Bali temple, Indonesia - Photo: Agung Atmaja
Indonesia - Global Development
ID
Indonesia trades critical minerals for lower US tariffs as deforestation surges 66% and its climate transition stalls well behind schedule
Indonesia has transformed from an aid recipient into an emerging donor and a genuinely influential voice in global development. It now sits at the center of one of the decade’s defining trade stories, its critical minerals traded for tariff relief. Yet its climate transition is stalling badly, and deforestation just hit an eight-year high. This article covers aid, tax, climate, and trade, the same four threads RYB tracks across every country page.
From Aid Recipient to Emerging Donor
Indonesia reduced its poverty rate from 24% in 1999 to roughly 9.5% today, a transformation that lifted it to middle-income status and G20 membership. The country has gradually reduced its dependence on traditional foreign aid, establishing the Indonesian Agency for International Development in 2019 to coordinate its own outgoing assistance, mostly technical cooperation and knowledge-sharing with other developing nations.
Indonesia’s economy remains genuinely resilient. Growth reached 5.11% for 2025 as a whole, accelerating to 5.39% in the fourth quarter, with the trade surplus widening to $49.82 billion, up from $39.84 billion in 2024. Foreign exchange reserves stood at $151.9 billion in February 2026, equivalent to roughly six months of imports.
Tax: Rising Revenue, Still a Low Carbon Price
Indonesia’s tax-to-GDP ratio has long been one of the lowest among major economies, around 11%, held down by widespread evasion and generous investment incentives. The 2026 fiscal year brought a notable improvement: tax revenue surged 30.7% year-on-year in early 2026, supporting a 25.7% acceleration in state spending while keeping the deficit within its 2.68%-of-GDP target.
Indonesia’s carbon tax tells a more cautious story. Legislated in 2021 but still barely implemented, it applies only to high-emitting power plants at roughly $2 per tonne of CO2 equivalent, among the lowest carbon prices in the world. Research attributes this caution to fossil fuel dependence, limited technical readiness, and real political resistance from industry.
A new revenue tool arrives in 2026: a coal export tax of 1-5%, designed to capture more value from Indonesia’s mineral and coal exports, which alone attracted 30.2% of total investment in 2025. This sits somewhat uneasily alongside Indonesia’s climate commitments, taxing the same coal sector its own climate targets are meant to shrink.
Climate: A Transition Stalling, Not Just Slowing
Indonesia’s climate performance has deteriorated on multiple fronts at once. The Climate Change Performance Index 2026 ranks Indonesia 43rd overall, a low performer across every category, citing the absence of any coal phase-out plan, no clear net-zero pathway, and weak carbon tax implementation. Climate Action Tracker rates Indonesia’s overall climate action “Critically insufficient.”
Deforestation, not power generation, remains Indonesia’s single largest emissions source, and it just got dramatically worse. Indonesia lost 433,751 hectares of forest in 2025, a 66% increase from 2024 and the highest annual deforestation level in eight years, driven substantially by palm oil and pulpwood expansion following the end of a plantation moratorium.
The country’s energy transition faces structural headwinds too. Indonesia’s latest national electricity plan delays 70% of planned renewable capacity additions until after 2030, while frontloading 12.7 gigawatts of new fossil fuel capacity by 2029. Indonesia’s own nickel processing, central to its EV ambitions, currently runs 22-40% more carbon-intensive than the global average.
The Just Energy Transition Partnership, meant to help retire Indonesia’s coal fleet with international financing, has struggled to gain traction. Approved JETP financing reached only roughly $3.1 billion by December 2025, and the anticipated early retirement of the Cirebon-1 coal plant, one of the partnership’s signature projects, collapsed entirely that same month.
Even the relocation of Indonesia’s capital from Jakarta to Nusantara, originally framed as a climate adaptation response to Jakarta’s severe subsidence and flooding, has been quietly deprioritised. Though reaffirmed by presidential instruction, Nusantara is notably absent from the top five priorities in the government’s 2025-2029 development plan, even as palace construction reaches 80% completion.
Trade: Critical Minerals for Tariff Relief
Indonesia’s most consequential 2025-26 story runs through trade, not aid. A July 2025 deal cut US tariffs on Indonesian goods to 19%, down from a threatened 32%, in exchange for what the US called “complete and total access” to Indonesia’s critical minerals, especially nickel, alongside commitments to purchase $15-19 billion in US goods, including 50 Boeing aircraft.
Indonesia is the world’s largest nickel producer, a mineral central to electric vehicle batteries, and also a major producer of copper, bauxite, and tin. The deal reverses years of Indonesian policy that used export bans and local-content rules specifically to force domestic downstream processing rather than raw mineral exports.
This has real geopolitical friction attached. Since the July agreement, the US has reportedly pressed Indonesia to limit its ties with China, which has invested over $35 billion in Indonesia’s metal processing sector since 2020. By December 2025, Indonesia was reportedly backtracking on some commitments specifically to preserve its China relationship, putting the deal’s finalisation at risk even as both sides worked toward a formal signing.
Separately, Indonesia’s trade relationship with the EU is advancing on friendlier terms. The Indonesia-EU Comprehensive Economic Partnership Agreement concluded negotiations in September 2025, with signing targeted for mid-2026, though Indonesian palm oil exporters still face elevated compliance costs under the EU’s deforestation regulation.
Governance and Regional Inequality Persist
Indonesia’s development gains remain geographically uneven. Java and other western islands continue to develop far faster than eastern regions like Papua, and infrastructure investment, though a genuine government priority, has often reinforced rather than closed this gap. Corruption remains a persistent constraint on development effectiveness, and major infrastructure projects have repeatedly faced cost overruns and non-transparent procurement.
What Indonesia Still Contributes
Indonesia’s regional leadership within ASEAN remains genuine, and its South-South cooperation model, emphasising technical knowledge-sharing over financial transfers, offers a distinctive alternative to traditional donor relationships. Danantara, Indonesia’s new sovereign investment vehicle, aims to channel domestic and foreign capital toward strategic development priorities, including downstream mineral processing.
Indonesia’s renewable energy potential remains vast and largely untapped, spanning geothermal, solar, and hydropower resources that could, with sustained investment, support a much faster energy transition than its current trajectory suggests.
How This Connects to the SDGs
Indonesia’s deforestation surge undermines SDG 13, climate action, and SDG 15, life on land, simultaneously, at the fastest pace in eight years. Its critically insufficient climate rating and stalled JETP financing further weaken SDG 13, even as the country’s genuine renewable potential offers a credible path toward SDG 7, affordable clean energy, if investment follows through.
Regional inequality between Java and eastern Indonesia connects directly to SDG 10, reducing inequality, while the low, barely enforced carbon tax limits the domestic resource mobilisation that would otherwise support SDG 17. The nickel-for-tariffs trade deal raises real questions for SDG 12, responsible consumption and production, given the emissions intensity of Indonesian nickel processing and its links to deforestation and water pollution.
Looking Forward
Indonesia’s climate trajectory now depends on choices already visible in its own planning documents. Whether the new Minister of Forestry’s push to weaken the FOLU net sink target in the draft 2035 NDC succeeds will show whether Indonesia’s climate ambition is deepening or retreating under economic pressure.
The US minerals deal remains genuinely unresolved. Whether Indonesia can secure nickel access on its own terms, without fully abandoning its downstream processing strategy or its relationship with China, will likely define its trade policy for the rest of the decade.
RYB will track whether Indonesia’s 2025 deforestation surge proves an anomaly or a new trend, whether JETP financing accelerates beyond its current $3.1 billion, and whether the minerals-for-tariffs deal is finalised on terms that genuinely benefit Indonesian workers and communities rather than simply reverting to raw mineral exports. This page will be updated as new data and policy decisions emerge.
Sources and References
- Climate Action Tracker, Indonesia country profile — climateactiontracker.org
- Climate Action Tracker, Indonesia Policies & Action — climateactiontracker.org
- IKI Indonesia, “Policy Updates W3 April 2026” — iki-indonesia.id
- Auriga Nusantara, “Indonesia Deforestation Status 2025 (STADI 2025)” — cited via IKI Indonesia Policy Updates
- Directorate General of Taxes, Indonesia, “The Future of Carbon Tax for Indonesia Emas 2045” — pajak.go.id
- IDN Financials, “Indonesia to impose coal export tax of up to 5% from 2026” — idnfinancials.com
- Bank Indonesia, “Presentation Book Republic of Indonesia,” March and April 2026 — bi.go.id
- Nation Thailand, “Indonesia and US seal tariff deal, with nickel access in return for exemptions” — nationthailand.com
- Indonesia Business Post, “Prabowo’s trading critical minerals for U.S. defense tech” — indonesiabusinesspost.com
- Investment Monitor, “Indonesia-US critical minerals trade talks face challenges over China ties” — investmentmonitor.ai
- Asia Times, “US-Indonesia minerals deal points to new global trade era” — asiatimes.com
- RYB, Official Development Assistance (ODA) — redyellowblue.org/finance/oda/
Indonesia
Republic of Indonesia
Population
279,476,346 (2023 est.)
275,122,131 (2021)
262,787,403 (2018)
Capital: Jakarta
Internet country code: .id
Government
Official website: indonesia.go.id
Official Tourism Agency: indonesia.travel
Etymology: the name is an 18th-century construct of two Greek words, “Indos” (India) and “nesoi” (islands), meaning “Indian islands”
Background
The archipelago was once largely under the control of Buddhist and Hindu rulers. By around the 7th century, a Buddhist kingdom arose on Sumatra and expanded into Java and the Malay Peninsula until it was conquered in the late 13th century by the Hindu Majapahit Empire from Java. Majapahit (1290-1527) united most of modern-day Indonesia and Malaysia. Traders introduced Islam around the 11th century. The Portuguese conquered parts of Indonesia in the 16th century, but the Dutch ousted them and began colonizing the islands in the early 17th century. Japan occupied the islands from 1942 to 1945. Indonesia declared independence shortly before Japan’s surrender, and the Netherlands agreed to transfer sovereignty in 1949. From 1967 until 1998, President Suharto ruled Indonesia with his “New Order” government; street protests toppled him in 1998, and Indonesia has since become a robust democracy.
Indonesia is now the world’s third-most-populous democracy and the largest Muslim-majority nation. Its economy ranks among the world’s top ten by purchasing power parity, and it has made considerable gains reducing poverty. A political settlement to an armed separatist conflict in Aceh was achieved in 2005, but a separatist group in Papua continued a low-intensity conflict as of 2024.
That same resource wealth, from nickel and coal to some of the world’s largest remaining tropical forests, now sits at the center of Indonesia’s development trade-offs: the same minerals driving its trade leverage with Washington are tied directly to the deforestation and emissions problems undermining its climate commitments.