Indonesia Economy 2026: Resilience, Growth and Challenges II
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Dr. Syed Mehboob
Senior Research Editor
The News Lark,
Political and economic analyst
Indonesia has another significant economic importance. It is a member of BRICS, an important bloc which comprises Brazil, Russia, India, China gained institutional form after the 2008 Global Financial Crisis. It expanded in 2010 with the inclusion of South Africa and added Egypt, Iran, and the United Arab Emirates in 2024, and officially included Indonesia as its tenth member in January 2025. Today, BRICS represents almost 40% of GDP, represents 49.5 % of world’s population, 26% of trade, 30% of global oil production, 31.7% of global natural gas production, and over 70% of global coal production. This shift signals a rebalancing of global economic power away from advanced economies towards emerging markets, strengthening the importance of South -South trade and investment for countries like Indonesia. The growing economic power of BRICS has surpassed the G7 whose share since 2016, has fallen from 44.8% to 28.22%.
In 2025, household consumption contributed to around 52% of economic activity. As the biggest component of Indonesia’s GDP, consumption activity in Indonesia is dominated by daily subsistence. The contribution of food consumption, transportation, and communication accounts for more than 60% of Indonesia’s household consumption.
Indonesia has a mixed economy with dirigist characteristics. It is one of the emerging economies in the world and the largest in Southeast Asia. As an upper-middle-income country and member of the G20, Indonesia is classified as a newly industrialized country. Indonesia has the 17th largest economy in the world by nominal GDP and the 7th largest in terms of GDP (PPP). Indonesia's internet economy reached US$ 100 billion.
Indonesia depends on the domestic market, government budget spending and its ownership of state-owned enterprises. Indonesian state-owned companies have assets valued at more than US$ 1,000 billion. Government price controls are applied to a range of basic goods (including rice and electricity) and play a significant role in Indonesia's market economy.[ However, a mix of micro, medium, and small companies contribute around 61.7% of the economy, and significant major private-owned companies and foreign companies are also present.
In October 2024, Prabowo Subianto assumed the presidency, inheriting an economy with steady growth but facing structural challenges. His administration introduced ambitious policies aimed at boosting economic growth to 8%, including a $28 billion annual free school meals program and plans to retire all fossil fuel power plants within 15 years. To fund these initiatives, the government implemented significant budget cuts totaling $18.8 billion, affecting various sectors such as public works, education, and health.
In 2025, the rupiah's performance remained volatile. Early in the year, it reached a five-year low, prompting Bank Indonesia to intervene in the foreign exchange market to stabilize the currency. The central bank maintained its benchmark interest rate at 5.75% in March to support the rupiah and control inflation. By May, with signs of stabilization, Bank Indonesia cut the rate to 5.50% to stimulate economic growth, as the rupiah had appreciated over 3% from its April lows.
Agriculture is a key sector that contributed to 14.43% of GDP. Currently, around 30% of the land area is used for agriculture, and agriculture employs about 49 million people (41% of the total workforce). Primary agricultural commodities include rice, cassava, peanuts, natural rubber, cocoa, coffee, palm oil, copra, poultry, beef, pork, and eggs. Palm oil production is vital to the economy, as Indonesia is the world's largest producer and consumer of the commodity, supplying about half of the world's supply. Plantations in the country stretch across 6 million hectares as of 2007, with a replanting plan set for an additional 4.7 million to boost productivity in 2017.
Indonesia is the world's largest producer of palm oil. Palm oil production is important to the economy of Indonesia as the country is the world's biggest producer and consumer of the commodity, providing about half of the world's supply. 18.5 million tons of coconut are produced each year in Indonesia, and become the largest producer in the world. From ancient folklore to traditional ceremonies, the coconut's symbolism permeates throughout Indonesian culture and traditions. The tree embodies life-sustaining attributes, often referred to as “The Tree of Life,” symbolizing fertility, replenishment, and a connection to the divine
Indonesia is the world's largest tin market. Although mineral production traditionally centered on bauxite, silver, and tin, it is expanding its copper, nickel, gold, and coal output for export markets.
Energy Sources
1. Coal 30.3 %
2. Oil (28.9%)
3. Biofuels and Waste (13.8%)
4. Natural gas (14.4%)
5. Wind, Solar, etc. (11.6%)
6. Hydro (0.90%)
Indonesia along with Malaysia , have two-thirds of ASEAN's gas reserves with a total annual gas production of more than 200 billion cubic meters.
The Government of Indonesia has outlined several commitments to increase clean energy use and reduce greenhouse gas emissions, among other things by issuing the National Energy General Plan (RUEN) in 2017 and joining the Paris Agreement. In the RUEN, Indonesia targets New and Renewable Energy to reach 23% of the total energy mix in 2025 and 31% by 2050. The country also commits to reducing its greenhouse gas emissions by 29% by 2030 against a business-as-usual baseline scenario, and up to 41% with international support. It has also committed to phasing out coal power by the 2040s, although numerous challenges remain.
Some major renewable projects in Indonesia include the 75 MW wind farm in Sidenreng Rappang Regency, another 72 MW wind farm in Jeneponto Regency, and the Cirata Floating Solar Power Plant in West Java with a capacity of 145 MW which will become the largest Floating Solar Power Plant in Southeast Asia.
Indonesia has significant potential for developing renewable energy, however, the country continues to rely heavily on the use of fossil fuels in domestic electricity production. Continued investment in and reliance on fossil fuels, such as coal, may result in fossil fuels becoming stranded assets, leading to significant investments lost that the country could have received from renewable energy investors. The national electricity company PLN is widely considered to be an obstacle to the development of renewable energy, although it is not clear whether the resistance emanates from the company itself or whether the company is rather an arena for various government bodies and other external actors who resist change.
Indonesia's defense industry has been shaped by the need for
• Strategic self-reliance due to arms embargoes in the past (e.g. U.S. embargo in the late 1990s).
• Economic value creation via job creation, technology transfer, and industrial capability.
• Support for Minimum Essential Force (MEF) modernization targets set by the Ministry of Defense.
Indonesia has various companies, with their respective focus area on defence, such as PT Pindad, PT PAL, PT DI, PT Dahana, Baykar, LEN.
As of MEF 2025, Indonesia plans to produce $1 billion worth of Baykar Bayraktar TB3 and Baykar Bayraktar Akıncı domestically. A contract to acquire 60 TB3s was signed. Minister of Defense of the Republic of Indonesia and the Turkish Defence Industry Agency signed a Memorandum of Understanding (MoU) for 48 KAANs at the Indo Defence Expo & Forum 2024, Jakarta, on 11 June 2025. The total order is planned to be delivered with domestically produced engines in approximately 10 years after the effective signatures are obtained.
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