Indonesia plans to establish a new state-owned enterprise (SOE) to rejuvenate its struggling textile and garment industry and shield it from fallout from U.S. President Donald Trump’s tariffs.
The decision, announced on Jan. 14 by Airlangga Hartato, Indonesia’s coordinating minister for economic affairs, places the SOE under the control of Danantara, Indonesia’s sovereign wealth fund, which will pump up to $6 billion into the firm to produce new technology and expand exports.
Indonesia’s textile industry was already challenged by growing regional competition from places like China and Bangladesh, and a proposed 19% U.S. tariff on Indonesian textile exports threatened to make matters worse. The new SOE was meant to protect the industry against the recent surge in cheap imports from China, as well as other external geopolitical pressures.
Yet not all Indonesians are cheering the new government venture, with some experts worrying 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,” Siwage Dharma Negara, co-coordinator for the Indonesia studies program at Singapore’s ISEAS-Yusof Ishak Institute, tells Fortune. Some firms may “find themselves competing with a well-capitalized, state-backed player.”
Danantara was first established in February 2025 by Indonesian President Prabowo Subianto, in hopes of fulfilling a lofty campaign promise—achieving 8% annual economic growth by the tail end of his term in 2029. Instead of being a more passive investor, Danantara is meant to directly manage SOEs.
Indonesia’s textile sector
Indonesia has a rich cultural heritage of traditional fabrics like batik, ikat and songket, which feature intricate patterns typically imprinted with natural dyes derived from plants and minerals.
Textiles are also a cornerstone of Indonesia’s economy. Just a third of Indonesia’s garments are sold domestically, with the rest exported to the U.S., Middle East, Europe and China. National textile and garment exports hit $11.9 billion in 2024, according to the Indonesian Garment and Textile Association.
Indonesia’s textile industry was in slow decline even before the U.S. slapped tariffs on the country’s garment exports. Rising labor and energy costs have eroded Indonesia’s competitiveness versus regional competitors like Bangladesh, Vietnam and India. In the textile industry, Indonesian wages are around double that of Bangladesh, according to the International Labor Organization.
In February 2025, Indonesian textile giant Sritex collapsed after racking up over $1.6 billion in debt. Over 10,000 workers lost their jobs. “Sritex during its heyday was a producer of military uniforms for more than 30 countries, including the U.S. and members of NATO,” explains Rita Padawangi, an Associate Professor of Sociology at the Singapore University of Social Sciences (SUSS), and calls its importance to Indonesia’s textile manufacturing sector movement “undeniable.”
New horizons or a missed opportunity?
Given its slumping textile industry, some experts say Indonesia’s plan for a new SOE has its upsides.
“This decision reflects the government’s belief that the problem is structural and cannot be fixed by the private sector alone,” says Negara of the ISEAS-Yusof Ishak Institute, adding that the SOE’s key advantage is the financial and institutional capacity afforded 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 adds.
But without careful management, the SOE could further exacerbate competition in an already overstuffed industry, driving down prices and potentially hurting 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 can’t tap economies of scale which SOEs and larger private enterprises can.
“Indonesia has lots of 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.”
