The decision, announced on January 14 by Airlangga Hartato, Indonesia’s coordinating minister for economic affairs, places SOE under the control of Danantara, Indonesia’s sovereign wealth fund, which will pump up to $6 billion into the company to develop new technology and expand exports.

Indonesia’s textile industry is already challenged by growing competition in the region from places like China and Bangladesh, and a proposed 19% US tariff on Indonesian textile exports threatens to worsen the situation. The new SOE is intended to protect the industry against the recent influx of cheap imports from China, as well as other external geopolitical pressures.

But not all Indonesians cheering on new government businesswith some experts worried that this would in turn undermine private investment and stifle job creation.

“SOEs can act as a dominant competitor, rather than a market anchor,” Siwage Dharma Negara, co-coordinator for the Indonesia studies program at Singapore’s ISEAS-Yusof Ishak Institute, said. luck. Some companies 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 high campaign promise—achieving 8% annual economic growth by the end of his term in 2029. Instead of being a more passive investor, Danantara is intended to directly manage SOEs.

Textile sector in Indonesia

Indonesia has a rich cultural heritage of traditional textiles such as batik, tie and songket, featuring intricate patterns that are often imprinted with natural dyes derived from plants and minerals.

Textiles are also a cornerstone of Indonesia’s economy. Only a third of Indonesian clothing is sold domestically, the rest is exported to the US, the Middle East, Europe and China. National textile and garment exports to hit $11.9 billion by 2024, according to Garment and Textile Association of Indonesia.

Indonesia’s textile industry was slowly shrinking even before the US imposed tariffs on the country’s garment exports. Rising labor and energy costs have hurt Indonesia’s competitiveness compared to regional competitors such as Bangladesh, Vietnam and India. In the textile industry, wages in Indonesia are almost double those in Bangladesh, according to the International Labor Organization.

In February 2025, Indonesian textile giant Stritex collapsed after accumulating more than $1.6 billion in debt. Done 10,000 workers lost their jobs. “Stritex during its heyday was a producer of military uniforms for more than 30 countries, including the US and NATO members,” explained Rita Padawangi, an Associate Professor of Sociology at the Singapore University of Social Sciences (SUSS), and called its importance in the activity of the textile manufacturing sector in Indonesia “undeniable.”

New horizons or a lost opportunity?

Due to the decline of this textile industry, some experts say that Indonesia’s plan for a new SOE has advantages.

“This decision shows the government’s belief that the problem is structural and cannot be solved by the private sector alone,” said Negara at ISEAS-Yusof Ishak Institute, adding that the key advantage of SOE is the financial and institutional capacity provided by its government sponsor. “Subsidies and tax incentives may provide short-term relief, but they do little to address deep-rooted issues such as low productivity, outdated technology, and weak upstream participation.”

Rather than being absorbed into the annual budget, Danantara allows fiscal surpluses to be strategically and dynamically invested in fast-growing sectors. “Danantara is able to mobilize large groups of capital, take a longer-term perspective, and operate with investment-style management that is more flexible than the annual state budget process,” he added.

But without careful management, SOEs can exacerbate competition in an already overworked industry, drive down prices and potentially harm workers. Cost cutting could put workers at risk of exploitation, SUSS’s Padawangi warned. In addition, it may weaken the competitiveness of local SMEs—which drive innovation and form the backbone of economies—unable to tap the economies of scale that SOEs and large private enterprises can achieve.

“Indonesia has a lot of potential in the textile sector, especially artisanal producers who combine tradition with modernity,” said Padawangi. “It is a lost opportunity to talk about the textile industry only from the perspective of the big companies, ignoring the work of the traditional weavers and small businesses that work with them.”