In order to boost the sluggish economy and pursue a 5% growth rate, the government is preparing a number of incentives. These incentives are awaited by the business world, which needs an injection of energy to boost the economy.

Coordinating Minister for Economic Affairs Airlangga Hartarto stated that, in order to boost the economy so that it approaches the targeted growth of 5%, the government is preparing a number of incentives.

Several labor-intensive programs have become one of the mainstays, especially in the transportation and public works sectors.

"Yes, the first is related to what can drive higher growth in the second semester. Well, of course some programs such as labor-intensive programs in transportation, labor-intensive programs in public works. Then it is also encouraged for better implementation," said Airlangga after attending a Limited Coordination Meeting at the Coordinating Ministry for the Economy, Friday (26/7/2025).

In addition, the government is also discussing the provision of discounts ahead of the Christmas and New Year period. "We hope it can be announced earlier," he added.

Property tax incentives

One of the important policies decided by the government is to maintain the Government Borne Value Added Tax (PPNDTP) facility for home purchases up to 100% in the second semester. Previously, the stimulus amount was planned to drop to 50%.

"So we will discuss the technical details later," said Airlangga.

This step is considered to encourage middle-class purchasing power and support the property sector, which is one of the motors of economic growth. Data from the Ministry of PUPR noted that the construction and real estate sector still grew positively by 4.5% (yoy) in the first quarter of 2025.

Labor-intensive and employment

In addition to the property sector, labor-intensive programs in infrastructure - such as the construction of roads, bridges, and public transportation facilities - are also a priority. The government is also asking industrial projects such as MBG to prioritize the recruitment of new workers from low-income groups (Decile 1 and Decile 2).

"We want the impact to be felt directly by the community, especially to reduce extreme poverty," said Airlangga.

The government targets the extreme poverty rate to fall to the range of 0%-6.5% by the end of the year. BPS previously noted that as of March 2025, the national poverty rate stood at 8.47%, a slight decrease of 0.1% points compared to September 2024.

Incentives and social assistance

On the same occasion, Airlangga explained that several social assistance programs, such as the Wage Subsidy Banduan (BSU), are also still being implemented. However, not all sectors get incentives. For example, for electricity it was decided that no additional incentives would be given, in contrast to the transportation sector such as aircraft, toll roads, and especially trains which will continue to be encouraged.

"When will it be announced? In September," Airlangga said.

Anticipate non-performing loans

However, the government still faces challenges. One of them is the high ratio of non-performing loans (NPLs) in the KUR UMKM construction sector, which reached 10%. Airlangga ensured that improvement efforts continue to be made while still encouraging lending to UMKM in line.

"KUR UMKM remains on track," he said.

The government hopes that this series of programs and incentives will be able to maintain the momentum of recovery and encourage stronger national economic growth until the end of the year.

Monetary stimulus

On the monetary side, Bank Indonesia (BI) also boosted the economy by lowering its benchmark interest rate by 25 basis points to 5.25% at the July Board of Governors' Meeting.

"In addition to maintaining stability, Bank Indonesia's policies are also directed to contribute to economic growth through lowering the BI-Rate, easing liquidity, and increasing macroprudential incentives to banks to encourage credit/financing to priority sectors," said BI Governor Perry Warjiyo.

"Going forward, economic growth in the second semester of 2025 is predicted to improve and overall 2025 is predicted to be in the range of 4.6%-5.4%," Perry said.

Read also: BI Slashes Interest Rates, Signals to Boost Economic Growth

Business needs incentives

Economic Policy Analysis of the Indonesian Employers Association (Apindo) Ajib Hamdani had expressed concern regarding the decline in economic growth in the first quarter of 2025 compared to the same period the previous year by 2.4%. Whereas the first quarter is usually supported by the Lebaran consumption cycle which increases money turnover. If there is no further intervention, the potential for economic growth in 2025 could fall even lower.

"Economic growth in the first quarter was indeed quite alarming, which was only in the range of 4.87%, if we compare it with the economic growth in the first quarter of 2024 which amounted to 5.11%," he said in a written statement in a press release.

APINDO explained that this weakening condition was caused by at least four factors:

The decline in public consumption due to the wave of layoffs that reached more than 70,000 people in the first quarter, and the increase in the poverty rate, which according to World Bank standards puts 60.3% of Indonesia's population in the poor category by 2024.

Slower government spending pattern. Tax revenue in the first quarter was only 14.7% of the target, lower than the ideal 20%, which was followed by a spending efficiency program that gave negative sentiment to the economy.

External pressures, especially the impact of Trump's tariff policy that reduced demand for goods from the United States since April 2025 and affected the balance of transactions.

Investment is still dominant in the capital-intensive sector. As a result, the multiplier effect to labor absorption is getting smaller: if in 2014 every Rp 1 trillion of investment was able to absorb 4,000 workers, now only around 1,000 workers.

Under these conditions, APINDO considers the importance of a short-term orientation in the second semester of 2025, especially through stimulus programs such as Direct Cash Assistance (BLT) to increase public consumption. 

"Hopefully, economic growth in the second quarter of 2025 can be higher, or at least survive compared to the first quarter," he said.

The government is also expected to optimize state spending as the main stimulus, with the principle of spending better, spending that is more targeted and has a direct impact on job creation, food security, and energy.

"The government must focus on pro job creation, food security and energy. This is in line with President Parbowo Subianto's Asta Cita program, which is to increase quality employment," he concluded.

Ajib assessed that the measures that have been prepared by the government, such as labor-intensive, property stimulus, and transportation incentives, are considered in line to maintain a minimum growth target of 5% in 2025. According to him, this is an important foundation for 2026, when the government sets a higher growth projection in the range of 5.2-5.8%, according to the 2026 Macroeconomic Framework and Fiscal Policy Principles (KEM-PPKF).

Read also: A Glimmer of Hope in the Third Quarter

Anticipate slowdown

In contrast to the government's optimistic narrative that still targets growth above 5%, the latest research by the Center of Reform on Economics (CORE) in the CORE Mid-Year Economic Review 2025 report published Friday (07/25/2025). CORE warns of a series of slowdown signals that need to be anticipated with real policies, not just rhetoric.

CORE projects that Indonesia's economic growth in the second quarter of 2025 will only reach a range of 4.7%-4.8%, slightly down from the first quarter which was recorded at 4.87%. In fact, throughout this year, the economy is predicted to remain at the level of 4.6%-4.8%, far from the government's ambition to maintain a minimum rate of 5%.

Behind that figure, there are a series of challenges pressing on the domestic economy. CORE Executive Director Mohammad Faisal highlighted that household consumption, the main motor of the economy, is weakening.

The Real Sales Index grew only 1.2%, half that of the previous quarter. The Consumer Confidence Index contracted by -5.1%, and the proportion of household savings shrank from 16.6% to 14.6%. The increase in the number of layoffs to 27.7% meant that many families had to dip into their savings to meet basic needs.

According to Faisal, Indonesia is also burdened by external risks. The US reciprocal tariff policy of 19% has been described by the government as the result of an "exceptional struggle", but the consequences are not small: Indonesia must fulfill commercial commitments worth IDR 368 trillion, including the purchase of 50 Boeing aircraft. Indonesia's export volume to the world market is also projected to decrease by 2.65%, making our competitiveness lag behind countries like Vietnam.

"The momentum of economic recovery now rests on the courage of the government to take breakthrough steps. If the government remains business as usual, the risk of the Indonesian economy falling deeper in the next six months is not an impossible scenario," said Faisal.

CORE provides several policy suggestions in the short term to mediate these problems: from expanding stimulus for households (e.g. direct cash assistance and electricity tariff discounts), opening tax incentives for companies that do not lay off workers, accelerating government strategic spending, to strengthening commodity downstreaming and absorption of local products.

"Protect domestic industries from the invasion of cheap illegal imports through stricter import verification and subsidies for strategic industries such as food and beverages, petrochemicals, basic metals, and electronics," said Faisal.