Indonesia Rethinks Free Trade Strategy to Chase 6% Growth, With Data Centers and Green Industry in Focus

Indonesia’s finance ministry is changing the question it asks about free trade.

Instead of focusing only on which domestic industries could be damaged by lower trade barriers, Finance Minister Purbaya Yudhi Sadewa wants policymakers to identify where Indonesia can still compete, which sectors deserve targeted support, and what entirely new industries could become the next engines of growth.

The shift was outlined at a Finance Ministry seminar on August 20, where Purbaya said the ministry would begin using a more opportunity-driven approach to free-trade agreements from September.

His immediate ambition is to help accelerate economic momentum toward at least 6% by the end of 2026. The Finance Ministry’s broader policy statement refers to a 6%–8% growth ambition.

From Trade Defense to Industrial Selection

Trade liberalisation creates winners and losers.

Purbaya’s proposed framework effectively acknowledges that governments cannot treat every affected industry in the same way.

Some sectors may have lost enough competitiveness that indefinite protection makes little economic sense. Others can survive without significant intervention. A third group may still have enough productivity or strategic value to justify fiscal support.

Then there is a fourth category: industries that are not yet major Indonesian strengths but could become large growth sectors in the future.

That last category may prove the most important.

Data Centers Are One Example

Purbaya specifically highlighted data centers.

Indonesia has the population, rapidly expanding digital activity and geographical position to compete for more digital-infrastructure investment.

But large-scale data centers require dependable electricity.

That makes energy availability part of investment policy, not simply an electricity-sector issue.

If Indonesia wants to compete with other Asian data-center hubs, its trade, fiscal, investment and energy policies need to work together.

The lesson is broader than one industry: lowering trade barriers has limited value if Indonesia cannot provide the physical infrastructure that internationally competitive industries require.

Europe Offers Another Type of Opportunity

The EU-Indonesia Comprehensive Economic Partnership Agreement gives Jakarta a different path to growth: larger export-market access.

Indonesia and the European Union completed CEPA negotiations in September 2025. However, the agreement is not yet in force.

In June 2026, the European Commission submitted the agreement to the EU Council for signature and conclusion, while Indonesia has been working through its own ratification process with implementation targeted around early 2027.

That timing matters.

The agreement is strategically relevant today, but most of its tariff benefits cannot yet be counted as a realised 2026 growth driver.

More Than 98% of Tariff Lines Will Be Liberalised

Once implemented, the agreement will substantially reduce trade barriers.

The European Commission says the two sides will eliminate tariffs on more than 98% of tariff lines, covering almost all trade by value. Around 80% of trade will be liberalised when the agreement enters into force, rising to roughly 96% after five years.

For Indonesia, textiles and footwear are among the sectors identified as major beneficiaries.

That creates a clear market-access opportunity for industries that have spent years competing with producers from Vietnam, China, Bangladesh and other manufacturing centres.

But tariff reductions are only one part of competitiveness.

Europe Is Raising Its Environmental Bar

The European market is increasingly measuring products through their environmental footprint.

The European Commission has introduced updated methods for assessing the lifecycle impact of clothing and footwear, including production, raw materials, logistics, use and disposal.

This creates a link between trade policy and energy policy.

A textile factory powered by cleaner and more verifiable electricity may be better positioned to meet customer, regulatory and sustainability requirements than a factory dependent on higher-carbon energy.

Purbaya sees that connection as an economic opportunity.

Why Geothermal Enters the Trade Debate

Indonesia has one of the world’s largest geothermal resources.

The Energy Ministry estimates national geothermal potential at roughly 23.7 gigawatts, compared with installed capacity of around 2.7 GW in 2025.

Purbaya suggested that state-owned Geo Dipa Energy could expand geothermal development to supply cleaner electricity to industrial clusters, including textiles seeking greater competitiveness in Europe.

Geo Dipa currently operates projects at Dieng and Patuha and has been developing additional units at both sites.

The concept effectively turns renewable energy into part of Indonesia’s export strategy.

Clean electricity is no longer only about reducing emissions. It can affect whether Indonesian products satisfy buyer requirements and remain competitive in markets where sustainability standards are becoming more stringent.

CEPA Itself Contains Sustainability Commitments

The trade agreement reinforces that logic.

The EU-Indonesia CEPA includes commitments covering climate policy, environmental protection, workers’ rights and the transition toward a lower-carbon economy.

That means Indonesian exporters will gain better tariff access, but they will also operate in a market where sustainability expectations are becoming more explicit.

The biggest beneficiaries may therefore be companies capable of combining lower tariffs with efficient production, clean energy and compliance with European standards.

A 6% Economy Requires More Than Trade Agreements

Purbaya’s strategy may help industrialisation, but free trade cannot produce 6% growth on its own.

Indonesia’s official 2026 growth outlook has previously been placed at 5.6%–6.0%.

Achieving or sustaining growth around 6% requires stronger private investment, household consumption, credit expansion, productivity, export performance and macroeconomic stability.

The trade strategy should therefore be viewed as one part of a broader growth programme.

The potential payoff is medium-term: better industrial allocation, more investment and a larger export base.

The More Important Change Is How Government Chooses Winners

Purbaya’s framework also raises a difficult policy question.

Governments have limited fiscal resources.

Supporting every industry facing foreign competition may protect jobs temporarily but can also lock capital into sectors that are no longer productive.

Removing support too quickly, however, can destroy industries that might remain globally competitive with better infrastructure, financing or technology.

That makes data-driven selection essential.

The Finance Ministry says the new approach will rely on more precise analysis and modern econometric modelling to identify where fiscal intervention can deliver the strongest economic return.

If executed well, FTA policy becomes more than tariff negotiation.

It becomes part of industrial strategy.

Bottom Line

Indonesia is trying to turn free trade from a defensive problem into a growth tool.

Purbaya’s new approach is designed to separate industries that are structurally uncompetitive from those that can still be strengthened, while simultaneously identifying new sectors such as data centers.

For existing exporters, the EU agreement could create substantial opportunities. More than 98% of tariff lines will eventually be liberalised, with textiles and footwear among the Indonesian sectors expected to benefit.

Cleaner energy could become part of that competitive advantage, which explains why geothermal development through companies such as Geo Dipa is now appearing in discussions about trade and industrial policy.

The biggest shift is therefore conceptual.

Indonesia is no longer asking only how to protect domestic industry from free trade.

It is asking how to use free trade to build industries capable of growing faster than the competition