Managing Indonesia’s Industrial Policy Bet: Capability and Competitiveness Builder or Costly Detour?
Date of publication:
2026
Publisher:
ISEAS – Yusof Ishak Institute
Number of pages:
44
Code:
TRS25/26
Soft Cover
ISBN: 9789815361971
About the publication
- Industrialization is central to Indonesia’s long-term development strategy under Indonesia Vision 2045. The country has broadened its use of industrial policy through a mix of policy toolkits, which include trade and investment policy instruments, fiscal incentives, subsidized inputs, technological upgrading support, skill development programmes, and the establishment of industrial estates and special economic zones.
- This paper assesses Indonesia’s current industrial policies and their implications for the country’s long-term capabilities and competitiveness using a five-pronged framework based on technological adoption, competition and market discipline, trade openness, transparency and accountability, and sustainability.
- The biggest room for improvement for industrial policies in Indonesia is with “transparency and accountability” as all industrial policy tools score low for this success condition. To improve transparency and accountability, a policy should come with enforceable conditions that can be easily monitored, such as export targets, sunset clauses, competition measures, and credible consequences for failing to meet agreed conditions.
- Indonesia has established Danantara—a state-investment holding entity—to give the state a more direct role in allocating capital and shaping industrial development through state-owned enterprises. For Danantara to succeed, governance and performance discipline must be sufficiently robust.
- To avoid making a costly detour, Indonesia should treat industrial policy more as a performance contract between the state and recipient firms, concentrating priorities on plausible upgrading pathways and making support conditional on explicit, time bound and measurable targets, combined with independent evaluation and credible exit rules. Stronger coordination of industrial policy across various ministries and agencies by one authoritative body will also be crucial.
Contents
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Managing Indonesia’s Industrial Policy Bet: Capability and Competitiveness Builder or Costly Detour?
[Whole Publication, ISBN: 9789815361988], by Deasy Pane, Maria Monica Wihardja, authors
