Indonesia intends to establish a state-owned enterprise (SOE) to revitalize its struggling textile and garment industry and protect it from the repercussions of U.S. President Donald Trump’s tariffs.
The decision, announced on January 14 by Airlangga Hartato, Indonesia’s coordinating minister for economic affairs, places the SOE under the management of Danantara, which will invest up to $6 billion into the firm to develop new technology and expand exports.
Indonesia’s textile industry already faced challenges from increasing regional competition from countries like China and Bangladesh. A proposed 19% U.S. tariff on Indonesian textile exports threatened to worsen the situation. The new SOE aims to shield the industry from the recent surge in cheap imports from China, as well as other external geopolitical pressures.
However, not all Indonesians are in agreement with the plan, with some experts expressing concern that it may instead weaken private investment and suppress job creation.
“The SOE could end up acting as a dominant rival, rather than as a market anchor,” explains Siwage Dharma Negara, co-coordinator for the Indonesia studies program at Singapore’s ISEAS-Yusof Ishak Institute. He adds that some firms may “find themselves competing with a well-capitalized, state-backed player.”
Danantara was initially established in February 2025 by Indonesian President Prabowo Subianto, with the aim of fulfilling a significant campaign promise—achieving 8% annual economic growth by the end of his term in 2029. Rather than being a passive investor, Danantara is designed to directly manage SOEs.
The Indonesian Textile Sector
Indonesia possesses a rich cultural heritage of traditional fabrics such as batik, ikat, and songket, which feature intricate patterns typically imprinted with natural dyes derived from plants and minerals.
Textiles are also a fundamental component of Indonesia’s economy. Only one-third of Indonesia’s garments are sold domestically, with the remainder exported to the U.S., Middle East, Europe, and China. National textile and garment exports reached $11.9 billion in 2024, according to official data.
Indonesia’s textile industry was experiencing a gradual decline even before the U.S. imposed tariffs on the country’s garment exports. Rising labor and energy costs have diminished Indonesia’s competitiveness against regional rivals like Bangladesh, Vietnam, and India. According to the International Labor Organization, Indonesian wages in the textile industry are approximately double those in Bangladesh.
In February 2025, Indonesian textile giant Stritex collapsed after accumulating over $1.6 billion in debt. Over 10,000 individuals lost their jobs. Rita Padawangi, an Associate Professor of Sociology at the Singapore University of Social Sciences (SUSS), explains that “Stritex during its heyday was a producer of military uniforms for more than 30 countries, including the U.S. and members of NATO,” and describes its importance to Indonesia’s textile manufacturing sector as “undeniable.”
New Horizons or a Missed Opportunity?
Given its struggling textile industry, some experts suggest that Indonesia’s plan for a new SOE has its advantages.
“This decision reflects the government’s belief that the problem is structural and cannot be fixed by the private sector alone,” states Negara of the ISEAS-Yusof Ishak Institute, adding that the SOE’s primary benefit is the financial and institutional capacity provided by its government sponsor. “Subsidies and tax incentives may offer short-term relief, but they do little to address deep-seated issues such as low productivity, outdated technology, and weak upstream integration.”
Rather than simply being absorbed into the yearly budget, Danantara allows fiscal surpluses to be strategically and dynamically reinvested in fast-growing sectors. “Danantara can mobilize large pools of capital, take a longer-term view, and operate with investment-style oversight that is more flexible than the annual state budget process,” he further explains.
However, without careful management, the SOE could further intensify competition in an already saturated industry, driving down prices and potentially harming workers. Cost-cutting could put workers at risk of exploitation, warns Padawangi of SUSS. Additionally, it may weaken the competitiveness of local SMEs—which drive innovation and form the backbone of economies—that cannot leverage the economies of scale available to SOEs and larger private enterprises.
“Indonesia has significant potential in the textile sector, particularly artisanal producers that integrate tradition with modernity,” says Padawangi. “It would be a missed opportunity to talk about the textile industry only from the perspective of big companies, without paying attention to the work of traditional weavers and smaller enterprises that work with them.”