Economy projected to grow 5% next year, early de-industrialization in the spotlight

Published on 30/12/2024 GMT+7 Reading time

Indonesia's economic growth is estimated to remain stagnant at 5 percent in 2025 amidst the absence of a policy strategy capable of freeing the industrial sector from the trap of early deindustrialization.

This condition can be seen from the Purchasing Managers' Index (PMI) which continues to decline until it enters the contraction zone or below 50. The industrial sector, which is one of the main pillars of the economy, has only been able to grow lowly in the range of 3-4 percent in recent years.

Senior Economist at the Institute for Development of Economics and Finance (INDEF), Didik J Rachbini, assessed that this stagnant economic growth is the impact of the lack of strategic policies in the industrial sector.

"With the industrial sector being ignored without meaningful policies like this, is it reasonable for us to hope for 8 percent growth?" Didik said in a statement, as quoted on Friday, December 27, 2024.

He suggested the need for a re-industrialization strategy based on Indonesia's natural resources. According to him, the resource-based industry, export-led industry, or outward-looking industry approach has proven successful in many industrial countries.

"Without a change in strategy like this, it is impossible to achieve the 8 percent growth target. An industrial strategy that is able to compete in the international market is the key to achieving this target," he cited.

In addition to problems in the industrial sector, Didik also highlighted fiscal problems, especially the increasing state debt. From 2010 to 2024, the debt to GDP ratio increased from 26 percent to 38.55 percent. The total government debt was recorded at Rp8,473.90 trillion (US$524.5 billion) as of September 2024.

According to Didik, this fiscal policy leads to an unhealthy political economy of debt. Indonesia's debt interest rate is the highest in the ASEAN region, reaching 7.2 percent, which is considered unreasonable.

"The interest rate on this debt bond is the highest compared to ASEAN countries. Indonesia must raise the interest rate with major consequences imposed on the people through taxes," he said.

Didik emphasized the importance of fiscal policy reform and industrial strategy to ensure higher and sustainable economic growth in the future.

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