Prabowo pushes for flexible TKDN regulations

Prabowo calls for realistic approach to Domestic Component Level requirements in response to US import tariffs.

Minister of Communication and Digital Meutya Hafid. Photo by Bayu Pratama S/Antara

By Anna Fadiah and Hayu Andini

President Prabowo Subianto is pushing for a more flexible approach to the Domestic Component Level (TKDN) regulations, a response to the challenges posed by the United States’ import tariff policy. The Minister of Communication and Digital, Meutya Hafid, clarified that the president’s intention is not to reduce local content requirements but to find a solution that maintains Indonesia's competitiveness in the global market. This statement comes after President Prabowo’s remarks during the Economic Gathering with the President of the Republic of Indonesia: Strengthening National Economic Resilience, held in Jakarta on April 8.

President Prabowo Subianto pushes for flexible TKDN regulations to avoid placing undue pressure on domestic industries, particularly in light of the trade tensions and tariff disputes with global partners, such as the United States. According to Meutya Hafid, Prabowo emphasized that the government’s goal is to seek practical solutions for businesses operating within Indonesia, ensuring that local content requirements do not stifle industry growth.

"His (Prabowo’s) language is not to reduce but to look for a solution. So, the TKDN is being looked for as a solution," said Meutya Hafid, reflecting the government’s proactive stance in addressing both the domestic needs and international pressures facing Indonesia.

For many Indonesian manufacturers, the TKDN requirement has become a significant point of contention, especially in the context of technology and consumer electronics. A notable example cited by Hafid was Apple’s previous approach to meeting the TKDN requirements, which involved an alternative mechanism. Instead of directly fulfilling local content requirements in manufacturing, Apple invested in education and human resource development, an approach that provided flexibility while still complying with the broader objectives of the policy.

The TKDN regulations, governed by the Ministry of Industry’s Regulation Number 29 of 2017, outline the procedures for calculating local content in products such as mobile phones, handheld computers, and tablets. The government has introduced three primary schemes to help manufacturers fulfill these requirements: the Manufacturing scheme (building factories in Indonesia), the Application scheme (developing software applications locally), and the Innovation scheme (investing in innovation centers or proposing new technological advancements).

Despite these measures, President Prabowo has expressed concerns about the impact of rigid TKDN enforcement on the competitiveness of local industries. "The intention of the TKDN policy is good, namely to prioritize nationalism. However, we must be realistic," Prabowo stated during the economic gathering. He noted that while promoting local content is important for fostering national pride and boosting domestic industries, the policy must be implemented in a way that does not harm Indonesia’s economic standing in global markets.

Prabowo’s administration has proposed a more flexible and incentive-based approach to achieving the objectives of the TKDN policy. Instead of imposing stringent local content targets, the president suggested creating incentives for companies to invest in Indonesia, particularly in areas such as technology, manufacturing, and education. This approach, he believes, will encourage innovation while also ensuring that local industries remain competitive on the world stage.

In his remarks, President Prabowo also instructed his ministers to work on formulating TKDN regulations that align with the actual capacity of Indonesia's industries. "Please ministers, come on. TKDN should be made realistic. This problem is broad, involving domestic capabilities, education, science and technology. This cannot be solved with regulations alone," he emphasized. This call to action reflects the government’s intention to craft policies that are both ambitious and feasible, taking into account the capabilities of Indonesia's workforce and industrial infrastructure.

The push for a more balanced approach to TKDN comes at a critical time for Indonesia’s economy. The country faces numerous challenges, including fiscal pressure, the depreciation of the rupiah, and the ongoing threat of deindustrialization. In response to these concerns, economist Wijayanto Samirin from Paramadina University highlighted the challenges that Indonesia faces in maintaining industrial growth and economic stability. He urged the government to take a more comprehensive approach to addressing these issues, one that goes beyond mere regulatory changes.

Prabowo’s decision to engage in this dialogue with economists and industry leaders marks an important shift in the government’s approach to economic policy. By calling for flexibility in TKDN regulations, the president is acknowledging the dynamic nature of global trade and the need for Indonesia to remain competitive. His administration recognizes that local industries must be given the tools to grow and thrive, not just through regulatory mandates but also through the cultivation of a skilled workforce, innovation, and strategic investments.

The debate over TKDN also ties into broader conversations about Indonesia’s industrial policy and the future of its manufacturing sector. As global trade patterns evolve and new challenges emerge, it is essential for countries like Indonesia to adapt their policies to remain relevant in the competitive global market. President Prabowo’s pragmatic approach to this issue could serve as a model for other nations facing similar dilemmas related to trade policy and domestic industry protection.

Looking ahead, it remains to be seen how the government will balance the need for local content requirements with the realities of international trade. The president’s call for a realistic and flexible approach suggests that future TKDN regulations may focus on encouraging innovation, investment, and the development of human capital, rather than imposing rigid quotas that could potentially harm the national economy.

As President Prabowo continues to address the complexities of the TKDN policy, the hope is that Indonesia can find a path forward that fosters both national pride and global competitiveness. By creating a more flexible regulatory framework, the government may be able to strengthen Indonesia’s industrial sector while ensuring that businesses, both local and international, are incentivized to invest in the country’s future.