T

he government is seeking to expand its requirement on the use of domestically produced goods for a wider scope of business sectors to spur the development of domestic industry.

Under the planned regulation, government institutions, state-owned enterprises and private firms in strategic sectors will be required to use local goods for their annual procurement, a senior official has said.

At present, such a rule is only applied to certain sectors, such as oil and gas and geothermal power generation.

The plan would be part of efforts to increase the competitive edge of local products, according to Industry Minister MS Hidayat.

Increased consumption of local goods would also, in turn, spur the development of the domestic industry, he added.

Government procurement is also recommended to utilize such goods in line with a 2009 presidential instruction.

However, the endorsement has so far proven ineffective as there has been no punishment for non-compliance. Hence, the new rule will include punishments, from administrative punishments to fines.

As an initial step, the Industry Ministry has already requested some private firms, such as Freeport Indonesia, to raise the portion of local goods in their procurement each year, according to Hidayat. Freeport spends around US$1.5 billion on a yearly basis for its goods purchase.

'€œThey will list the needed products that can be sourced domestically. If this can be implemented in Freeport, it certainly can be applied in other private firms,'€ he said.

The plan to expand the utilization of locally manufactured goods will be detailed in a technical rule to implement the new Industry Law passed late last year, which encourages the empowerment of the domestic industry.

Indonesia'€™s manufacturing industry has struggled after the 1997 financial crisis, which saw a large number of small- and medium-firms collapse. The incident has prevented the sector from making a bigger contribution to economic growth and job creation and making the country rely more on imported goods.

The situation has been exacerbated by new challenges resulting from rapid economic development, including globalization and trade liberalization, which allows the influx of foreign goods into its huge domestic market.

However, the domestic industry has picked up the pace thanks to higher demand for manufactured goods and an acceleration in the inflows of foreign direct investment in past years, according to a World Bank report released in 2012