April 28, 2025 | 09:02 am
TEMPO.CO, Jakarta - In its latest projections, the International Monetary Fund (IMF) forecasts Indonesia's economic growth at 4.7 percent in 2025, lower than its January projection of 5.1 percent. A similar outlook was presented by the World Bank in its Indonesia Macro Poverty Outlook report.
Achmad Nur Hidayat, an economist from the National Development University Veteran Jakarta, said the government must respond seriously to the revised forecasts issued by the IMF and the World Bank.
"We have to treat IMF's revision as a serious alarm that our economic policies need to be reconstructed on a new foundation," Achmad stated in a written statement received by Tempo on Sunday, April 27.
Achmad emphasized that the need for a new economic foundation arises because the downgrade in Indonesia's growth prospects is not solely driven by external factors.
"Trump's tariff policies were a trigger, but they are not the sole cause," he said.
The founder of the Narasi Institute also recommended five new economic strategies the government could adopt to boost growth.
First, greater protection of domestic industries must be pursued intelligently. He urged the government to target import substitution for strategic products and to foster an innovation ecosystem based on domestic technology.
Second, the fiscal approach must become more progressive and selective. Rather than expanding conventional subsidies, the government should prioritize productivity-based spending such as vocational education, strengthening MSMEs, and providing incentives for high value-added manufacturing sectors.
Third, policies should be made in favor of the middle class. "The middle class is the engine of consumption and economic stability," he said.
Fourth, the government must begin restructuring long-term debt and reevaluate unproductive infrastructure projects. He stressed that focus should shift to projects that are based on what the public needs, such as public transportation, sanitation, and renewable energy.
Fifth, Indonesia must redesign its investment incentives with clear targets, namely investments that generate quality jobs and technology transfers. He recommended tightening government oversight of speculative investments.
Meanwhile, the Financial Services Authority (OJK) has urged financial service institutions to enhance prudence in risk management efforts to anticipate an economic slowdown.
OJK chief executive of Insurance, Guarantee, and Pension Fund Supervision Ogi Prastomiyono warned that an economic slowdown could affect the performance of non-bank financial service industries such as pension funds and insurance companies.
"For pension funds, slower economic growth could lower investment returns, thereby reducing their ability to meet future obligations," he said as Antara reported on April 27.
As for the insurance sector, Ogi stated that an economic slowdown could impact the investment returns of unit-linked products and increase risks related to claims or cash withdrawals. He added that a decline in purchasing power could dampen demand for insurance products, particularly investment-linked insurance.
"These impacts will require non-bank financial services to exercise greater prudence in managing risks and to innovate in their product offerings," Ogi said.
The IMF's latest projections for Indonesia's economic growth are contained in the April 2025 edition of its World Economic Outlook report, which analyzes the impact of the US' tariff policies under President Donald Trump.
"Emerging Asian countries, particularly the Association of Southeast Asian Nations (ASEAN), are among those most affected by the tariffs," the IMF stated in its report. The projected economic growth for emerging Asia in 2025 and 2026 stands at 4.6 percent.
Indonesia's projected growth is roughly in line with other emerging Asian countries. Malaysia, for example, is forecast to grow by 4.1 percent in 2025 and 3.8 percent in 2026. Vietnam is expected to grow by 5.2 percent in 2025 and 4.0 percent in 2026. Meanwhile, China's economy is projected to expand by 4 percent in both 2025 and 2026.
Anastasya Lavenia contributed for this article.
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