Who’s Telling the Truth About Indonesia’s Economy? ICOR vs. GDP
Indonesia’s economy is, on paper, thriving. GDP is rising, shopping malls are breeding like rabbits, and the golden arches of McDonald's now greet you in towns that didn’t have running water ten years ago. This, apparently, is proof we’re “doing great.” Officials beam at press conferences, waving graphs like magic wands, celebrating what is essentially the economic equivalent of jogging in place.
But here’s what no one wants to talk about: ICOR. The Incremental Capital-Output Ratio. The uninvited party guest who walks in and ruins the mood by telling you the house you’re showing off is built on quicksand. ICOR tells us just how much investment we need to squeeze out a tiny drop of GDP growth; and Indonesia needs a lot. Like, a lot a lot.
An ICOR of 6–7 means we’re putting in six units of effort to get one unit of result. Yet, there’s no national crisis, no emergency task force, just more ribbon cuttings and economic optimism that feels suspiciously like denial. But at least the GDP graph is going up, right?
Capital In, Not Much Out: Building Roads to Nowhere (and Naming Them After Heroes)
Let’s talk about Indonesia’s ICOR problem in practical terms. If GDP is the cake, ICOR is how many eggs you crack to bake it. But instead of a neat little sponge, Indonesia ends up with a confusing casserole of eggs, cement, three ministries, and a local celebrity opening ceremony.
An ICOR of 3 or 4? That’s efficiency. That’s what Vietnam has when it builds a road and immediately sees container trucks barreling down it, boosting logistics, creating jobs, and eventually inspiring a craft coffee revolution in the next village. In Indonesia, we build a road, name it after a war hero, host a marching band parade, and then realize no one knows where it leads. One year later, it’s either a parking lot or still under construction.
But this isn’t just poor planning.. Infrastructure has become a political currency: not about what gets built, but that something is being built. Seaports with no ships? Airports with two flights a week? No problem.
We don’t build for impact; we build for impression. That’s how you end up with roads that exist for ribbon cuttings, not logistics; ports that import consultants, not goods. Meanwhile, the ICOR keeps climbing.
The sad part? No one seems to mind. As long as it looks like development it passes the smell test. Efficiency be damned. Let them eat cake… once we figure out how to bake it.
SOEs: State-Owned Everything and Still No Wi-Fi
Let’s take a moment to appreciate the role of State-Owned Enterprises (SOEs). These institutions are entrusted with billions in capital and tasked with leading the charge in national development. In theory, they're supposed to operate like efficient corporations. In practice, they run more like a family reunion business idea.
SOEs are bloated, outdated, and somehow essential. They are often protected by layers of regulation, nostalgia, and political entanglement. And yet, year after year, they’re handed more money.
You’d think with all that capital they might produce an energy plant that works, a national airline that doesn’t bleed money. But no. The outputs are usually delayed, over-budget, or simply baffling. A cement company diversifying into hotels? Why not. A logistics firm investing in a chicken farm? Sure.
Accountability? Performance metrics? Not in this economy. SOEs rarely go bankrupt because failure just means a reshuffle, a new logo, and a press release about “strategic transformation.” If you’re wondering why Indonesia’s ICOR looks like it was calculated by a confused AI, look no further than these capital-hungry giants treating development funds like Monopoly money.
And when projects underdeliver? No sweat. There’s always next year’s budget. And a new ribbon-cutting. And maybe another chicken farm.
Labor Force, But Make It Confused
The famed “demographic bonus” is Indonesia’s not-so-secret weapon. Economists love to dangle it like a carrot in every PowerPoint presentation: millions of young, able-bodied workers just waiting to power the economy into its golden age. It’s the kind of story that sounds amazing... until you meet the actual workforce and realise nobody brought the manual.
On paper, this is a Marvel-style origin tale: a youthful population, brimming with energy and ambition. In reality, it’s closer to a badly organised talent show. Sure, there’s raw potential, but it’s being funneled into jobs that require little training, and minimal career growth.
Despite having spent decades talking about education reform, Indonesia still treats its education system like a side quest. Vocational training? Underfunded. Digital literacy? DIY. Most people learn Excel from their cousin or a YouTube video in 360p. You can’t just build industrial parks and power plants and expect economic growth to blossom when half the labor force is busy figuring out how to open a PDF.
So what happens? The infrastructure gets built, the investments get made... and the jobs? Well, we get more Grab drivers, online resellers, and baristas with engineering degrees. Which is fine, until you remember those billions in capital weren’t meant to create a nation of side hustles.
And the best and brightest? They’re gone. Off to Singapore, or Australia. Lost to brain drain.
The result? A high ICOR and a workforce full of hustle, but short on pathways. It's a labor force-shaped question mark.
Regulation Nation: The Art of Delaying Everything
While neighbors like Vietnam and Malaysia have been quietly seducing foreign investors with phrases like "single-window clearance" and "ease of doing business," Indonesia is over here crafting its magnum opus: a slow-burn scavenger hunt also known as regulatory compliance.
Want to build a factory? Fantastic! Just start with the land permit (which may or may not exist, depending on whose cousin you ask), then hop over to the Ministry of Environment for a forestry impact assessment, regardless of whether you're building in a forest or not. Don’t forget the obligatory approval from the local neighborhood association, who will want to discuss everything from drainage to your zodiac sign.
And of course, you’ll need to print everything (twice) because while we do have a digital portal, it’s mostly decorative. If you ask for help, you’ll be told, “It’s in the system,” which is bureaucrat-speak for "I have no idea what's happening, please stop asking."
Even the much-hyped Omnibus Law, Indonesia’s supposed silver bullet for reform, has been caught in a bureaucratic tug-of-war. Designed to simplify investment processes, it has instead been redrafted, reinterpreted, and legally challenged until it resembles more of a legal Choose Your Own Adventure book than actual legislation.
Money may flow, but progress doesn’t. Projects get delayed, investors ghost the country, and Indonesia’s ICOR continues to hover in place. It’s regulation as performance art And while the capital keeps coming in, it’s buried under enough paperwork to deforest a small province.
GDP Is the Vibe, But ICOR Is the Reality
GDP smooths out the rough edges and says, “Hey, look! We’re doing great!” A solid 5% growth rate makes headlines, keeps politicians smiling, and gives PowerPoint presentations their opening slide. But here’s the thing, ICOR is the reality.
And reality, in Indonesia’s case, is sweating buckets. Because behind that tidy little growth number is the fact that we’re spending 30% of GDP just to squeeze out a modest 5% return. That’s not “growth.”
High ICOR shows up in clogged roads that cost billions but go nowhere fast, in industrial zones with no industry, and in job markets where everyone’s applying for the same three decent jobs. It’s what happens when we invest heavily, but the system is too tangled, under-skilled, and inefficient to turn that capital into real, felt progress.
So yes, GDP tells us things are “technically” getting better. But ICOR tells us how hard we had to punch the wall to get there. It reflects the national mood far more honestly.
The truth is, Indonesia is overexerting rather than underperforming. We're burning fuel, building shiny things, and then wondering why people still feel like they're waiting for the future to arrive.
ICOR deserves better. Not better data, just better branding. It should be taught in schools, or tattooed on the forearms of policymakers.
We treat GDP like gospel. Meanwhile, ICOR quietly reveals the inconvenient truth: that behind every percent of growth lies a system puffing, and wheezing. It’s not sexy, but it’s honest. And in an age of distractions, honesty should count for something.
If your economy is sweating like it’s in a sauna just to move forward, maybe the celebration should be put on hold. Maybe the applause should be replaced with a serious look at capital productivity.
So go ahead and ask about ICOR. Ask loudly. Ask awkwardly. Ask until someone in a suit starts sweating. Because until we do, we’ll keep mistaking motion for progress, noise for growth, and GDP for something it’s not: a measure of how well things are actually working.