DEFA and Indonesia's Digital Economy Readiness

ASEAN member states are set to soon establish the Digital Economy Framework Agreement (DEFA), which is planned to be signed this coming November during the ASEAN Summit in Manila, Philippines.

DEFA represents the world’s first regional-level digital economy framework agreement. Its primary objective is to unify digital trade rules across Southeast Asia to accelerate the region’s digital economic growth.

Through the Coordinating Ministry for Economic Affairs, the Indonesian government emphasised during the High-Level Task Force on ASEAN Economic Integration (HLTF-EI) in Malaysia last August that DEFA could serve as a breakthrough for ASEAN in responding to global challenges. The completion of DEFA will signal the region’s readiness to embrace an era of open digital economic collaboration, establishing a foundation that is adaptive to future digital transformations.

DEFA was initiated during Indonesia’s ASEAN chairmanship in 2023 and is expected to be a primary driver of digital economic integration. The final concept of the agreement to be signed includes nine binding key elements: (1) cross-border electronic payments; (2) cross-border data flows; (3) personal data protection; (4) digital trade facilities and paperless transactions; (5) digital identity; (6) online and cyber security; (7) cooperation on new technologies and artificial intelligence; (8) competition policy; and (9) digital talent mobility and source code protection.

Although ASEAN nations are nearing the signing of the DEFA agreement, a significant hurdle remains: the unequal digital capabilities across the region. According to an article titled ‘The Challenges of the Digital Divide in ASEAN and Its Impact on Digital Business Acceleration’ in the Journal of Economics, Management, and Business, only two nations—Singapore and Malaysia—are categorised as ‘high-readiness’ nations, possessing mature digital economic competitiveness through sustained investment in infrastructure, digital education, and innovation-oriented governance.

Meanwhile, Indonesia, along with Thailand, Vietnam, and the Philippines, is still struggling with gaps in digital literacy and technological access, which slows the transition to a fully realised digital economy. The remaining ASEAN nations face barriers in connectivity, human capital, and digital governance, leaving the regional digital and economic divide deep.

For Indonesia, the significance of DEFA extends beyond being merely an initiator. Regarding the nine key elements of DEFA, Indonesia is most prepared in the area of cross-border electronic payments, thanks to Bank Indonesia’s QRIS (QR Code Indonesia Standard), which is already operational and integrated with Thailand, Malaysia, and Singapore, as well as non-ASEAN nations such as Japan, South Korea, and China.

Indonesia is also preparing its digital trade and e-commerce pillars by strengthening domestic regulations through Minister of Trade Regulation (Permendag) Number 19 of 2026 concerning the Implementation of Trade Through Electronic Systems (PMSE), which replaces the previous regulation, Permendag Number 31 of 2023. This policy is designed to align with modern digital economic standards.

Permendag 19/2026 has expanded the PMSE business model to include not only marketplaces, online retail, and social commerce, but also ride-hailing within the online transport ecosystem and online travel agents.

However, Indonesia must address several concerns raised by economic observers regarding DEFA. First, there is a risk of a digital trade deficit if Indonesian MSME products fail to compete in terms of quality, packaging, and standardisation against other ASEAN products, given that Indonesia is the largest e-commerce market in ASEAN.

Second, Indonesia still faces challenges with digital infrastructure inequality, which remains concentrated on Java, leading to high logistics costs for supporting digital trade outside the island. Third, there is a high volume of consumer complaints in Indonesia, dominated by the e-commerce sector, necessitating the strengthening of cross-border consumer dispute resolution mechanisms before DEFA is officially implemented.

Indonesia’s readiness in other key DEFA elements—specifically cross-border data flows, personal data protection, digital identity, cybersecurity, AI regulation, competition policy, and digital talent mobility—must be progressively improved to optimise the potential of DEFA.

DEFA plays a vital role in boosting Indonesia’s digital economic growth. A study by Boston Consulting Group (BCG) suggests that without DEFA, ASEAN’s digital economy would naturally grow from US$300 billion to US$1 trillion by 2030. From that projection, an estimated US$300 billion to US$360 billion of that growth would originate from Indonesia.

With the full implementation of DEFA, the regional digital economy is projected to grow to US$2 trillion by 2030.