The global competition for AI dominance is intensifying, with incredibly high stakes for all involved. When all eyes are on the US-China AI rivalry, Indonesia should be pragmatic in its approach to ensure that this emerging technology drives the country’s economic growth and benefits society as a whole.

With a young, tech-savvy population already enthusiastically adopting AI, Indonesia is well-positioned to take full advantage of the AI opportunities. According to the latest report by Public First and INDEF, Indonesia has the world’s second-highest number of AI tool users after India. More strikingly, the report reveals that government agencies and state-owned enterprises in Indonesia could benefit from Rp 26 trillion (US$1.6 billion) in efficiency gains and cost savings through their adoption of enterprise-grade AI platforms and tools over the next five years.

AI is a general-purpose technology, and it’s important to note that it has the potential to deliver extraordinary productivity and make generational progress in science, healthcare, and many other fields. Therefore, an approach that is risk-based, proportionate, and outcome-focused is needed to keep pace with rapid and uncertain advances in AI. What does it really mean, and which countries can Indonesia benchmark the good practices from?

Given the recent visit of President Prabowo to Australia in early November this year, we can tell how strategic Australia is for Indonesia in key sectors such as defense, security, trade, and people-to-people links. There is a need for both countries to deepen partnerships and learn from each other in addressing future global challenges, such as on AI.

In Indonesia, we expect AI to increase average growth rates for GDP per capita by 14% over the next five years. In Australia, AI can contribute up to $200 billion a year to its GDP and create an additional 150.000 jobs by 2030. One way to help achieve all these potentials is to have a pro-innovation approach to AI regulation.

Indonesia and Australia share a common goal of developing a pro-innovative AI regulatory framework. Indonesia has published its National Strategy for AI (2020-2045), aiming to position the country in the global AI landscape while ensuring that AI development is ethical, inclusive, and beneficial to all sectors of society. So is Australia with its whole-of-government frameworks that focus on building economic resilience, growing investment, and supporting local industries.

Getting AI regulation right is a key public policy responsibility for every government, and smart regulation can promote responsible AI practices while ensuring that innovation can continue to flourish. While Indonesia is currently developing its horizontal AI roadmap and ethical guideline, we can learn two things from the latest interim report of the Australia’s Productivity Commission.

One is to prioritize existing laws. Before creating new AI-specific laws, it has to conduct and complete comprehensive "gap analyses" of current regulations. These analyses would determine if existing legal frameworks can adequately address AI-related risks, possibly with improved guidance and enforcement. According to the report by Mandala, Indonesia has existing laws and regulations that overlap with AI, among others, ITE and personal data protection laws for data governance, consumer protection law and GR 71/2019 for user safety and security.

From this case, we learn that laws exist but need to be changed or revised in order to create an enabling environment for AI development and adoption. New regulations risk reinventing the wheel, and imposing new costs for governments, for industries, and for consumers.

The other one is that any new regulation should be proportionate to the risk, technology-neutral where possible, and focused on outcomes rather than specific processes. The report also recommends pausing the implementation of proposed "mandatory guardrails for high-risk AI". It argues that such economy-wide regulations are premature and risk creating unnecessary compliance burdens before the gaps in existing laws are fully understood.

In determining risk, the Indonesian government should take into account not just the likelihood and severity of harm, but also the opportunity cost of not using AI. Sectoral regulators are best placed to assess context-specific uses and impacts of AI in their respective domains, and whether and how best to regulate them. For instance, the Ministry of Health is best positioned to evaluate the use of AI in medical services. Similarly, OJK has expertise and a mandate in evaluating the AI use cases in the banking sector.

This is a crucial moment for Indonesia to shape its digital future. Learning from Australia, the path to realizing the nation's substantial AI potential—from generating significant efficiency gains to boosting GDP per capita growth—depends entirely on establishing a smart and pro-innovation regulatory framework. This involves resisting the global pressure to implement broad, mandatory guardrails too quickly. Instead, Indonesia's immediate focus should be on conducting thorough gap analyses of existing laws and empowering specialized sectoral regulators to apply risk-proportionate, outcome-focused oversight.

By adopting this pragmatic and adaptive approach, Indonesia can ensure AI serves as a true engine for national progress, securing its place not just in the global AI landscape but as an economic powerhouse built on responsible innovation.

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Agung Pamungkas, Ganesha Mahottama Lubis, Renova Hutapea - Australia Awards Scholar

The views and opinions expressed in this article are those of the authors