Australia and Indonesia: Reform Lessons for Uncertain Times

6 May 2026 | Co-authored with Mari Elka Pangestu, Vice Chair of Dewan Ekonomi Nasional  

As productivity growth slows, economic uncertainty intensifies and change accelerates, governments around the world are seeking solutions. While drivers such as artificial intelligence and renewable energy are new, many of the policy debates are familiar.  

During the recent visit of Australia’s Productivity Commission Chair to Jakarta, we found these debates resonate deeply on both sides. Indonesia’s own reform experience offers equally compelling lessons.

These echo debates in earlier eras. Take trade and industry policy. After decades of liberalisation globally, the International Monetary Fund estimates that new trade restrictions introduced each year have tripled since 2019. Governments are seeking to support strategic sectors, protect business, and respond to geopolitical risk. Australia and Indonesia are no exception.

Australia has announced targeted support for emerging industries such as critical minerals and renewable energy. Indonesia has national strategies to develop priority sectors and add value to its natural resources. These ambitions are understandable but history suggests careful design matters. In the 1970s, high tariffs, subsidies and local content rules protected Australia’s manufacturing and agricultural sectors. While some producers benefited, consumers paid higher prices and the economy became less dynamic. Over time, the evidence became clear — broad-based protection was constraining productivity and inclusive growth.

Independent analysis helped shift the debate. The Productivity Commission and its predecessors assessed industry assistance and made transparent the costs for Australians. Over three decades, successive governments reduced tariffs and wound back distortionary support. By the late 1990s, effective assistance to manufacturing had fallen dramatically, and Australia’s economy was more open and competitive. Estimates suggest these reforms lifted GDP permanently by 5.4 per cent.

The lesson was not that governments have no role in shaping economic development. Rather, it was that policy should be focused on long-term productivity — not on shielding firms from the competition that stimulates them to become stronger.

In the 1990s, Australia faced a similar productivity slowdown. This mattered as much then as it does now because productivity growth is ultimately what lifts wages and living standards.

At that time, Australia pursued competition reforms across infrastructure, utilities, and other sectors. State-owned enterprises were corporatised, markets opened and regulatory barriers reduced. This required coordination across levels of government, long-term vision and sustained political commitment. These reforms were contested, but over time they boosted national income by at least 2.5 per cent.

Indonesia, too, has lived through transformative reform. In the mid-1980s, an oil dependent Indonesia responded to the fall in oil prices through a series of deregulation and reforms to its financial and real sector, with a focus on an export-oriented strategy to diversify away from oil. Growth then stabilised at high levels, averaging about 7.8 per cent over the 1986–1996 deregulation period.

Similarly, following the Asian Financial Crisis of 1997-98, Indonesia undertook sweeping structural changes — restructuring the banking sector, strengthening fiscal discipline, establishing independent regulatory institutions such as the competition commission, and progressively opening markets to trade and investment.  

Over the subsequent two decades, these reforms helped Indonesia achieve sustained growth, reduce poverty dramatically and attract more foreign investment. Though difficult and often politically contested, they laid the foundations for Indonesia’s emergence as Southeast Asia’s largest economy, a G20 member and one of the world’s most dynamic emerging markets.

Today, Indonesia is building on this legacy as it pursues the next frontier of productivity reform. The establishment of the Dewan Ekonomi Nasional (National Economic Council), or DEN, reflects Indonesia’s commitment to strengthening the institutional foundations for evidence-based economic policymaking. DEN’s mandate to provide independent, rigorous advice to the President on economic strategy and priorities draws on its growing in-house capability and is complemented by Indonesia’s leading think tanks and researchers, as well as a robust process with stakeholders.  

This shares much in common with the Productivity Commission’s role in Australia. Each country’s circumstances differ, and reform pathways must reflect national priorities. But the underlying principle is shared: sustained growth depends on an economy that encourages innovation, investment, and efficient use of resources.

Institutions matter in this process. Independent, evidence-based analysis can help clarify trade-offs, inform inclusive public debate, transcend political cycles, and support durable, equitable reform. In Australia, the Productivity Commission’s role is to provide transparent advice, test policy ideas against rigorous analysis and engage openly with diverse stakeholders. Over more than five decades, this approach has built public trust in reform processes—even when the Commission’s recommendations are contested—and has strengthened Australia’s democracy.

Tools such as the Productivity Commission’s annual Trade and Assistance Review offer a practical model that DEN can adapt to Indonesia’s context, supporting transparent assessment of industry assistance.

Our recent discussions during the Productivity Commission Chair’s visit to Jakarta—with policymakers, economists, business leaders, and students—reinforced how much Australia and Indonesia stand to gain from deeper exchange on economic reform. Indonesia has achieved impressive economic progress over recent decades. As Indonesia pursues its ambition to become a high-income economy and both nations navigate global economic turbulence, strengthening this partnership becomes ever more valuable.

For both Indonesia and Australia, this points to the same task: sustaining reforms and facilitation measures that lift productivity, strengthen institutions and broaden opportunities. Continued exchange of experience and policy thinking can support this effort, including through stronger analytical capacity and deeper engagement across research communities.

In a world of heightened uncertainty, the temptation can be to retreat inward. Yet history shows us that resilience is built not through isolation, but through openness — to trade, to competition and to new ideas. By sharing lessons from our respective reform journeys, Australia and Indonesia can continue to support each other in building more dynamic, inclusive, and productive societies.

* Danielle Wood is Chair of the Productivity Commission 
** Mari Elka Pangestu is Vice Chair of Dewan Ekonomi Nasional (DEN)