Indonesia's Economic Outlook Positive Amidst Biofuel Expansion Push in Papua

World Bank Projects Robust Economic Growth for Indonesia

The World Bank has released an optimistic forecast for Indonesia's economy, projecting a growth rate of 5 percent for both 2025 and 2026. This upgraded outlook was detailed in the December 2025 edition of the Indonesia Economic Prospects (IEP) report, titled 'Digital Foundations for Growth'. The report highlights Indonesia's economic resilience despite global uncertainties.

Carolyn Turk, the World Bank Country Director for Indonesia and Timor-Leste, emphasized the country's steady GDP growth, which remains around 5 percent annually, surpassing the average for middle-income nations. Key factors contributing to this positive projection include rising investment, strong export performance, and public investment facilitated by programs such as Danantara. Accommodative monetary policies and consistent foreign direct investment inflows are also expected to bolster economic expansion. Furthermore, low inflation and fiscal stimulus measures are anticipated to support household spending.

Challenges in the Labor Market and Digital Transformation

Despite the overall positive economic outlook, the World Bank report also points to persistent challenges within Indonesia's labor market. Most new jobs are concentrated in lower-wage sectors, and real wages have seen a decline since 2018. To address these issues and foster more inclusive growth, the report stresses the importance of structural reforms and the expansion of digital infrastructure. Improving the quality and reach of digital networks, data centers, and regulatory frameworks is seen as crucial for accelerating productivity and broadening economic opportunities.

President Prabowo Advocates for Biofuel Expansion in Papua

In a related development, President Prabowo Subianto has urged a significant expansion of oil palm cultivation in Papua. The initiative aims to boost Indonesia's biofuel production and enhance energy self-sufficiency. During a briefing in Jakarta on December 16, 2025, attended by Papuan governors and other regional leaders, President Prabowo outlined plans to reduce the nation's reliance on fuel imports and alleviate the burden of subsidies. He stated, 'We hope Papua can be planted with oil palm so it can produce fuel from palm oil,' also suggesting the development of sugarcane and cassava for ethanol production.

Environmental Concerns Mount Over Palm Oil Expansion

President Prabowo's directive has, however, sparked considerable concern among environmental organizations. Groups such as Greenpeace Indonesia and the Pusaka Bentala Rakyat Foundation have voiced strong opposition, warning that large-scale oil palm expansion in Papua could lead to significant ecological damage and infringe upon indigenous land rights. Critics highlight past environmental disasters in Sumatra linked to palm oil development as a cautionary tale. The government aims to save substantial funds, with annual fuel imports currently reaching approximately Rp 520 trillion (US$31.77 billion), by transitioning to domestic biofuel production. The Ministry of Agrarian Affairs and Spatial Planning has already allocated over 920,000 hectares of land nationwide, including in Papua, for feedstock development to support this ambitious energy transition.