Indonesia warns against copying green plans of wealthy nations
The World Bank and IMF have dropped their old hostility to intervention – Indonesia should use the opening to shape its own path.
Source: Lowy Institute · October 11, 2026 at 3:02 AM · AI-assisted report
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BANGKOK, 11 OCTOBER 2026 —
Indonesia’s Green Industrial Policy: A Unique Path Amid Global Shifts
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Indonesia’s Finance Minister Sri Mulyani Indrawati will attend the IMF and World Bank annual meetings in Bangkok next week, where the institution’s long-standing opposition to state-led industrial policy has softened—offering Jakarta a rare opportunity to reshape global development narratives on its own terms.
But with fiscal constraints, a shrinking manufacturing base, and a workforce dominated by informal labor, Indonesia must chart a distinct course from Western green industrial policies, experts say, focusing on resource-driven development rather than subsidies for established industries.
The shift by the World Bank and IMF comes as rich nations like the U.S. and EU race to secure clean energy supply chains, but Indonesia’s challenges differ fundamentally.
While Washington and Brussels offer tax breaks and subsidies to retain manufacturing jobs, Jakarta faces a different calculus: how to industrialize while lifting millions from informal work and avoiding the "middle-income trap." The stakes are high—Indonesia’s 2045 net-zero target, already deemed a "miracle" by the World Bank, hinges on whether its resource advantages can translate into inclusive growth.
The World Bank’s 2024 report, Industrial Policy for Development: Approaches in the 21st Century, marks a historic pivot, acknowledging that governments can actively steer economic growth—a stance it once vehemently opposed. Yet Indonesia’s fiscal limits remain a hurdle. Under current law, the budget deficit cannot exceed 3% of GDP, and Finance Minister Sri Mulyani projected the 2024 deficit would hit 2.85%.
A trillion-dollar subsidy program, akin to Western green incentives, would divert funds from education, healthcare, and infrastructure—a political non-starter. "Indonesia does not have the same money," noted Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies (CELIOS), emphasizing that Jakarta’s priorities must align with its developmental stage, not Western models.
Indonesia’s manufacturing sector has contracted from 32% of GDP in the early 2000s to just 19% today, a phenomenon economists call "premature deindustrialization." Meanwhile, 60% of workers operate in informal jobs—lacking contracts, benefits, or stable incomes. Unlike the U.S., where green policies aim to preserve high-skilled manufacturing jobs, Indonesia’s focus must be on creating formal employment for its vast informal workforce. "American green policy asks how to keep good factory jobs," Adhinegara said.
"Indonesia must ask how to create good jobs for millions who have never had one."
Nickel, Indonesia’s crown jewel, lies at the heart of this strategy. The world’s largest nickel reserves—critical for electric vehicle batteries—have driven a 2020 export ban on raw ore, forcing domestic processing. This resource-based industrial policy contrasts sharply with Western subsidies, which prioritize competition and energy security. Yet the transition remains fraught: over 94% of Indonesia’s nickel processing energy still comes from coal, a legacy of its reliance on fossil fuels.
The IMF’s 2023 call to lift the export ban was rejected, with mixed evidence on its impact—a World Bank study found it increased export value but also attracted inefficient firms. Indonesia’s approach, Adhinegara argued, should be refined, not abandoned.
The IMF and World Bank’s annual meetings in Bangkok (October 12–18) present Indonesia with a platform to demand tailored support. World Bank Chief Economist Indermit Gill outlined three prerequisites for successful industrial policy: a large market (which Indonesia has), a capable government, and public funding. Jakarta must push for cheaper, long-term loans and guarantees for clean energy projects, given its fiscal ceiling.
It should also seek assistance in building institutional capacity—agencies capable of designing, monitoring, and adjusting policies—while insisting on metrics tied to jobs, skills, and wages, not just nickel output or announced investments.
Southeast Asia’s collective voice could amplify Jakarta’s leverage. Neighboring economies face similar fiscal and labor challenges, and a unified regional stance could pressure the IMF and World Bank to align their advice with developmental realities. "Rich countries wrote green plans for their own needs," Adhinegara said. "Next week, Southeast Asia has a chance to ensure the world’s two biggest development institutions support plans written for its needs too."
The meetings arrive at a pivotal moment. The World Bank’s shift on industrial policy reflects broader recognition that market fundamentalism alone cannot address global inequalities. For Indonesia, the opportunity lies in leveraging its resources—not to mimic Western models, but to forge a path that balances climate ambition with inclusive growth. The question is whether the institutions will listen.
Related: Sri Mulyani Indrawati · Bangkok