JAKARTA: Indonesia may be heading into one of its biggest economic shake-ups in decades. President Prabowo Subianto plans to centralise all strategic commodity exports under a new state-controlled entity – and business groups are warning that this could hand enormous power over trade flows to politically connected players.
Prabowo unveiled the proposal in Parliament on May 20, saying a new state entity would take charge of overseas sales of coal, palm oil and ferroalloys, and may expand to other strategic natural resources.
The entity, called Danantara Sumberdaya Indonesia, would fall under the broader Danantara sovereign wealth fund structure.
Under draft regulations seen by The Straits Times, foreign buyers would no longer deal directly with Indonesian exporters, but instead via the new body, which would oversee contracts, shipping and payments. The transition period is set to begin on June 1, before the rules take full effect from Sept 1.
Criticism emerged within hours of the announcement, with industry groups warning that the proposal could create monopolistic control over exports.
In a statement on May 20, Association of Indonesian Oil Palm Farmers’ Organisations chairman Mansuetus Darto warned that the proposal “opened room for a trade monopoly, economic rent-seeking practices” and “the domination of export chains by groups close to those in power”.
The association represents hundreds of thousands of smallholder palm oil farmers across 22 provinces in Indonesia.
Mansuetus also criticised the government for not consulting farmers and businesses before announcing the policy, saying palm oil was tied to the livelihoods of millions of Indonesians.
Worry over disruption to status quo
Other industry players also warned that the new system could disrupt long-established export markets.
Eddy Martono, chairman of Indonesia’s palm oil producers’ association, said, “Exporters usually already have their own established markets. We must not end up losing those markets if this isn’t managed well.”
He added that overseas buyers often require highly specific product specifications and warned that a centralised export system may struggle to accommodate those needs.
If markets are lost, exports and foreign exchange earnings could also fall, he said.
The Indonesian Mining Association said it supported efforts to improve governance and state revenue from the mining sector, but warned that implementation must still protect business certainty, long-term contracts and a competitive investment climate.
Indonesia’s government has justified the move by emphasising the need to curb “leakages” from under-invoicing, where exporters allegedly understate shipment values to reduce taxes and shift profits offshore.
Prabowo claimed that Indonesia lost around US$908 billion between 1991 and 2024 due to such practices.
A recent research report published by Jakarta-based think-tank NEXT Indonesia Centre estimated that Indonesia lost around US$20 billion in coal export value between 2015 and 2024 due to mis-invoicing, or about US$2 billion a year.
The report said that much of the under-invoicing involved coal shipments to India, Indonesia’s largest coal buyer, allowing exporters to reduce royalty payments.
It also found that large volumes of Indonesian palm oil were routed through Singapore before being resold at higher prices to buyers in the US and Europe, contributing to lost export value and tax revenues for Indonesia.
The government’s concerns over under-invoicing are understandable, and a centralised system could improve oversight of export prices and proceeds, said Dedi Dinarto, associate director at strategic advisory firm FGS Global.
“But it is not a silver bullet. The effectiveness will depend on governance, pricing transparency and enforcement. For businesses, the key concern is whether the new system keeps pricing transparent, protects existing contracts, and avoids delays,” he said.
Markets rattled, investors on edge
Analysts have questioned whether routing exports through a single state-linked entity would actually solve the problem.
Achmad Sukarsono, associate director at consultancy Control Risks, said: “Bluntly speaking, that leakage is the stated rationale, but control is the actual objective. Prabowo is uncomfortable with private – particularly foreign – intermediaries managing the flow of Indonesia’s most valuable exports. That’s a political instinct, not a technical fix.”
There are also fears the proposal could ripple through global commodity markets that rely heavily on Indonesian supply, while squeezing profits for companies operating in the country.
The Financial Times reported on May 20 that benchmark palm oil prices on the Malaysian exchange rose nearly two per cent after the announcement, amid fears that tighter export controls could disrupt supplies.
Nickel prices also climbed on similar concerns, while shares in London-listed palm oil producer AEP Plantations tumbled more than 20 per cent.
That shift could have major implications for businesses already tied to long-term international supply agreements, said Achmad of Control Risks, noting that commercial decisions could increasingly become subject to state control.
Currently, companies producing commodities such as coal and palm oil negotiate directly with overseas buyers on prices, contracts and sales terms. “This regulation ends that,” he said.
Investors, Achmad added, would likely focus on three main risks: slower business decisions under a state-run system, greater political influence over export pricing and volumes, and uncertainty for companies tied to existing long-term supply contracts.
He also warned that the proposal gives the government broad discretion to expand the list of commodities covered by the policy without parliamentary approval, creating further uncertainty for long-term investors.
Achmad Nur Hidayat from Universitas Pembangunan Nasional in Jakarta said the proposal reflected Prabowo’s broader push to place more of Indonesia’s natural resource wealth under state control and reduce dependence on foreign intermediaries.
“But it can also turn into a bureaucracy that grows more powerful, slower and more vulnerable to creating new rents. This is where the potential problem lies,” he said.
FGS Global’s Dedi similarly said the plan reflected continuity with Indonesia’s long-running effort to extract more value from its natural resources, but with a different emphasis under Prabowo.
During former president Joko Widodo’s administration, Indonesia focused heavily on downstream processing and industrialisation.
“Prabowo’s approach appears more focused on controlling the channels through which strategic commodities are traded, monetised and linked to broader economic priorities,” Dedi said. - The Straits Times/ANN
