Indonesia’s Export Overhaul: A Recipe for Market Instability?

The Indonesian government’s plan to centralize commodity exports through a new state-controlled entity has sent shockwaves through global markets and sparked concern among businesses and investors. President Prabowo Subianto’s proposal aims to combat under-invoicing, but critics argue that it risks creating a trade monopoly and disrupting market dynamics.

At its core, the proposal reflects a familiar theme: the quest for greater state control over strategic resources. Indonesia’s move echoes similar efforts by other nations seeking to exert influence over their commodity exports. However, these measures often overlook the unintended consequences that can arise from such actions.

Indonesia is creating Danantara Sumberdaya Indonesia, a new entity under the umbrella of the Danantara sovereign wealth fund structure. This promises to upend existing market arrangements and potentially jeopardize Indonesia’s position as a major commodity supplier. Critics warn that centralizing exports could lead to monopolistic control over trade flows, allowing politically connected players to dominate export chains.

Palm oil farmers are particularly worried about the proposal. Their livelihoods depend on exports, and a centralized system may struggle to accommodate their highly specific product requirements. Mansuetus Darto, chairman of the Association of Indonesian Oil Palm Farmers’ Organisations, stated that the proposal “opens room for a trade monopoly” and threatens “economic rent-seeking practices.” Eddy Martono, chairman of Indonesia’s palm oil producers’ association (Gapki), also expressed concern about the potential for supply chain disruptions.

The government justifies its move by citing the need to curb under-invoicing, which they claim has resulted in significant losses. A recent research report estimates that Indonesia lost around $20 billion in coal export value between 2015 and 2024 due to misinvoicing. However, critics argue that the true objective is not solely to combat under-invoicing but rather to exert greater state control over resource flows.

As Indonesia embarks on this significant economic overhaul, it must be mindful of the potential consequences for its global trading partners. The creation of a new state-controlled entity may lead to supply chain disruptions and create uncertainty among foreign buyers. This could ripple through global commodity markets, as seen in recent price hikes of palm oil and nickel.

The proposal’s effectiveness will depend on governance, pricing transparency, and enforcement. However, its implementation poses significant risks, including bureaucracy, slower decision-making, and potential delays. Analysts have questioned whether routing exports through a single state-linked entity would actually solve the problem, with some arguing that control is the actual objective rather than addressing under-invoicing.

The market’s reaction to this proposal has been telling, with benchmark palm oil prices rising and shares in palm oil producers plummeting. This shift could have major implications for businesses operating in Indonesia, particularly those tied to long-term international supply agreements. As Control Risks’ Associate Director Achmad Sukarsono noted, “commercial decisions could increasingly become subject to state control.”

The Indonesian government’s proposal raises more questions than answers about the country’s intentions and its potential impact on global markets. While combatting under-invoicing is a legitimate concern, creating a new state-controlled entity may not be the solution it purports to be. As Indonesia navigates this complex issue, it must carefully balance the need for greater oversight with the risks of creating market instability and compromising its position as a major commodity supplier.