Jakarta. As Indonesia enters 2026, the debate over economic growth is increasingly shaped by a widening gap between ambition and capacity. Rather than focusing on how high growth targets are set, economists argue the more pressing question is whether the economy’s underlying foundations are strong enough to support faster and more durable expansion.

Those concerns emerged during a discussion hosted by B-Universe media group titled Outlook 2026, where participants highlighted structural constraints that continue to limit Indonesia’s growth potential.

University of Indonesia Professor Mohammad Ikhsan, or better known as Prof Ican said that Indonesia’s potential growth currently remains around 5%, based on productivity, labor absorption, and institutional capacity. Pushing growth beyond that level, he added, is possible but only if it is accompanied by sustained structural adjustment.

“Growth is possible, but without structural adjustment, it will not be meaningful,” Prof Ican said, warning that higher growth without quality job creation risks widening inequality.

Private Sector Confidence as a Binding Constraint
With household consumption showing signs of moderation and government spending constrained by fiscal pressures, economists widely agreed that the private sector must play a larger role in driving growth. The challenge, however, lies in confidence.

Paramadina University Economist Wijayanto Samirin pointed to a range of indicators suggesting businesses are becoming more cautious. Declining holiday travel, quieter tourism hubs, weaker cement demand, and slower-than-normal motorcycle sales all signal pressure on domestic activity.

These trends, he argued, reflect more than short-term cyclical weakness. “Uncertainty has shifted from being a cost of doing business to fear of doing business,” Wijayanto said.

According to him, restoring confidence in the private sector would have wide-ranging effects. “If the private sector feels comfortable doing business, consumption will rise through job creation, tax revenue will increase, investment will follow, and net exports will improve,” he said.

Without that comfort, Wijayanto warned, growth expectations risk becoming detached from what firms are willing, or able, to execute.

Investment Stuck Below Potential
Confidence issues feed directly into investment performance, which economists say remains well below Indonesia’s potential, particularly for higher-value activities.

University of Indonesia Economist Rizki Siregar highlighted Indonesia’s relatively stagnant position in global value chains compared with regional peers. “Vietnam’s participation in global value chains is close to 60%, Thailand around 50%, while Indonesia remains persistently below that level,” she said.

According to Rizki, the problem is not a lack of interest, but structural bottlenecks that raise costs and reduce incentives for firms to move up the value chain. These include regulatory uncertainty, governance risks, and what she described as a high bribery incidence, particularly among exporters.

“We are effectively punishing companies that want to compete globally,” she said, noting that around 41% of exporting firms face such risks.

Low innovation levels further limit competitiveness. “Only about 5% of firms engage in product innovation, and only around 3% in process innovation,” Rizki added. “That shows how limited the push for competitiveness still is.”

As a result, investment continues to concentrate in commodity-based sectors, supporting short-term growth but constraining productivity gains and economic resilience.

Growth Signals and Fiscal Reality
Some economists cautioned that headline growth figures may not fully reflect conditions on the ground, particularly for businesses and households. Another University of Indonesia Economist, Mervin Goklas, said growth should be read alongside real-economy constraints, noting that infrastructure gaps, climate-related disruptions, and uneven policy execution continue to shape business expectations ahead of 2026.

At the same time, fiscal pressures are narrowing the government’s policy space. Weak tax revenue growth and rising debt service obligations have reduced room for maneuver, sharpening trade-offs in public spending. Teuku Riefky warned that when a large share of tax revenue is absorbed by debt servicing, the focus must shift to spending quality. “When fiscal space is this limited, the issue is not how much the government spends, but whether that spending is productive enough to generate growth and future revenue,” he said.

The discussion ultimately converged on one point: growth ambitions will only be credible if they are matched by improvements in economic capacity.

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