Indonesia is entering a critical phase of digital transformation. This is reflected in the increasing use of the Internet, the widespread adoption of digital technologies, the growth of digital-based start-ups, and the penetration of technology into various sectors of society. In this context, Artificial Intelligence (AI) stands out as a strategic driver of change across social, economic, and institutional dimensions.

AI offers potential for Indonesia. It can boost productivity, expand access to public services, support data-driven decision-making, and open up entirely new economic opportunities. However, realizing this potential requires swift and well-directed policy action.

This report, commissioned by Google and developed by Public First with input from the Institute for Development of Economics and Finance (INDEF), aims to contribute meaningful insights. It seeks to deepen public understanding, identify key challenges, and offer relevant policy recommendations for advancing AI development in Indonesia. The report aligns with Indonesia’s long-term vision as outlined in the RPJPN 2025–2045, which sets a goal for Indonesia to become a developed country by 2045. To achieve this, the country must maintain average economic growth of 6–7 percent over the next two decades. The government has even targeted growth of up to 8 percent by 2029. This is a tall order, especially considering that economic growth has hovered around 5 percent for more than ten years. A significant increase in Total Factor Productivity (TFP) is essential. Indonesia’s TFP remains below that of peer countries, and AI can serve as a key enabler to accelerate TFP by optimizing processes and improving efficiency across sectors.

Despite its promise, AI development in Indonesia faces three major challenges. First, the digital divide remains significant. Although Internet access is relatively widespread, there are still large gaps between urban and rural areas and between income groups. Concentrating AI development in major cities risks widening these gaps. Without an inclusive approach, digital transformation could worsen existing social and economic disparities.

Second, the lack of adaptive regulation and fragmented institutional oversight presents another challenge. AI is evolving rapidly, but regulatory frameworks have yet to catch up. While legally binding horizontal AI regulation is absent in Indonesia, the government has published AI ethics guidelines as an important initial step towards ethical and responsible development and deployment of AI technologies. In addition, AI presents unique issues in regulated industries and sectors, and to ensure coordinated and coherent sectoral policies, it is important for the government to establish a lead authority or hub of AI expertise that can support and provide strategic direction to sectoral regulators, who are best positioned to understand the specific interactions between AI and existing regulatory frameworks.

Third, limited investment in research and development: Indonesia has yet to emerge as a key player in core AI technologies, and few local start-ups have secured funding. Most AI-related R&D investment remains concentrated overseas. This calls for dedicated financing mechanisms to support domestic AI innovation and research.

To address these issues and unlock AI’s full potential, INDEF recommends three policy priorities. First, build a robust national data infrastructure. AI needs quality, structured, and accessible data. Developing a national Open Data Platform that can be used by businesses, researchers, and developers—while safeguarding privacy and security—must be a top priority. The government should ensure data interoperability across ministries and agencies, and establish clear rules for data governance, personal data protection, public data access, and incentives for cross-sector data sharing.

Second, invest in human capital for AI. Government agencies must align education and training outputs with industry needs. AI-related curriculum should be integrated from secondary schools to universities, and supported by vocational programs and workforce upskilling initiatives. Triple helix collaboration—between government, universities, and industry—should be expanded through AI research centers, start-up incubators, internships, and other joint initiatives.

Third, prioritize AI adoption in the public sector and among Micro, Small, and Medium Enterprises (MSMEs). The government must lead by example by applying AI to improve public service delivery—from logistics forecasting to citizen services provided through digital assistants. At the same time, MSMEs should be supported through technical assistance and financial incentives to adopt AI. Partnerships with local AI start-ups should also be encouraged to accelerate innovation and deployment.

INDEF sees AI development not only as a matter of technology, but as a strategic effort to build a more inclusive and competitive future for Indonesia. We support this report as it promotes a comprehensive and socially-conscious approach. As the report rightly points out, Indonesia needs a long-term vision and strong commitment to ensure that the benefits of AI are widely shared.

We hope this report contributes meaningfully to the national conversation on AI policy—one that balances economic growth, social equity, and sustainability. We thank Google for their collaboration with INDEF in developing this report and hope it serves as a valuable reference for policymakers in shaping the next steps for AI development in Indonesia.

Esther Sri Astuti, Ph.D
Executive Director INDEF