ASEAN is preparing to step into a new chapter that has the potential to change the face of the region's economy. Through the Digital Economy Framework Agreement (DEFA), member states are designing the first comprehensive framework that unifies digital policies across borders.
This ambitious initiative is targeted to be completed by 2025, and become one of the main achievements when Indonesia assumes the ASEAN Chairmanship in 2023.
Negotiation steps continue to be rolled out, one of which is through the Special ASEAN Economic Community Council (AECC) Meeting on August 28. The hybrid meeting became an important stage for the Coordinating Minister for Economic Affairs Airlangga Hartarto who led the Indonesian delegation directly. The main agenda: formulating strategic agreements, ranging from cross-border payment flexibility, personal data protection, to the increasingly urgent cybersecurity.
Airlangga emphasized that although Indonesia has established cross-border digital payment cooperation, flexibility does not mean limitless. This view emphasizes the government's commitment to maintaining a balance between openness and digital sovereignty. "There are still criteria that must be met according to Indonesia's interests," he said in a press statement.
As of August 2025, about 60% of the DEFA text has been agreed upon, covering crucial issues such as personal data protection, cybersecurity cooperation, artificial intelligence (AI), digital equality, inclusion, and support for UMKM.
ASEAN targets 70% of the substance to be completed before the 26th AECC in October, an important milestone for the overall negotiations to be completed by early 2026 and signed in the final quarter of that year.
If completed, DEFA is projected to catalyze ASEAN's digital growth, doubling the region's economic value from a projected USD 1 trillion to USD 2 trillion by 2030.
DEFA's beginnings and vision
The idea of the Digital Economy Framework Agreement (DEFA) was first agreed upon at the ASEAN Economic Ministers (AEM) meeting on August 19, 2023. At that time, Indonesia was mandated to take over the chairmanship of ASEAN.
Supported by Australia's Aus4ASEAN Futures initiative, the DEFA baseline study captures an ambitious vision of creating harmonized digital opportunities across the region. Rather than simply replicating existing bilateral or multilateral digital agreements, the DEFA is broader and more comprehensive in scope, bringing together rules at the ASEAN level.
Its development involved extensive stakeholder consultation. More than 2,000 UMKM were surveyed, 60 large corporate leaders were consulted, and cross-country workshops were held. From this series, recommendations based on best practices were born, ranging from accelerating digital trade, strengthening online security, to increasing the role of UMKM in the digital economy.
The issues targeted by DEFA include cross-border digital trade, digital identity, digital payments, and cybersecurity. In fact, new technologies such as artificial intelligence (AI) are also included to be relevant to future needs. According to Boston Consulting Group (BCG) projections, ASEAN's digital economy, now worth around USD 300 billion, has the potential to grow to nearly USD 1 trillion by 2030. With progressive regulations, the contribution could even double to USD 2 trillion.
ASEAN Secretary-General Kao Kim Hourn called the completion of the DEFA study as one of ASEAN's biggest achievements in 2023. More than just a document, Kao continued, DEFA marks ASEAN's long-term commitment to digital transformation.
The agreement to start formal negotiations was even passed at the 23rd AEC Council Meeting and recognized at the 23rd ASEAN Summit in Jakarta. Now, ASEAN is entering a crucial phase, namely formulating common rules that not only encourage growth, but also ensure that the benefits are felt equally across member countries.
Infrastructure and regulatory imbalances
From an expert perspective, although full of optimism, DEFA's journey is not without challenges. Digital Economy Researcher at the Center of Economics and Law Studies (Celios) Nailul Huda highlighted a classic problem and described it to Suar through a written statement (7/9/2025), namely inequality between ASEAN countries.
"There are still many countries that are left behind in terms of digital infrastructure. Indonesia still has many internet blind spots. As a result, internet empowerment is also far behind," he explained.
This condition makes digital benefits more widely enjoyed by countries like Singapore. The country with its well-established infrastructure and business-friendly regulations is a magnet for global companies looking to penetrate the ASEAN market.
Inequality is also evident in regulations. According to Huda, out of 10 ASEAN countries, only half of them have personal data protection regulations. "Without equal regulation, the development of the digital economy can be unequal, both in terms of business and consumer protection," added Huda.
"Without equal regulation, the development of the digital economy can be unequal, both in terms of business and consumer protection," said Nailul Huda.
UMKM at the crossroads
On the other hand, the UMKM sector is at a crossroads. Secretary General of the Indonesian E-Commerce Association (idEA) Budi Primawan emphasized that the current priority is to strengthen the domestic market while opening the door for local UMKM to the international market.
"The main problem for UMKM in cross-border trade is the difference in regulations, tariffs, and standards between countries. DEFA can be a concrete solution through harmonization of rules and simplification of procedures," he said.
But the challenge is real. UMKM account for 60% of Indonesia's GDP and absorb 97% of the workforce, but only around 20% have entered the digital ecosystem. In terms of financing, 69.5% of UMKM are not yet connected to formal banking, while the UMKM non-performing loan (NPL) ratio reaches 4%.
This gap risks making UMKM mere spectators in ASEAN's digital economic growth. Therefore, inclusive regulatory support and simplification of cross-border procedures are key for UMKM to truly benefit from DEFA.
Nine Key Components
Still in line with the expert advice, former Minister of Communication and Information Technology of the Republic of Indonesia who now serves as Chairman of the Indonesia Fintech Society (IFSoc) Rudiantara, said that DEFA is not just about cyber security.
"There are nine components that must be prepared together because they are interrelated with each other to maximize the acceleration of the cross-regional digital economy. If we only focus on cybersecurity, we can miss the big picture," he said by telephone, Sunday (7/9).
The nine components include: digital trade, cross-border e-commerce, digital payments, digital identity and authentication, cross-border data flows and data protection, talent mobility, cooperation on new issues, competition policy, and online safety and cybersecurity.
Rudiantara referred to the annual e-Conomy SEA data related to ASEAN's digital economy, which currently only contributes around 6% of the region's total GDP, which is around USD 200 billion. "The goal in 2030 is to reach USD 1 trillion, or around 15-16% of ASEAN's total economy. But to get there, the DEFA agreement must be completed by 2025," he said.
He added that the readiness of each ASEAN country is still unequal. Singapore is in the most advanced position, while Indonesia still has a lot of homework. "In the National Cyber Security Index (NCSI), Indonesia's score is only around 63 out of 100. We are relatively strong in e-identification and digital payment (QRIS), but weak in digital service protection," said Rudiantara.
Even so, he is optimistic that DEFA will encourage cross-sector reforms. "We can't just talk about technology. There must be business process reforms in all sectors, trade, industry, education, even investment licensing, so that digital economic opportunities can be maximized," he explained. He also touched on the investment business process, which is still considered complicated and multi-level, hindering the ease of investing. In fact, the digital economy requires investment support, both in technology and IT labor.
"So business process reform must be carried out simultaneously from various sectors. For example, now there are investments that are handled by the central government, but the execution must go through permits in the regions. This process must be reformed," he said.
