The Indonesian manufacturing sectorexperienced a 'lost decade' in the aftermath ofthe Asian financial crisis. While many believe that thesector is now in inexorable decline, this note argues thatthere may be a 'second chance' for exportmanufacturing, given Indonesia's relative costcompetitiveness, the rapidly growing domestic market, andthe opportunities of integrating into value chainsfacilitated by new regional growth poles. Simply relying onthese factors, however, may result in short-term growth butwill ultimately lead back to stagnation. Instead, Indonesiamust use this opportunity to make an aggressive effort toimprove manufacturing sector competitiveness, includingaddressing traditional investment climate issues, but mostimportantly, weaknesses in the quality and innovationenvironment. It is through this that the Indonesianmanufacturing sector will begin to move up the value chain,build deep and competitive domestic value chains, anddeliver quality and sustainable job opportunities.
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