On 20 October, Indonesian President Prabowo Subianto was inaugurated, and a new government assumed office at a pivotal moment in the country’s history. The country held the G20 presidency in 2022 and chairmanship of the Association of Southeast Asian Nations last year, and the 20-year National Long‐Term Development Plan (RPJPN) is due to expire next year. Two decades remain to advance progress toward the ambitious goal of attaining high-income status by the centenary of national independence, a path charted in Golden Indonesia 2045, the country’s long-term vision for sustainable development.
The newly drafted RPJPN 2025–2045 sets the foundation for a more socially inclusive, environmentally sustainable, economically resilient, and internationally integrated approach to development, with a view to turning the aspirations of Golden Indonesia 2045 into action and tackling the next generation of challenges. The entry of the new government represents an opportunity to take stock of Indonesian economic development, assess the risks and challenges confronting the country, and explore the future outlook.
Taking Stock: Rising Prosperity, Growing Influence
The Asian financial crisis in 1997–1998 precipitated an economic contraction of 13.6%, led to the downfall of the Suharto government, and enabled a democratic transition and the implementation of a suite of economic reforms (Basri 2018). In the decades since, Indonesia has undergone considerable economic development.
The country is now the world’s sixth-largest emerging market and tenth-largest economy in terms of purchasing power parity (World Bank 2024). The nation’s GDP per capita has grown eightfold to $13,251, and poverty has more than halved since 1999 (Mabhubani 2023). Its expanding middle class now comprises 52 million people, and a further 115 million Indonesians form part of an aspiring middle class that has moved out of poverty but is yet to attain full economic security (World Bank 2019).
Infrastructure has also expanded dramatically, with substantial government investment into national connectivity yielding a host of new rail, road, sea, and air networks. This has resulted in 50 new ports and airports, 43 dams, and 1.1 million hectares of new irrigation pipelines in the last decade alone (PwC 2024a). The 2,700 km of new toll roads built during the previous administration is more than 3 times the 821 km constructed between 1978 and Jokowi’s election in 2014 (The Economist 2022a; PwC 2024a).
Electricity coverage is now near universal, with 99.82% of villages linked to electricity grids (PwC 2024b; ADB 2016). Digital connectivity has also broadened. The share of Indonesian citizens with internet access has skyrocketed from 34.5% to 79.5% since 2015 (Kominfo 2024). Indonesia also rebounded rapidly from the pandemic, regaining upper-middle-income status in July 2023 after a strong first phase in its COVID-19 recovery plans (World Bank 2024).
On the regional and international stage, the country held the G20 Presidency in 2022 and chaired the Association of Southeast Asian Nations in 2023. This brought global recognition as a model of astute and agile diplomacy amid heightened geopolitical turbulence, a fragile COVID-19 recovery, and soaring food and energy inflation (Istania and Darmastuti 2022). Despite pessimistic expectations for the G20, Indonesia managed to effectively engage with all parties and emerged as a powerful mediator on the global stage (Sonobe et al. 2024). The country used its platform to diffuse benefits to emerging economies in the Global South under the vision of “leave no one behind,” with 361 new cooperation projects valued at $238 billion, ranging from an agricultural training facility in Fiji to disaster risk training at the Caribbean Community (Chaturvedi 2023).
Advancing Sustainable Development and Addressing the Next Generation of Challenges
Despite the significant advances and achievements of recent years, several challenges will need to be overcome if the pace and scale of economic development are to be sustained, resilience fortified, and the objectives of Golden Indonesia 2045 met.
Inequality remains a persistent challenge, and the coverage of social services is still uneven. The four richest men in Indonesia hold more wealth than the poorest 100 million people combined (Bangkok Post 2018). The middle class dropped from 23% of the population in 2018 to 17% in 2023 (Basri, 2024). Indonesia’s students suffered 11 months of learning loss as a result of the pandemic, and only 6.41% of citizens have achieved university-level education (Aditiya 2023; World Bank 2023b). Notwithstanding recent progress in healthcare provision, a fifth of children under five remain stunted (UNICEF, 2022). The Asian Development Bank estimates that only 8%–15% of the population has access to basic pensions (ADB 2024). Rural–urban divides are stark, with roughly half of rural citizens—comprising 60 million people—still lacking an internet connection, for instance (Sutrisno 2024).
Indonesia is also highly exposed to climate change. Asia and the Pacific hosts 13 of the world’s 30 most climate-vulnerable countries, and Indonesia stands out as the most at-risk country in the region after the Philippines (World Bank 2023a; Hille 2024). The country is highly reliant on fossil fuels, with 84.41% of its energy coming from coal, oil, and gas (OECD 2023). Climate change and ecosystem degradation also pose risks to agricultural production and food security, with decreases in projected crop yields estimated at between 10% and 30% by 2050 (Dariah and Reuter 2024). Deforestation and land use change also account for 42% of greenhouse gas emissions in the country (World Bank 2023a).
The structure and composition of the economy require reform to effectively advance the next phase of development and ensure resilience. Almost two-thirds (59.9%) of employees remain locked in the informal sector (BPS 2024; Laksono 2024). Almost half of trade is based in the primary and extractive industries, with fossil fuels, raw materials, and agricultural products comprising 44% of exports (Damayanty 2015). These commodities are characterized by concentrated political economies internally and are susceptible to volatile prices externally. Services represent a key driver of structural transformation, growth, and development. Although these contribute 58% of value added in the national economy and employ over half of Indonesian workers, they remain underrepresented in the country’s exports (OECD 2024).
The Path Forward: Paving the Way to Golden Indonesia 2045
Although the new President Prabowo and cabinet have outlined 17 priority programs, a more focused agenda is required to tackle the interrelated challenges and more fully unlock the opportunities facing Indonesia. With this in mind, four key pathways can be identified to accelerate progress toward Golden Indonesia 2045.
Fostering Economic Growth, Diversification, and Resilience
The new administration has identified a target of 7%–8% growth during its term, far exceeding the average rate of 5% in recent years (Siregar 2021; The Economist 2024). This will require increased and more strategic investment, revenue-raising tax reforms, and movement up the value chain. Indonesia has a chronically low tax-to-GDP ratio of 12.1%, contrasting sharply with the OECD average of 34% (Basri 2024). This gap needs to be bridged to further increase spending. The introduction of the Core Tax Administration System and proposed value-added tax increase next year represent welcome initiatives upon which to build. Although recent efforts to foster “downstreaming” in the nickel value chain by banning raw material exports and encouraging domestic processing and manufacturing have yielded short-term results, unlocking services and digital trade present preferable pathways toward economic diversification and resilience (OECD 2024; The Economist 2024).
Improving Social Inclusion, Harnessing Human Capital, and Upskilling Workers
To address the socioeconomic disparities across the Indonesian archipelago and harness its human potential, a more equitable and inclusive economy must be crafted. The essential first step is to pave the way toward formal employment for a greater proportion of the workforce (Laksono 2024). This would lead to multiple benefits, from expanding social protection for employees and accelerating their transition into the middle class to broadening the tax base for the government (Basri 2024). The development of an enabling ecosystem for upskilling and reskilling workers will also prove essential, including through scholarship programs, digital literacy initiatives, and targeted and vocational training (International Labour Organization 2024; Octavius et al. 2023; Kominfo 2024). There are bright spots in this picture. Indonesia’s female labor force participation is among the world’s highest at 50.39%, and the country has supported women’s empowerment by abolishing formal restrictions on asset ownership and credit access constraints (Mukhlisan 2024; UNDP 2023).
Accelerating the Green Transition and Prioritizing Environmental Sustainability
To improve economic resilience and environmental sustainability simultaneously, Indonesia needs to accelerate the green transition. In the energy sector, the establishment of the Cirata Floating Solar Power Plant—the third-largest in the world—represents an illustration of what is possible (ECEEE 2024). Reducing fossil fuel subsidies and domestic price caps on coal that artificially lower its price would enable the reallocation of revenues toward health and education (Erickson 2024; World Bank 2023a). While Indonesia has robust environmental protections in legislation, greater resources and personnel need to be devoted to their enforcement (World Bank 2023a). Air pollution is a further drag on economic development, and Jakarta frequently tops the list of the world’s most polluted cities (Parker 2023). This reduces educational outcomes and employee productivity and increases respiratory illness and mortality (Azhgaliyeva et al. 2024). The introduction and expansion of public transport systems, urban green spaces, vehicle emissions standards, and the recently introduced carbon price are all key to tackling this issue and advancing sustainable development (Parker 2023).
Strengthening International Partnerships, Regional Integration, Good Governance
Building on the momentum of its recent successes and structural advantages, there is substantial scope for Indonesia to mobilize international cooperation and regional integration toward domestic economic development. Last month’s formal request to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in September represents welcome progress to this end (Strangjo 2024). Beyond the region, concluding trade negotiations with the European Union would advance economic diversification and structural transformation. Enmeshment in these trade agreements would help streamline the customs requirements and non-tariff barriers that currently add 60%–130% to the cost of electronic and transport equipment (The Economist 2024). The impending application for OECD membership represents a useful opportunity to spur governance and bureaucratic reforms at home (Umam 2023; The Jakarta Post 2024).
It is important to recall the soaring ambition of Golden Indonesia 2045. A large-scale, cross-country analysis found that it took an average of 70 years for countries to complete the transition from lower-middle income to high-income status (Felipe et al. 2017). Indonesia has experienced dramatic economic development, possesses considerable human potential and natural resources, and enjoys growing global influence. Looking ahead, its ability to effectively manage its challenges and propel further advances depends on the new government’s capacity to build on recent gains and advance a more equitable and sustainable approach to development.
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