Indonesia plans to establish a new public company (SOE) to rejuvenate its ailing textile and clothing industry and protect it from the fallout of tariffs imposed by US President Donald Trump.
The decision, announced on January 14 by Airlangga Hartato, Indonesia’s coordinating minister for economic affairs, places the state-owned enterprise under the control of Danantara, the Indonesian sovereign wealth fund, which will inject up to $6 billion into the company to produce new technologies and develop its exports.
Indonesia’s textile industry was already facing increasing regional competition from countries like China and Bangladesh, and proposed 19 percent U.S. tariffs on Indonesian textile exports threatened to make the situation worse. The new state enterprise was supposed to protect the industry against the recent increase in cheap imports from China, as well as other external geopolitical pressures.
However, not all Indonesians are applauding the new government projectsome experts fear it will weaken private investment and suppress job creation.
“The state enterprise could end up acting as a dominant rival rather than an anchor in the market,” says Siwage Dharma Negara, coordinator of the Indonesian Studies program at the ISEAS-Yusof Ishak Institute in Singapore. Fortune. Some companies could “find themselves competing with a well-capitalized, state-backed player.”
Danantara was established in February 2025 by Indonesian President Prabowo Subianto, hoping to fulfill a lofty election promise: to achieve annual economic growth of 8% by the end of his term in 2029. Instead of being a more passive investor, Danantara is meant to directly manage state-owned companies.
The Indonesian textile sector
Indonesia has a rich cultural heritage of traditional fabrics like batik, tie And ditty, which feature intricate designs usually printed with natural dyes derived from plants and minerals.
Textiles are also a cornerstone of the Indonesian economy. Only a third of Indonesia’s clothing is sold domestically, with the rest exported to the United States, the Middle East, Europe and China. National textile and clothing exports reached $11.9 billion in 2024, according to the Indonesian Clothing and Textile Association.
Indonesia’s textile industry was in slow decline even before the United States imposed tariffs on the country’s clothing exports. Rising labor and energy costs have eroded Indonesia’s competitiveness compared to regional competitors such as Bangladesh, Vietnam and India. In the textile industry, Indonesian wages are about double those in Bangladesh, according to the International Labor Organization.
In February 2025, Indonesian textile giant Stritex collapsed after accumulating more than $1.6 billion in debt. On 10,000 workers lost their jobs. “At its peak, Stritex was a producer of military uniforms for more than 30 countries, including the United States and NATO members,” says Rita Padawangi, associate professor of sociology at the Singapore University of Social Sciences (SUSS), and calls its importance to the Indonesian textile manufacturing movement “undeniable.”
New horizons or missed opportunity?
Given the decline of its textile industry, some experts say there are benefits to Indonesia’s plan to create a new state-owned enterprise.
“This decision reflects the government’s belief that the problem is structural and cannot be solved by the private sector alone,” says Negara of the ISEAS-Yusof Ishak Institute, adding that the main advantage of the state enterprise is the financial and institutional capacity offered by its government sponsor. “Subsidies and tax incentives may offer short-term relief, but they do little to address deep-rooted problems such as low productivity, outdated technology and weak backward integration. »
Rather than simply being absorbed into the annual budget, Danantara allows budget surpluses to be strategically and dynamically reinvested in fast-growing sectors. “Danantara can mobilize significant capital reserves, take a longer-term view, and operate with investment-style oversight that is more flexible than the state’s annual budget process,” he adds.
But without careful management, the state-owned enterprise could further exacerbate competition in an already overcrowded sector, driving down prices and potentially harming workers. Cutting costs could put workers at risk of exploitation, warns SUSS’s Padawangi. Furthermore, it could weaken the competitiveness of local SMEs – which drive innovation and form the backbone of economies – which cannot exploit the economies of scale available to state-owned enterprises and large private companies.
“Indonesia has a lot of potential in the textile sector, especially among artisanal producers who integrate tradition and modernity,” explains Padawangi. “It would be a missed opportunity to talk about the textile industry only from the perspective of big business, without paying attention to the work of traditional weavers and the small businesses that work with them. »
