The Scale of Export Leakages is Profoundly Alarming

Over the past three decades, export under-invoicing, transfer pricing, and commodity misreporting may have cost Indonesia hundreds of billions of dollars in lost state revenue and foreign-exchange earnings. President Prabowo Subianto recently described the practice bluntly as “fraud” – and on that point, he is right, and for once, I agree with him.

Indonesia may not have lost as much as the $150 billion implied by Prabowo’s estimate. But even the far more conservative estimate by Global Financial Integrity – roughly $6.5 billion annually in illicit financial outflows linked to trade misinvoicing – points to a serious structural failure in economic governance.

The Problem is Real, but the Cure May Cut Deeper than the Wound

The government’s new plan would centralize exports of coal, palm oil, and ferroalloys through PT Danantara Sumberdaya Indonesia (DSI), a newly established export institution under Danantara. Exporters would no longer transact directly with overseas buyers, but instead channel exports through DSI, which would verify prices against international benchmarks, monitor shipment reporting, and oversee foreign-exchange repatriation. In effect, DSI would operate as both a centralized export aggregator and a regulatory gatekeeper for Indonesia’s strategic commodities. Officials argue that the scheme will strengthen oversight, reduce under-invoicing and transfer-pricing practices, and enhance Indonesia’s bargaining position in global commodity markets. Rosan Roeslani has pledged tighter reporting standards and greater transparency, while emphasizing compliance with OECD-style pricing principles.

Yet history offers lessons:

Centralization Rarely Ends Rent-Seeking; It Often Concentrates It
Indonesia has seen this movie before. In the 1990s, the Badan Penyangga dan Pemasaran Cengkeh (BPPC), established under the New Order regime, was granted sweeping authority over the purchase, distribution, and export of cloves. Officially, the objective was to stabilize prices and strengthen farmers’ welfare. In practice, BPPC evolved into a highly centralized monopoly associated with inefficiency, rent extraction, market distortions, and political patronage. The institution ultimately collapsed following the Asian Financial Crisis and Indonesia’s post-1998 reform era, amid intense criticism over governance failures and abuse of market power. The parallels with PT Danantara Sumberdaya Indonesia (DSI) are difficult to ignore. But DSI would operate on a far larger scale, overseeing exports of coal, palm oil, and ferroalloys – commodities worth tens of billions of dollars annually and deeply integrated into global supply chains. The risks, therefore, are not merely economic, but systemic – potentially creating long-term inefficiencies, weakening competitiveness, discouraging private investment, and ultimately imposing substantial economic costs on Indonesian households and future generations.

It Requires Not More Intervention, but Better Governance
Commodity-export fraud in Indonesia did not emerge because markets were too competitive. It emerged because institutions were weak, governance fragmented, enforcement inconsistent, and incentives distorted. Replacing decentralized leakages with centralized control risks creating a far larger concentration of economic and political power.

This is particularly concerning given the scale of authority being placed under Danantara. Initially envisioned as a sovereign wealth fund tasked with restructuring state-owned enterprises and mobilizing long-term investment, Danantara is now evolving into something much broader: an export gatekeeper, industrial holding company, and potentially a dominant commercial actor across strategic sectors. Financial markets have already reacted nervously, with concerns about governance, regulatory uncertainty, and investor confidence.  

First, Indonesia’s challenge is not simply to maximize state control over natural resources but to build credible institutions capable of regulating both the state and the market. Countries that successfully managed commodity wealth – including Norway and Chile – did not rely on opaque monopolistic export structures. They relied on transparent taxation systems, independent auditing, strong customs administration, digital traceability, and credible legal enforcement. Under-invoicing is fundamentally a problem of customs enforcement, tax administration, transfer-pricing regulation, and financial transparency. Strengthened economic governance depends on stronger civilian institutions, not expanded securitization of commerce.

Second, firms proven to have engaged in systematic under-invoicing, fraudulent transfer pricing, or illicit foreign-exchange diversion should face transparent legal proceedings, financial penalties, tax recovery measures, and, where appropriate, legal accountability. If the allegations raised by Purbaya Yudhi Sadewa regarding transfer pricing in coal and palm-oil exports from Indonesia to the United States through third countries such as Singapore are substantiated, those involved – whether corporations, intermediaries, or public officials – must be held fully accountable under the law. Selective enforcement or politically negotiated settlements would only deepen moral hazard, weaken institutional credibility, and further erode public trust.

Third, durable reform requires systemic modernization, not administrative overreach. Indonesia should strengthen customs digitization, integrate export-import data with partner countries, improve beneficial-ownership disclosure, adopt real-time commodity pricing benchmarks, and reinforce independent auditing mechanisms. The objective should not be to replace private-sector participation with state dominance, but to create a rules-based system in which both state and private actors operate transparently and competitively.

Indonesia does not lack natural resources.

Nor does it lack entrepreneurial capacity.

Nor does it lack legal expertise.

What it lacks is institutional credibility strong enough to ensure that national wealth benefits the broader economy by lifting people out of poverty and improving human capital, rather than serving narrow interests.

The answer to weak governance is not simply more state power or heavier government intervention but better governance.

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Secretary General of the International Economic Association (IEA) Lili Yan Ing
The views expressed here are personal

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