Indonesia’s Danantara bets a brand new $6B SOE can save a textile trade from Trump tariffs and overseas competitors | Fortune – Company Technique & Outlook

The choice, introduced on Jan. 14 by Airlangga Hartato, Indonesia’s coordinating minister for financial affairs, locations the SOE underneath the management of Danantara, Indonesia’s sovereign wealth fund, which can pump as much as $6 billion into the agency to supply new know-how and broaden exports. 

Indonesia’s textile trade was already challenged by rising regional competitors from locations like China and Bangladesh, and a proposed 19% U.S. tariff on Indonesian textile exports threatened to make issues worse. The brand new SOE was meant to guard the trade in opposition to the latest surge in low-cost imports from China, in addition to different exterior geopolitical pressures.

But not all Indonesians are cheering the brand new authorities enterprise, with some specialists worrying that it might as an alternative weaken non-public funding and suppress job creation. 

“The SOE might find yourself performing as a dominant rival, fairly than as a market anchor,” Siwage Dharma Negara, co-coordinator for the Indonesia research program at Singapore’s ISEAS-Yusof Ishak Institute, tells Fortune. Some companies could “discover themselves competing with a well-capitalized, state-backed participant.”

Danantara was first established in February 2025 by Indonesian President Prabowo Subianto, in hopes of fulfilling a lofty marketing campaign promise—reaching 8% annual financial development by the tail finish of his time period in 2029. As a substitute of being a extra passive investor, Danantara is supposed to immediately handle SOEs.

Indonesia’s textile sector

Indonesia has a wealthy cultural heritage of conventional materials like batik, ikat and songket, which characteristic intricate patterns usually imprinted with pure dyes derived from crops and minerals. 

Textiles are additionally a cornerstone of Indonesia’s economic system. Only a third of Indonesia’s clothes are bought domestically, with the remaining exported to the U.S., Center East, Europe and China. Nationwide textile and garment exports hit $11.9 billion in 2024, in line with the Indonesian Garment and Textile Affiliation.

Indonesia’s textile trade was in gradual decline even earlier than the U.S. slapped tariffs on the nation’s garment exports. Rising labor and vitality prices have eroded Indonesia’s competitiveness versus regional opponents like Bangladesh, Vietnam and India. Within the textile trade, Indonesian wages are round double that of Bangladesh, in line with the Worldwide Labor Group.

In February 2025, Indonesian textile big Stritex collapsed after racking up over $1.6 billion in debt. Over 10,000 staff misplaced their jobs. “Stritex throughout its heyday was a producer of army uniforms for greater than 30 nations, together with the U.S. and members of NATO,” explains Rita Padawangi, an Affiliate Professor of Sociology on the Singapore College of Social Sciences (SUSS), and calls its significance to Indonesia’s textile manufacturing sector motion “plain.”

New horizons or a missed alternative?

Given its slumping textile trade, some specialists say Indonesia’s plan for a brand new SOE has its upsides. 

“This determination displays the federal government’s perception that the issue is structural and can’t be mounted by the non-public sector alone,” says Negara of the ISEAS-Yusof Ishak Institute, including that the SOE’s key benefit is the monetary and institutional capability afforded by its authorities sponsor. “Subsidies and tax incentives could supply short-term reduction, however they do little to deal with deep-seated points similar to low productiveness, outdated know-how, and weak upstream integration.”

Relatively than merely being absorbed into the yearly price range, Danantara permits fiscal surpluses to be strategically and dynamically reinvested in fast-growing sectors. “Danantara can mobilize massive swimming pools of capital, take a longer-term view, and function with investment-style oversight that’s extra versatile than the annual state price range course of,” he provides.

However with out cautious administration, the SOE might additional exacerbate competitors in an already overstuffed trade, driving down costs and doubtlessly hurting staff. Value-cutting might put staff prone to exploitation, warns Padawangi of SUSS. Moreover, it might weaken the competitiveness of native SMEs—which drive innovation and type the spine of economies—that may’t faucet economies of scale which SOEs and bigger non-public enterprises can.

“Indonesia has a number of potential within the textile sector, notably artisanal producers that combine custom with modernity,” says Padawangi. “It might be a missed alternative to speak in regards to the textile trade solely from the angle of huge corporations, with out listening to the work of conventional weavers and smaller enterprises that work with them.”