Indonesia's latest commodity export reforms have been presented as a long-overdue assertion of economic sovereignty. Through tighter Devisa Hasil Ekspor Sumber Daya Alam (DHE SDA) rules governing the retention of foreign exchange proceeds from natural resource exports and the creation of PT Danantara Sumberdaya Indonesia (DSI) to oversee strategic commodity exports, President Prabowo Subianto's administration wants to ensure that more value generated from Indonesia's abundant resources remains at home.

Few would dispute that objective. Every resource-rich nation has a legitimate interest in preventing under-invoicing, combating abusive transfer pricing and ensuring that export proceeds support domestic economic development. Prabowo has publicly cited alleged losses of Indonesian rupiah (IDR) 908 trillion (about $56 billion) over 34 years from underpricing and related practices as justification for reform.

The real question, however, is not whether Indonesia should pursue those goals. It is whether the government has correctly diagnosed the nature of the problem it is trying to solve.

The evidence suggests Indonesia risks conflating two very different phenomena: genuine historical leakage arising from abusive practices, and a regional trading ecosystem that evolved through three and a half decades of deliberate policy choices, institutional development and commercially rational decisions. Each requires a different solution.

Markets built the ecosystem

Singapore did not become one of the world's leading commodity trading centres by accident. Beginning with the Approved Oil Trader programme in 1989, followed by the Approved International Trader programme in 1990 and later the Global Trader Programme in 2001, it deliberately positioned itself as a location where international commerce could be financed, managed and executed efficiently.

Those initiatives went well beyond tax incentives. Singapore invested in banking, foreign exchange markets, logistics, legal infrastructure, arbitration and regulatory predictability, creating an ecosystem that reduced friction for international trade.

At the same time, Indonesia's economy was evolving along a different path. The Asian financial crisis of 1997 and 1998 severely disrupted its banking system and corporate sector, reinforcing the appeal of jurisdictions offering greater financial stability and institutional certainty for international transactions.

As Indonesia's exports of coal, palm oil and later nickel-related products expanded, businesses naturally organised themselves around the ecosystem that already existed. International buyers preferred dealing with established counterparties. Banks extended trade finance where supporting infrastructure was available. Insurers, logistics providers and professional advisers concentrated where transaction volumes justified their presence.

Crucially, Indonesian companies themselves participated in that evolution. Many established trading or treasury operations in Singapore because doing so improved access to finance, customers and risk management capabilities. Markets did not build Singapore because Indonesia lacked resources. They built Singapore because, over three decades, Singapore consistently reduced friction for international commerce while Indonesian businesses and global counterparties repeatedly chose to participate in that ecosystem.

That history matters because it suggests the current regional trading structure was not imposed on Indonesia. It emerged through cumulative choices made by governments, businesses and financial institutions across the region.

From managing proceeds to managing trade

Indonesia's concern over export proceeds long predates the current administration. Successive governments have sought to ensure that more foreign exchange generated by natural resource exports supports the domestic economy rather than remaining offshore.

The tightening of DHE SDA rules forms part of that continuing policy trajectory. By requiring exporters to retain more foreign exchange within Indonesia's financial system, the government aims to strengthen liquidity, support the rupiah and deepen the role of domestic financial institutions in trade-related activity.

In essence, DHE SDA governs where export proceeds are held after transactions occur. It does not fundamentally alter the commercial relationships through which those transactions take place.

DSI represents a different proposition. Its creation was widely interpreted as extending the state's role into the supervision of strategic commodity exports themselves, prompting questions from exporters and financiers about contracts, customer relationships and financing arrangements.

Subsequent clarifications from Danantara and DSI indicated that the organisation would focus primarily on supervision, monitoring and data analysis rather than replacing commercial market participants. Even so, the episode demonstrated how sensitive established trading ecosystems are to changes in governance and how quickly uncertainty can influence market expectations.

Has Indonesia mistaken market evolution for market failure?

Every government should pursue abusive transfer pricing and under-invoicing where they exist. Strengthening transparency, improving data collection and enforcing arm's-length pricing are entirely legitimate objectives.

The more difficult question is whether substantial offshore trading activity should automatically be regarded as evidence that equivalent value has been lost to Indonesia.

International commodity trading involves considerably more than buying and selling physical goods. Treasury management, trade finance, logistics coordination, foreign exchange operations, customer acquisition, inventory management and risk hedging all create economic value. Where those functions are genuinely performed, they legitimately generate profits in the jurisdictions where they occur.

Equally, transfer pricing rules exist because some companies seek to allocate profits artificially in ways that do not reflect economic substance. Governments are therefore justified in scrutinising related-party transactions and challenging arrangements that appear inconsistent with market pricing.

The challenge lies in distinguishing between the two.

The public debate surrounding DSI sometimes risks implying that offshore booking itself constitutes evidence of historical loss. Yet the historical record suggests a more nuanced interpretation. Singapore deliberately built an international trading hub. Indonesian businesses voluntarily organised parts of their operations there. Banks, insurers and global counterparties reinforced that ecosystem through repeated commercial choices.

If that reading is broadly correct, Indonesia's task becomes more complex than simply recovering value presumed to have migrated abroad. It must distinguish value that was improperly shifted through abusive practices from value that was legitimately created through commercial activity performed elsewhere.

That distinction is fundamental because the remedies are different. Enforcement can address abuse. Reversing commercially rational decisions requires creating an alternative ecosystem that market participants regard as equally attractive.

Markets respond to incentives, not intentions

Governments naturally judge policies by their objectives. Markets judge them by their consequences.

Investors, lenders and trading counterparties focus on predictability, contractual certainty and implementation risk. They adjust behaviour based not on policy intent but on whether reforms reduce or increase friction in conducting business.

The reaction to DSI illustrated this reality. Initial uncertainty over its precise role prompted questions from exporters and financiers before subsequent clarifications moderated those concerns. The sequence showed that confidence depends as much on operational clarity as on policy ambition.

Indonesia's position also differs from that of larger economies capable of exerting greater influence over global markets. While it is an indispensable supplier of many strategic commodities, it remains dependent on sustaining investor confidence and attracting international capital. Policies perceived as increasing uncertainty are therefore likely to face immediate scrutiny.

That does not mean reform should be abandoned. On the contrary, stronger governance and greater transparency are likely to improve Indonesia's long-term competitiveness. But if policymakers seek to redirect commercial behaviour that has developed through decades of voluntary market choice, regulatory authority alone may prove insufficient.

Building institutions, not just regulations

Indonesia deserves to capture more value from its natural resources. It deserves transparent pricing, robust tax administration and effective oversight of export activities. Those objectives should not be controversial.

The evidence suggests, however, that the country's greatest challenge may not be recovering historical leakage but correctly distinguishing that leakage from a regional trading ecosystem that evolved over 35 years through deliberate policy, institutional development and commercial choice.

If policymakers conflate the two, they risk applying administrative solutions to what is ultimately an institutional challenge.

Markets tend to locate where legal systems are trusted, finance is readily available, contracts are enforceable and counterparties are confident that rules will remain predictable. Singapore spent decades building those conditions. Indonesian businesses and international market participants responded accordingly.

The long-term success of DHE SDA, DSI and related reforms will therefore depend less on compelling activity to return than on making Indonesia the place where exporters, financiers and global markets voluntarily choose to create future value.

Regulation can require compliance.

Only institutions can persuade markets to choose differently.