Indonesia’s Resource Nationalism Increases

Over the past year, as Indonesia has geared up for its next presidential election, and President Susilo Bambang Yudhoyono has desperately attempted to keep his party together in the wake of endless corruption allegations, nationalism has come to play a larger and larger role in Jakarta’s policymaking. In just the latest example, reported well on Asia Sentinel, Indonesia has effectively tossed the chief executive of ExxonMobil Indonesia out of his job. As Asia Sentinel notes, with increasingly weak leadership from Yudhoyono, other, more nationalist ministers are able to drive the agenda, particularly Coordinating Minister for Economic Affairs Hatta Rajasa. In addition, within Yudhoyono’s party, which forced out several high-profile reformists earlier in his presidency, there is little constituency among the rank and file for a more open approach to foreign investment. As a result, this latest salvo follows upon other actions like the government abruptly canceling plans to offer tenders for a new container terminal in North Jakarta, as well as moves to reduce Singaporean majority ownership of Indonesian banks.

There is certainly nothing wrong with Indonesians, and Indonesian ministers, wanting to control how their infrastructure is developed, and how their abundant resources are extracted and used; too often in the past, before the devolution process of the 2000s, Indonesians in many parts of the country felt that they saw little benefit from the natural resources extracted from Indonesian waters and soils. Still, Indonesia has enormous deficits in physical infrastructure, and if it is to retain the 6-7 percent annual growth rates it expects over the next decade, taking its place among the highest-powered developing economies, this huge infrastructure gap must be addressed. The country’s ports, container terminals, roads, electricity grids, airports, ferry systems, liquefied natural gas terminals and pipelines, and many other infrastructure components are among the most decrepit in Southeast Asia, even compared to other poorer Asian nations. The Indonesian government simply does not have the resources to effectively upgrade this infrastructure, and it is not going to be able to raise the funds on international capital markets to do so either. Its solution, to this point, has been to offer multinationals relatively sweet deals to manage infrastructure projects, while maintaining government control. But as the climate becomes even more unwelcoming even for foreign firms willing to abide by these build-transfer rules, Jakarta runs the risk of seriously undermining its own long-term growth.