Indonesia Launches $6B Textile Industry Rescue Plan Amid US Tariff Concerns

Indonesia is moving to bolster its struggling textile and garment industry with a new state-owned enterprise (SOE), backed by up to $6 billion from its sovereign wealth fund, Danantara. This decision, announced January 14th by Coordinating Minister for Economic Affairs Airlangga Hartato, comes as the sector faces challenges from rising regional competition and potential U.S. Tariffs.

A Response to Industry Headwinds

The Indonesian textile industry, a significant contributor to the nation’s economy with $11.9 billion in exports in 2024 according to the Indonesian Garment and Textile Association, has been experiencing a slow decline. Rising labor and energy costs have made it harder to compete with countries like Bangladesh, Vietnam, and India, where wages are considerably lower – Indonesian wages are around double that of Bangladesh, according to the International Labor Organization.

Did You Know? Indonesia’s textile industry exports reach the U.S., Middle East, Europe, and China, but only a third of its garments are sold domestically.

The Role of Danantara

Danantara, established in February 2025 by President Prabowo Subianto, is tasked with directly managing SOEs and aims to achieve 8% annual economic growth by 2029. The fund will inject up to $6 billion into the new textile SOE, focusing on developing new technology and expanding exports. This approach differs from traditional government investment, allowing for more flexible and strategic reinvestment of fiscal surpluses.

However, the plan isn’t without its critics. Some experts worry the SOE could stifle private investment and hinder job creation. Siwage Dharma Negara, co-coordinator for the Indonesia studies program at Singapore’s ISEAS-Yusof Ishak Institute, suggests the SOE “could end up acting as a dominant rival, rather than as a market anchor,” potentially creating challenges for existing firms.

Recent Industry Struggles

The challenges facing the Indonesian textile sector were highlighted by the February 2025 collapse of Stritex, a major textile manufacturer, which accumulated over $1.6 billion in debt and resulted in over 10,000 job losses. Rita Padawangi, an Associate Professor of Sociology at the Singapore University of Social Sciences, emphasized Stritex’s importance as a producer of military uniforms for over 30 countries, including the U.S. And NATO members.

Expert Insight: The creation of this SOE signals a belief that structural issues within the Indonesian textile industry require government intervention beyond traditional subsidies and tax incentives, which have proven insufficient to address problems like low productivity and outdated technology.

Looking Ahead

If successful, the SOE could provide a much-needed boost to Indonesia’s textile industry, enabling it to compete more effectively against regional rivals and mitigate the impact of potential U.S. Tariffs. However, a poorly managed SOE could exacerbate competition, potentially driving down prices and impacting workers. It is also possible that smaller and medium-sized enterprises (SMEs) may struggle to compete with the SOE’s economies of scale.

Frequently Asked Questions

What prompted the creation of this new SOE?

The decision was prompted by challenges facing the Indonesian textile industry, including growing regional competition, rising labor and energy costs, and the threat of a 19% U.S. Tariff on Indonesian textile exports.

How much funding will Danantara provide to the SOE?

Danantara will provide up to $6 billion to the new state-owned enterprise to support the development of new technology and expansion of exports.

What are some concerns surrounding the new SOE?

Some experts worry that the SOE could weaken private investment, suppress job creation, and act as a dominant rival to existing firms in the industry.

Will this large-scale government intervention ultimately revitalize Indonesia’s textile sector, or could it create new obstacles for private businesses and workers?