Indonesia should not copy the green plans of rich countries

For rich countries, green industrial policy is mainly about competition and security. For Indonesia, it should be about development: using clean energy to become a high-income country.

The government’s target is 2045. The World Bank has warned (Opens in new window) that this goal will need something close to a “miracle”. Many countries get stuck at middle income for decades.

The energy transition could help Indonesia avoid this trap, because countries that join new supply chains early can learn new skills and build new industries. This is where the IMF and the World Bank can help, or get in the way.

The IMF has not always been helpful. In 2023, it called on (Opens in new window) Indonesia to lift its ban on raw mineral exports and not to extend it to other minerals. Indonesia refused. The evidence is mixed. A World Bank study found (Opens in new window) that an earlier version of the ban raised the value Indonesia added to its exports, but also drew in small, inefficient firms. The lesson is better design, not dropping the policy. In Bangkok, Indonesia should ask the IMF for advice on how to make resource-based industrial policy work, rather than advice to abandon it.

The World Bank’s chief economist, Indermit Gill, names (Opens in new window) three conditions for success: a large enough market, a capable government and enough public money. Indonesia has the first. It needs help with the other two.

On money, Indonesia should ask the World Bank for cheaper, long-term loans and guarantees for clean power and new factories. More than 94% of the power used to process nickel comes (Opens in new window) from coal. A budget near its legal limit cannot pay to clean that up.

On capacity, it should ask for help building the skills of agencies that design, monitor and, when needed, end industrial policies, and ask both institutions to judge success by jobs, skills and wages, not by tonnes of nickel processed or investment dollars announced.

Other Southeast Asian countries face the same limits on money and the same need for jobs, so they can make this case together in Bangkok.

Rich countries wrote green plans for their own needs. Next week, Southeast Asia has a chance to make sure the world’s two biggest development institutions support plans written for its needs too.