was officially launched on February 24, 2025, functioning as a manager of strategic assets and a sovereign wealth fund to consolidate and optimize the nation’s wealth—including SOEs—to drive economic growth, industrial downstreaming, and economic self-reliance.
In an effort to boost revenue, the government is indeed working hard to improve taxpayer compliance. However, Fitch believes that in the short term, these measures will not result in a significant surge in revenue. Consequently, the fiscal space does not have the luxury for massive spending as it is becoming increasingly constrained. Therefore, reprioritizing government programs is crucial to ensure that fiscal spending room becomes more ample, flexible, and credible.
Finance Minister Purbaya Yudhi Sadewa’s proposal to consider cutting the MBG program budget by Rp335 trillion this year—should a surge in global crude oil prices trigger the 2026 state budget deficit to exceed the safe threshold of 3 percent of GDP—represents a logical, groundbreaking step amid ongoing external pressures.
Reportedly, the government has conducted a risk simulation (stress test) regarding the possibility of global oil prices averaging US$92 per barrel annually due to the escalation of the Iran-U.S.-Israel conflict. According to the simulation results, the state budget deficit could widen to 3.6 percent of GDP if oil prices remain at that level throughout the year.
To prevent the deficit from widening, the government is preparing a number of measures to adjust state spending, one of which is through budget efficiency in a number of programs, including the MBG. This is an appropriate and forward-looking tactical breakthrough measure at a time when fiscal capacity is increasingly limited.
Interestingly, Moody’s and Fitch also noted the role of Danantara, which is designed to improve the efficiency of state-owned enterprises while promoting strategic investment. By 2026, the agency plans to invest approximately US$26 billion—equivalent to 1.7 percent of GDP—primarily in downstream projects in the mineral, energy, food, and agricultural sectors.
In this regard, Moody’s highlighted uncertainties regarding Danantara’s governance of the state wealth fund. The rating agency expressed concern that the scale of assets managed by Danantara is massive, with a mandate that is both broad and ambitious. Meanwhile, aspects of governance, funding mechanisms, and investment priorities are deemed “not yet fully transparent.”
Certainly, the material issues above must be a concern for the government in general and Danantara’s leadership in particular so that they can promptly address Moody’s critical remarks. If it is acknowledged that communication techniques have not been optimal—resulting in many stakeholders “failing to understand”—then improvements to both the mechanisms and substance of communication must be made immediately.
Maintaining External Resilience
From an external perspective, Fitch projects that the current account deficit (CAD) will widen to around 0.8 percent of GDP in 2026 due to a decline in net exports. It should be noted that over the past three to four years, there has been a “price normalization” of commodities, particularly coal, in global markets. This is what has caused the trade surplus (exports minus imports) to consistently decline, even though the trade balance has remained in surplus for 69 consecutive months since May 2020.
What is impressive is that even as external pressures intensify—especially with the increasingly massive, escalating negative impacts of the war in the Middle East—Indonesia’s foreign exchange reserves (cadev) remain relatively adequate. With the support of the policy requiring the retention of foreign exchange from natural resource exports (DHE) (due to the mandatory policy of placing DHE into the domestic financial system), foreign exchange reserves are expected to be sufficient to finance the government’s external obligations and import needs for a sufficient period of time.
Indonesia’s foreign exchange reserves as of the end of February 2026 stood at USD 151.9 billion, down from USD 154.6 billion at the end of January 2026, primarily due to the government’s foreign debt payments and the need to stabilize the rupiah exchange rate amid recent rising global uncertainty. The USD151.9 billion foreign exchange reserves position is equivalent to financing 6.1 months of imports or 5.9 months of imports and external debt payments, which means it is above the international adequacy standard of around 3 months of imports.
Economic Growth Outlook
Amid the dynamics outlined above, Bank Indonesia (BI), as the central bank, currently faces an increasingly complex mandate: to maintain economic stability (by controlling inflation, stabilizing the rupiah exchange rate, and promoting a reliable and efficient payment system) while also implementing appropriate, measured, and targeted macroprudential policies to contribute to accelerating economic growth.
Based on the BI Board of Governors’ Meeting (RDG BI) held on February 18–19, 2026, BI decided to maintain the BI Rate at 4.75 percent; the Deposit Facility at 3.75 percent; and the Lending Facility at 5.50 percent, with the aim of maintaining rupiah stability and controlling inflation amid global uncertainty.
BI’s preemptive, anticipatory, and forward-looking strategic policies have so far been deemed to be on the right track. At the very least, the policies issued to date—known as the “policy mix,” a synergistic combination of monetary, macroprudential, and payment system policies—have succeeded in instilling a sense of comfort and confidence among market participants and the general public.
These tactical, timely, and appropriately calibrated policies are, at the very least, expected to uphold Fitch’s assessment that Indonesia’s economic fundamentals remain sufficiently strong. Fitch projects economic growth to remain stable at around 5 percent in 2026–2027, nearly double the average of BBB-rated countries, which grow at around 2.5 percent.
Economic growth will be driven primarily by solid domestic demand, particularly increased government spending, targeted and effective investments by Danantara as a “game changer,” measured and procedural monetary policy easing, comprehensive structural reforms by government agencies to reduce economic bottlenecks (debottlenecking), as well as the continued expansion of downstream industrialization programs based on natural resources and the broader agricultural sector.
This debottlenecking is intended to enhance the country’s competitiveness, improve the effectiveness and efficiency of government bureaucracy, and improve the ICOR (Incremental Capital-Output Ratio) to make it more investor-friendly. It should be noted that Indonesia’s current ICOR is quite high, ranging from 5.79 to 6.47 (2025–2026 data), indicating that investment efficiency remains low and causing economic growth to stagnate at around 5 percent.
Indonesia’s ICOR figure is the highest in Southeast Asia, far exceeding Vietnam’s (3–4), which in previous decades had been higher than Indonesia’s, thus becoming a serious obstacle to achieving economic growth above 5 percent. An ICOR figure above 6 means that approximately six units of investment are required to generate one additional unit of output, which also reflects high economic costs—one of which is licensing costs caused by bureaucratic inefficiency.
Ultimately, the comprehensive and thorough implementation of structural reforms—which has been frequently and repeatedly emphasized through various official and unofficial statements—is non-negotiable, a trump card, and the key to improving Indonesia’s standing from various perspectives. Thus, Indonesia will be able to stand on equal footing with other developed nations, supported by high-quality, inclusive, and sustainable economic growth. Hopefully.
Analyzing Fitch and Moody’s Reports: Structural Reforms as the Next Step
By Ryan Kiryanto, Senior Economist and Associate Faculty Member at the Indonesian Banking Development Institute
Recently, a public debate has emerged regarding the results of evaluations by two international rating agencies—Fitch Ratings and Moody’s Ratings—whose assessments of Indonesia’s credit rating have been deemed “unwelcome” by some parties, particularly policymakers in the country.
Various statements have emerged from government policymakers, essentially expressing “disagreement” with the assessments released by the two rating agencies. Among independent economists, most have voiced agreement and urged policymakers to carefully consider the critical and constructive feedback from Fitch and Moody’s and to act on it promptly so that the views or perceptions of these two rating agencies improve and are not followed by other international rating agencies, such as Standard & Poor’s (S&P).
Fitch Ratings revised Indonesia’s credit rating outlook to negative from previously stable, while maintaining the long-term foreign-currency issuer default rating (IDR) at “BBB.” This report was released last Wednesday (March 4, 2026).
A month earlier, Moody’s Ratings had already downgraded Indonesia’s outlook to negative from stable, although it maintained Indonesia’s debt rating at Baa2, an investment-grade rating with medium risk.
The decision by both rating agencies to revise their outlooks followed rising policy uncertainty and the weak consistency and credibility of Indonesia’s economic policy mix, particularly amid signs of “centralized decision-making.”
Fitch views such dynamics as having the potential, if sustained, to weaken the medium-term fiscal outlook, shift investor sentiment from positive to negative, and place further pressure on Indonesia’s external resilience.
Moody’s explicitly noted that governance practices that do not yet meet best standards and rising fiscal risks—including the potential widening of the 2026 State Budget (APBN) deficit to 2.9 percent of gross domestic product (GDP)—are the primary factors behind the “adjustment” of the credit outlook.
Regarding the need for immediate improvements in governance—which aligns with the TARIF principles (Transparency, Accountability, Responsibility, Independence, Fairness)—Moody’s also highlighted the issue of increasingly unpredictable government policies (policy uncertainty).
In fact, Moody’s highlighted the suboptimal synchronization, harmonization, and coordination among policies—including the lack of consistency in communication with the market and the public sphere. Thus, the outlook revision was driven by concerns over fiscal discipline and could lead to downward revisions in the outlook projections for a number of state-owned enterprises.
Nevertheless, Fitch assesses that Indonesia still possesses a number of relatively strong economic foundations. A track record of macroeconomic stability and resilience, solid medium-term growth prospects, a government debt ratio that remains moderate, and external risk mitigation deemed still sufficiently adequate are the key factors keeping Indonesia’s rating at the investment-grade level.
However, Fitch also underscores that these fundamental strengths remain constrained by several structural weaknesses, including a relatively low government revenue ratio, a high debt interest burden, and governance indicators (within the government and government-owned institutions or agencies) that still lag behind those of other BBB-rated countries, which limit Indonesia’s fiscal flexibility.
Fiscal Management Credibility
Fitch notes a degree of uncertainty regarding the direction of fiscal policy. So far, Indonesia has continued to adhere to its long-standing fiscal discipline rules, namely by limiting the budget deficit to a maximum of 3 percent of GDP. Fitch believes that the Indonesian government will continue to uphold this policy.
The issue is that Fitch observes that pressures on fiscal management are becoming increasingly evident. The government has set a high economic growth target of 8 percent with an extremely low poverty rate of 0 percent—a political target that urgently requires a larger, targeted, and measured boost in government spending.
At the same time, various social programs continue to expand, reflecting an increasingly evident “populist policy” that is straining government spending. The Free Nutritious Meals (MBG) program, for example, is estimated to account for approximately 1.3 percent of GDP during the 2025–2029 period. If this spending is accelerated in the first half of 2026, the risk of a widening deficit will almost certainly materialize.
A further issue is that, to finance these large-scale social programs—whether consciously or not—there is a gradual tendency to “relax” (read: loosen) the mix of fiscal and monetary policies with a consistent “pro-growth” stance.
This would not be a serious issue if its implementation remained within the framework of sound governance and policy-making principles. Otherwise, there is cause for concern that it could increase systemic risks to macroeconomic stability and the financial system. This is the key point highlighted in Fitch’s report.
In Fitch’s projection, Indonesia’s fiscal deficit is expected to reach 2.9 percent of GDP in 2026, higher than the government’s target of 2.68 percent, with an absolute value of Rp689.1 trillion. Fitch’s projection stems from more conservative revenue assumptions, primarily because economic growth is expected to stall or even slow—due to rising geopolitical risks and falling commodity prices in global markets—as well as short-term impacts from the weakening purchasing power of the middle class, which is suppressing aggregate demand and affecting business performance, thereby limiting efforts to boost tax revenue.
In line with Fitch, Moody’s also highlighted potential fiscal risks as a consequence of public spending policies and social programs that tend to be expansive through budget reallocation and cuts in other budget items—including the infrastructure budget, which could actually sustain the pillars of economic productivity in a sustainable manner.
The capital- and labor-intensive nature of infrastructure development, as well as its multi-year scope, is considered appropriate to prioritize once again in order to support economic activity broadly—due to the multiplier effect of infrastructure development and its leverage on the economy. This is because such projects will create jobs, absorb labor, increase public income, and boost domestic consumption, thereby enabling the achievement of solid, inclusive, and sustainable growth above 5 percent.
Given the above, it is appropriate for the “positive input” from these two international rating agencies to serve as a reference for improving governance—from policy formulation, implementation, monitoring, to post-implementation evaluation—so that budget management can be more optimal, productive, and credible.
In other words, it is neither the time nor the place for anyone to (continue to) make excuses regarding the “valuable input” from Fitch and Moody’s, as such “defenses” are out of step with the expectations of market participants and the public. Market participants (i.e., businesspeople, investors, economic actors) and the public (i.e., civil society) are certainly following the developments unfolding amid the nation’s struggle to advance to the ranks of an industrialized nation by 2045, when the “Golden Age of Indonesia” is realized.
Optimizing Revenue Sources
At a time when efforts to expand the budget to support various costly social programs are being intensified, there has been almost no convincing statement regarding efforts to boost government revenue in order to achieve a healthy, credible, and resilient budget balance. Here, Fitch estimates that government revenue will only amount to 13.3 percent of GDP in the 2026–2027 period, which is significantly lower than the average for BBB-rated countries, which typically reach around 25.5 percent of their respective GDPs.
Government revenue in 2025 is projected to weaken due to a series of factors, namely suboptimal tax collection, the cancellation of nearly all planned 0.1 percent value-added tax (VAT) hikes as mandated by law, the redirection of state-owned enterprise (SOE) dividends amounting to approximately 0.4 percent of GDP to a new sovereign wealth fund (SWF) named Daya Anagata Nusantara (known as Danantara), as well as various tax refunds (restitutions) that are likely temporary.
For the record, Danantara is an Investment Management Agency (BPI) owned by the Indonesian government that was officially launched on February 24, 2025, functioning as a manager of strategic assets and a sovereign wealth fund to consolidate and optimize the nation’s wealth—including SOEs—to drive economic growth, industrial downstreaming, and economic self-reliance.
In an effort to boost revenue, the government is indeed working hard to improve taxpayer compliance. However, Fitch believes that in the short term, these measures will not result in a significant surge in revenue. Consequently, the fiscal space does not have the luxury for massive spending as it is becoming increasingly constrained. Therefore, reprioritizing government programs is crucial to ensure that fiscal spending room becomes more ample, flexible, and credible.
Finance Minister Purbaya Yudhi Sadewa’s proposal to consider cutting the MBG program budget by Rp335 trillion this year—should a surge in global crude oil prices trigger the 2026 state budget deficit to exceed the safe threshold of 3 percent of GDP—represents a logical, groundbreaking step amid ongoing external pressures.
Reportedly, the government has conducted a risk simulation (stress test) regarding the possibility of global oil prices averaging US$92 per barrel annually due to the escalation of the Iran-U.S.-Israel conflict. According to the simulation results, the state budget deficit could widen to 3.6 percent of GDP if oil prices remain at that level throughout the year.
To prevent the deficit from widening, the government is preparing a number of measures to adjust state spending, one of which is through budget efficiency in a number of programs, including the MBG. This is an appropriate and forward-looking tactical breakthrough measure at a time when fiscal capacity is increasingly limited.
Interestingly, Moody’s and Fitch also noted the role of Danantara, which is designed to improve the efficiency of state-owned enterprises while promoting strategic investment. By 2026, the agency plans to invest approximately US$26 billion—equivalent to 1.7 percent of GDP—primarily in downstream projects in the mineral, energy, food, and agricultural sectors.
In this regard, Moody’s highlighted uncertainties regarding Danantara’s governance of the state wealth fund. The rating agency expressed concern that the scale of assets managed by Danantara is massive, with a mandate that is both broad and ambitious. Meanwhile, aspects of governance, funding mechanisms, and investment priorities are deemed “not yet fully transparent.”
Certainly, the material issues above must be a concern for the government in general and Danantara’s leadership in particular so that they can promptly address Moody’s critical remarks. If it is acknowledged that communication techniques have not been optimal—resulting in many stakeholders “failing to understand”—then improvements to both the mechanisms and substance of communication must be made immediately.
Maintaining External Resilience
From an external perspective, Fitch projects that the current account deficit (CAD) will widen to around 0.8 percent of GDP in 2026 due to a decline in net exports. It should be noted that over the past three to four years, there has been a “price normalization” of commodities, particularly coal, in global markets. This is what has caused the trade surplus (exports minus imports) to consistently decline, even though the trade balance has remained in surplus for 69 consecutive months since May 2020.
What is impressive is that even as external pressures intensify—especially with the increasingly massive, escalating negative impacts of the war in the Middle East—Indonesia’s foreign exchange reserves (cadev) remain relatively adequate. With the support of the policy requiring the retention of foreign exchange from natural resource exports (DHE) (due to the mandatory policy of placing DHE into the domestic financial system), foreign exchange reserves are expected to be sufficient to finance the government’s external obligations and import needs for a sufficient period of time.
Indonesia’s foreign exchange reserves as of the end of February 2026 stood at USD 151.9 billion, down from USD 154.6 billion at the end of January 2026, primarily due to the government’s foreign debt payments and the need to stabilize the rupiah exchange rate amid recent rising global uncertainty. The USD151.9 billion foreign exchange reserves position is equivalent to financing 6.1 months of imports or 5.9 months of imports and external debt payments, which means it is above the international adequacy standard of around 3 months of imports.
Economic Growth Outlook
Amid the dynamics outlined above, Bank Indonesia (BI), as the central bank, currently faces an increasingly complex mandate: to maintain economic stability (by controlling inflation, stabilizing the rupiah exchange rate, and promoting a reliable and efficient payment system) while also implementing appropriate, measured, and targeted macroprudential policies to contribute to accelerating economic growth.
Based on the BI Board of Governors’ Meeting (RDG BI) held on February 18–19, 2026, BI decided to maintain the BI Rate at 4.75 percent; the Deposit Facility at 3.75 percent; and the Lending Facility at 5.50 percent, with the aim of maintaining rupiah stability and controlling inflation amid global uncertainty.
BI’s preemptive, anticipatory, and forward-looking strategic policies have so far been deemed to be on the right track. At the very least, the policies issued to date—known as the “policy mix,” a synergistic combination of monetary, macroprudential, and payment system policies—have succeeded in instilling a sense of comfort and confidence among market participants and the general public.
These tactical, timely, and appropriately calibrated policies are, at the very least, expected to uphold Fitch’s assessment that Indonesia’s economic fundamentals remain sufficiently strong. Fitch projects economic growth to remain stable at around 5 percent in 2026–2027, nearly double the average of BBB-rated countries, which grow at around 2.5 percent.
Economic growth will be driven primarily by solid domestic demand, particularly increased government spending, targeted and effective investments by Danantara as a “game changer,” measured and procedural monetary policy easing, comprehensive structural reforms by government agencies to reduce economic bottlenecks (debottlenecking), as well as the continued expansion of downstream industrialization programs based on natural resources and the broader agricultural sector.
This debottlenecking is intended to enhance the country’s competitiveness, improve the effectiveness and efficiency of government bureaucracy, and improve the ICOR (Incremental Capital-Output Ratio) to make it more investor-friendly. It should be noted that Indonesia’s current ICOR is quite high, ranging from 5.79 to 6.47 (2025–2026 data), indicating that investment efficiency remains low and causing economic growth to stagnate at around 5 percent.
Indonesia’s ICOR figure is the highest in Southeast Asia, far exceeding Vietnam’s (3–4), which in previous decades had been higher than Indonesia’s, thus becoming a serious obstacle to achieving economic growth above 5 percent. An ICOR figure above 6 means that approximately six units of investment are required to generate one additional unit of output, which also reflects high economic costs—one of which is licensing costs caused by bureaucratic inefficiency.
Ultimately, the comprehensive and thorough implementation of structural reforms—which has been frequently and repeatedly emphasized through various official and unofficial statements—is non-negotiable, a trump card, and the key to improving Indonesia’s standing from various perspectives. Thus, Indonesia will be able to stand on equal footing with other developed nations, supported by high-quality, inclusive, and sustainable economic growth. Hopefully.
