Prabowo Mobilizes State Capital and Tariff Shield to Rescue Indonesia’s $12B Textile Pillar

JAKARTA, Investortrust.id — Confronted by cheap offshore dumping and mounting insolvencies across legacy factories, President Prabowo Subianto has launched an aggressive, state-led intervention to revitalize Indonesia’s textile and apparel industry—one of the archipelago’s largest manufacturing export earners and a cornerstone of blue-collar employment.

Chairing a limited cabinet meeting with senior economic ministers at the Presidential Palace in Jakarta on Tuesday, Sept. 22, 2026, Prabowo ordered sweeping policy adjustments spanning tariff harmonizations, raw material deregulation, sovereign restructuring capital, and an expedited trade corridor into the European Union.

The stakes are critical for Southeast Asia’s largest economy. The textile and textile product (TPT) ecosystem represents approximately 0.97% of national gross domestic product (GDP), absorbs roughly 4 million factory workers, and generates $12 billion in annual export receipts. Ranking consistently among Indonesia’s most valuable non-commodity export lines, the sector has held strategic priority as a vital hedge against global commodity volatility.

"This is one of the most strategic labor-intensive sectors," Coordinating Minister for Economic Affairs Airlangga Hartarto stated following the meeting on Tuesday. "In our briefing to the President, we conveyed that the textile and garment sector is growing above the baseline economic rate at 5.6%, while leather goods and footwear expanded by 8.25%."

Danantara Steps In: Building a New Integrated State Player

A centerpiece of the government's rescue strategy involves deploying sovereign investment fund Badan Pengelola Investasi Daya Anagata Nusantara (BPI Danantara). Rather than simply disbursing liquidity lines to debt-ridden manufacturers, Danantara will establish an entirely new state-owned enterprise (BUMN) designed to build an integrated supply chain from the ground up.

Chief Executive Officer of Danantara Rosan Perkasa Roeslani confirmed the move at the Presidential Palace on Tuesday evening, emphasizing that the state will directly spearhead midstream and downstream clustering.

"We will create a new company to support existing textile players, and we can partner with established textile companies," Rosan said on Tuesday. "However, for full integration, we will be the ones initiating it within a single consolidated zone."

Danantara Chief Operating Officer Dony Oskaria added that capital expenditure commitments and execution schedules remain under active internal review. Concurrently, Prabowo instructed Danantara and state-linked commercial lenders to immediately intervene in debt workouts for viable operators facing credit distress, dismissing perceptions that apparel manufacturing is an obsolete domestic industry.

"The President emphasized that the textile industry is not a sunset industry," Airlangga explained on Tuesday. "This clarity should encourage reinvestment and working capital expansion from the banking sector."

Closing the Smuggling Valve and Easing Mill Inputs

To restore domestic market margins, the administration is pairing state enterprise formation with aggressive market-defense measures. Factory floors have faced relentless pressure from unrecorded bulk imports, weight-based garment clearances, and illicit secondhand balepress shipments that undercut domestic price structures.

Prabowo instructed the Directorate General of Customs and Excise to escalate enforcement against illicit apparel trafficking. The mandate came directly alongside a broader review of Ministry of Industry technical import regulations (Pertek), aiming to dismantle bureaucratic red tape that has choked spinning and weaving mills of essential overseas fiber inputs.

Cabinet officials are also formulating regulatory accommodations to support seasonal labor dynamics. Under the proposed framework, authorities are exploring flexible short-term work contracts (PKWT) alongside selective exemptions or evaluations of value-added tax (PPN) charges for export-oriented apparel factories.

The European Trade Gateway: Accelerating IEU-CEPA

Beyond protecting the domestic perimeter, Jakarta is betting that opening premium Western consumer markets can structurally re-energize order books for Indonesian garments.

During the same cabinet session, Prabowo ordered his trade negotiators to finalize the legal text of the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA). The bilateral pact is currently completing legal vetting in English before submission to the European Parliament, with Indonesian parliamentary ratification slated for late 2026 to enable full implementation in early 2027.

European Union Trade and Economic Security Commissioner Maroš Šefčovič and top EU leaders are scheduled to visit Jakarta between late October and early November 2026 to formalize the landmark accord.

Securing duty-free access across Europe's 27 member nations is viewed by trade strategists as an essential catalyst. By eliminating import duties that previously left Indonesian apparel at a competitive disadvantage against rivals like Vietnam and Bangladesh, the trade pact aims to double Indonesian export shipments to Europe, ensuring that Southeast Asia’s historic garment powerhouse secures a durable foothold in global supply chains.