Jakarta. Indonesia is aiming high, but the private sector is "cautiously optimistic."

The government has set a 5.4 percent growth target for 2026, a number intended to signal resilience amid global uncertainty. But for Shinta Widjaja Kamdani, chairwoman of the Indonesian Employers Association (Apindo), the figure looks more aspirational than inevitable. 

“People may seem optimistic, but for the business community, it’s more a sense of being cautiously optimistic," Shinta told Beritasatu TV's Investor Market Today.

The government is leaning heavily on private enterprise to meet its goal. Investment inflows, fiscal spending, and consumer demand are seen as the three pillars of expansion. If these align, Indonesia might meet its growth target. Yet the external backdrop is clouded with risks: US–China trade wars, US tariffs on Indonesia, and geopolitical frictions that could sap momentum.

Domestically, structural weaknesses continue to weigh on competitiveness. “We are still trapped in a high-cost economy,” Shinta says. Logistics costs remain significantly higher than in Malaysia or Singapore, while energy costs are also more expensive. Textile producers, for example, pay far more for electricity than regional peers.

The cost of capital adds another burden. According to Shinta, lending rates in Indonesia run between 8 percent and 14 percent, compared with 4 percent to 6 percent in much of ASEAN. That gap discourages investment and curbs expansion.

Bureaucracy compounds the challenge. The World Bank’s Business Ready 2024 report found foreign companies can spend up to 65 days navigating permits to set up a business in Indonesia, versus just seven to 10 days in neighboring Singapore and Vietnam. Without faster and more predictable approvals, investors may channel capital elsewhere in the region.

Even if investment gains traction, household consumption --the economy’s largest growth driver-- remains fragile. Shinta warns that Indonesia’s middle class, long touted as a demographic advantage, is losing purchasing power.

The number of Indonesians counted as middle class fell from over 57 million in 2019 to just under 48 million in 2024. Inflation overall is at a manageable rate of 2.37 percent, but middle-class essentials are rising faster: education costs jumped 5.8 percent in July, and healthcare nearly 5 percent. Wages, however, are lagging, with average formal-sector salaries up only 3.8 percent year-on-year in February, barely keeping pace.

The labor market reveals another contradiction. While Indonesia has an abundance of workers, too few possess the skills needed for higher-value industries. This mismatch keeps productivity low and discourages firms from moving up the value chain. Human capital, Shinta stresses, remains a binding constraint.

Still, Indonesia is hardly stagnating. Growth reached 5.12 percent in the second quarter of 2025, according to the Central Statistics Agency (BPS). Investment and exports were bright spots, with foreign sales of goods and services surging more than 10 percent. But household consumption, at under 5 percent, remains below pre-pandemic norms and too sluggish for an economy so reliant on domestic spending.

The private sector is ready to play its part, Shinta insists, but the government must ease logistic costs, lower credit barriers, and accelerate reforms to make Indonesia a more compelling place to do business.

"Investors who are already here need faster services, a reliable energy supply, and policy stability. Without that, fiscal incentives are only an upfront attraction, not a long-term retention tool," Shinta concluded.

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