How Smarter Trade Reforms Could Power Indonesia’s Push to High-Income Status by 2045

As Indonesia approaches its 100th year of independence, policymakers have set an ambitious goal: becoming a high-income economy by 2045. A new study by the International Monetary Fund, drawing on research from the IMF's Asia and Pacific Department as well as evidence from the World Bank, the OECD, and academic economists, argues that trade must play a far bigger role if this vision is to be achieved. The message is timely. Global trade is under pressure from geopolitical tensions and supply-chain shifts, yet Indonesia has not fully captured the opportunities created by these changes.

Why Trade Has Not Delivered Yet

Indonesia has made progress over the past two decades. Tariffs have fallen, export markets have diversified, and new trade agreements with partners such as the European Union and Canada are underway. Still, trade has contributed less to growth than expected, and Indonesia has largely missed out on the reorganization of global supply chains after the pandemic. The IMF paper argues that the problem is no longer tariffs. Instead, it is the persistence of non-tariff barriers, rules and procedures such as import licenses, product certification, inspections, and port restrictions, that quietly raise costs and create uncertainty for firms.

Using detailed World Bank data, the study shows that these non-tariff measures often act like hidden taxes. They make it harder for Indonesian firms to import key inputs, discourage companies from exporting, and reduce participation in global value chains. In simple terms, even if tariffs are low, trade can still be expensive and slow.

Trade Deals: Shallow Versus Deep

Another key issue is the quality of Indonesia's trade agreements. The country is well integrated within ASEAN and part of large regional frameworks like RCEP, but many of its agreements focus mainly on tariffs. By contrast, trade deals in regions such as Europe go much further, setting binding rules on standards, investment, services, and government procurement. Research cited by the IMF shows that these "deep" agreements can boost trade far more than tariff cuts alone, especially in services.

For Indonesia, this matters because future growth is expected to come not just from commodities, but from manufacturing and modern services such as finance, logistics, and digital activities. Deeper agreements could make it easier for Indonesian firms to compete in these higher-value sectors.

The Power of Domestic Reforms

Trade policy, however, is only part of the story. The IMF stresses that domestic reforms are just as important. Indonesia has improved its logistics and education outcomes, but still lags behind OECD economies. Better ports, roads, and customs systems reduce the cost of moving goods, while stronger education and skills help services exports grow.

These reforms do two things at once. They directly lower trade costs, and they also change what Indonesia is good at producing. With better infrastructure and skills, firms can move into more complex products and services, making trade liberalization more effective.

What the Numbers Say

To estimate the potential gains, the IMF uses a large economic model covering dozens of sectors and countries. In an ambitious scenario where Indonesia cuts non-tariff barriers, deepens trade ties with major partners such as the US, EU, China, India, and advanced Asia-Pacific economies, and upgrades logistics and human capital to OECD-average levels, the results are striking. Real GDP rises by about 4 percent in the long run.

Most of this gain comes from Indonesia's own actions, particularly the reduction of non-tariff barriers. Cheaper and more reliable access to imported inputs raises productivity across many sectors, while better access to foreign markets supports exports and investment. Importantly, the study finds that Indonesia does not wait for others to act. Even unilateral reforms, cutting its own trade barriers without immediate reciprocity, deliver gains across manufacturing and many services.

A Bigger Prize Still Ahead

The IMF cautions that its estimates may be conservative. The model does not fully capture the benefits of foreign direct investment or deeper integration into global value chains, both of which often follow trade liberalization. If Indonesia becomes a more attractive base for international production, productivity gains could be much larger.

The conclusion is clear and practical. In a difficult global environment, Indonesia can still use trade as a growth engine, but only if it focuses on reducing non-tariff barriers, making trade agreements deeper, and pairing openness with strong domestic reforms. Done right, trade can help turn the Golden Vision 2045 from an aspiration into reality, while creating better jobs and broader opportunities for Indonesians.