Prabowo Will Change TKDN Rules At The Risk Of Premature Deindustrialization

JAKARTA - Jakarta Veterans UPN Public Policy Economist Achmad Nur Hidayat assessed that President Prabowo Subianto's instructions to change the rules for the level of domestic components (TKDN) for industry would pose a risk of premature deindustrialization.

The reason is, Nur Hidayat assessed that the TKDN policy is not just a percentage figure in the document, but as a vital instrument to protect the domestic market to empower local business actors.

"The discourse to loosen TKDN can be the beginning of the risk of premature deindustrialization or significant weakening in strategic sectors," he said in a written statement, Wednesday, April 9.

Nur Hidayat said that the manufacturing, electronics, automotive, textile, and agroindustrial sectors, which have been trying to grow under the protection umbrella of TKDN, will face unbalanced competition with imported products that often excel in production scale and price efficiency. This is because subsidies or economic practices of the country of origin.

"For local business people, especially MSMEs that are the backbone of the populist economy, this impact will be much more destructive," he said.

According to him, MSMEs often operate with limited capital, smaller production capacity and access to technology that is not yet commensurate with multinational corporations or large producers from abroad.

Although sometimes considered a challenge, he said, TKDN regulations actually provide loopholes for them to engage in industrial supply chains, especially in government or BUMN projects that require a certain percentage of local components.

"Disposing or softening this requirement is tantamount to removing the last safety net for them, allowing them to sink into the swift current of cheap imported products," he stressed.

If this is true, Nur Hidayat is worried that there will be potential for a decline in domestic production, small and medium-scale business closures, loss of employment opportunities to widening the trade balance deficit.

In addition, according to Nur Hidayat, local business people and products are also not ready to compete head-to-head with imported products, both in terms of quality and price.

"Although many local products show proud quality and innovation continues to grow, structural challenges such as production efficiency, high logistics costs, access to quality raw materials at competitive prices and mastery of cutting-edge technology are still big homework," he said.

Furthermore, Nur Hidayat is of the view that the TKDN regulation is not intended as a permanent barrier, but an incubator that protects the industry is developing until it is strong enough to stand alone.

"Changing the TKDN rules to be more flexible before the local industry is completely mature is like releasing premature babies from their incubators, the risk is too big," he concluded.

Previously, President Prabowo Subianto instructed his staff to change the rules of the industrial TKDN. This rule will be changed after receiving proposals from entrepreneurs.

Prabowo assessed that the TKDN rules were indeed made to maintain local components. However, if these regulations are constantly maintained, the Indonesian industry may not be competitive.

"I have given instructions for TKDN, the intentions are good nationalism, if you have known me for a long time, yes, I am the most nationalist, if my heart is opened, maybe those who come out in red and white. But we have to be realistic if TKDN is forced, we can lose, not competitive," Prabowo explained at the Joint Economic Facilities of the President of the Republic of Indonesia at the Mandiri Tower, Jakarta, Tuesday, April 8.

He asked that the TKDN rules be changed more flexibly and realistically. "It's just that TKDN is flexible, it's replaced with incentives. Please, yes, my assistants, my ministers are realistic, TKDN is made realistic," said Prabowo.