When President Prabowo Subianto cut the ribbon at Lotte Chemical’s US$4 billion petrochemical complex in Cilegon last week, he declared that it is a sign of Indonesia’s industrial rebirth. This will be Indonesia’s first new naphtha cracker project in three decades, promising to reduce ethylene imports and strengthen the domestic manufacturing base significantly. It is to be expected that the substitution of imported chemical products could reach 70 percent of the production, with the remaining 30 percent exported.
This is an impressive milestone for Indonesia. However, behind the celebrations lie deeper question. Is this a sign of Indonesia’s return to developmental statecraft, or the start of something more complicated?
Scholar Moch Faisal Karim, in his article, “From dependency to development? Pursuing foreign capital in rising Asia’s financial order” in International Affairs, offers an important insight about hybrid state activism. He argues that Indonesia has entered a new era of hybrid state activism as a strategy that blends resource nationalism with selective liberalization. This strategy then compiled to attract foreign capital while maintaining national control.
This approach, which began under President Joko Widodo’s hilirisasi or downstreaming policy that is now spreading across sectors. The Lotte Chemical plant exemplifies hybrid state activism where the government offers generous incentives and infrastructure support to foreign investors, but on the other hand, it insists on aligning these projects with broader developmental goals such as import substitution, value addition, and technological upgrading.
It’s a very delicate balancing act, and the one that speaks to Indonesia’s evolving economic identity. Indonesia is no longer blindly opening its doors to foreign investors nor shutting them in the name of economic sovereignty. Instead, it curates capital flows by using competition among Asian powers like China and South Korea to fuel its own industrial ambitions.
However, this model also exposes familiar contradictions. while hybrid state activism is effective in attracting investment, it can easily slip into embedded dependency. The elite interventions that make large projects possible can also capture their own benefits. The elites can turn the developmental policy into a tool for rent-seeking.
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In Indonesia’s nickel sector, this pattern has already emerged. The government’s partnership with Chinese state capital in nickel mining then transformed Morowali into a major industrial hub. On the other hand, they also deepened dependence on Chinese technology and labor. The risk for projects like Lotte’s is similar to that in Morowali. Without careful governance, they could become enclave industries that produce output without nurturing domestic capacity or innovation.
Still, South Korea’s involvement in Lotte Chemical investment may offer a different path. Lotte Chemical operates with a longer-term orientation than many Chinese industrial investors in Indonesia. They also focus more on technology transfer and local workforce training. If managed strategically, this investment could help Indonesia move up the value chain from resource-based production to high-value manufacturing.
The key challenge lies not in attracting capital, but in governing the investment itself. Indonesia’s political economy remains deeply shaped by elite alliances, where politically connected conglomerates mediate access to state projects and foreign investment. Such networks can stabilize (or destabilize) investment flows, as there will be a risk of entrenching inequality and undermining broader productivity gains.
Thus, Prabowo’s administration will face a critical test at this moment. Can they sustain Jokowi’s developmental momentum while building a more disciplined, autonomous state? This question echoes Karim’s central argument: can Indonesia truly move from dependency to development?
In the wider international political economy, the timing is crucial. As Asian middle powers increasingly invest in one another, Indonesia is no longer only a passive recipient of Western capital but also can play an active participant in a multipolar Asian financial order. South Korea’s investment in Indonesia through the Lotte Chemical plant is part of this new pattern where nations seek industrial partnerships that reduce dependence on both China and the West.
Yet, autonomy is not achieved through diversification alone. To avoid repeating past patterns in Morowali case and other cases, Indonesia must embed these foreign investments into local ecosystems and link them to vocational education, small and medium enterprises, and research institutions. Without such linkages, the nation risks achieving growth without transformation.
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So, the Lotte Chemical plant is more than an industrial milestone. It is a mirror reflecting Indonesia’s developmental contradictions between national ambition and elite intervention, between embedded autonomy and embedded dependency. Whether this hybrid model will lead to industrial upgrading or merely repackage old dependencies depends on how Prabowo wields his authority in the years ahead.
Indonesia’s challenge today is not to invite more capital, but to discipline and direct it. The authority needs to ensure that every rupiah of foreign investment converts into domestic capability and long-term autonomy.
If hybrid state activism can achieve that, Indonesia’s new developmental gamble may finally deliver on its old promise to not just reach growth, but to reach its sovereignty through industry.
*The views presented in this article are the author’s own and do not necessarily reflect the views of The Diplomatic Insight.
Firdaus Guritno
Firdaus Guritno is a master student in political science at the Indonesian International Islamic University (UIII). He can be reached at firdaus.guritno@uiii.ac.id
