Insight: Lucky Indonesia

By webadmin on 07:38 am Jun 15, 2012
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A. Lin Neumann

Is the sky really falling and does Indonesia care? The headline in the Jakarta Globe on Thursday morning was pretty alarming — “Deflating Fortunes” — and it pointed inside to a story that said the World Bank has lowered its growth projections for Indonesia this year to 6 percent from 6.1, largely because of the European crisis. That could be just the start, of course, if the world economy weakens further.

The Greeks are marching off to the polls this weekend and the results could mean that the country will reject austerity measures and pull out of the euro. Spain is also shaky and the EU crisis seems to have no end in sight.  None of this is good news and financial markets here are feeling it. The Jakarta Composite Index is already down 8.6 percent in recent weeks and the rupiah has weakened considerably.

Growth in China is softening and that should affect demand for many Indonesian commodities like coal. Foreign investors are certain to become risk averse in a tumultuous economic season.

So what has Indonesia been doing in response? Issuing conflicting policy statements and placing barriers on exports — especially in the mining sector, with threats of a coal export tax and demands that minerals be smelted locally. These actions indicate a rise in nationalist sentiment precisely at a time when you might think the country would want to reassure investors.

On Tuesday, Suryo Bambang Sulisto, the chairman of the Indonesian Chamber of Commerce (Kadin), visited the offices of the Jakarta Globe’s parent company, BeritaSatu Media Holdings, and said: “Don’t issue policies that don’t support exports. I understand the reasoning behind it, about the value added and so on, but the timing is not right.”

Veteran analyst Philip Bowring, writing for asiasentinel.com this week, said: “Indonesia’s desire to extract the maximum value from its resources is natural enough. But policies which are erratic and driven by domestic politics rather than devised in full knowledge of the forces at work in the marketplace are already undermining its attraction just at a time when the outlook for most commodity prices has deteriorated.”

So what is going on here? It would seem that a number of government officials, with no clear central direction I am aware of or even a broad policy outline, are intent on an ad hoc restructuring of the Indonesian economy to be less dependent on raw commodity exports.
 
From what I can tell, this is driven by a few local business groups angling for advantages in the marketplace and an emotional desire not to see the nation’s below-ground wealth sold off to foreigners.

It is hard to understand the rationale for basically curbing exports at a time of global economic uncertainty. And just because Indonesia came out of the 2008 crisis looking good does not mean the current situation will result in a narrow escape.

So wondering why this was happening, I went to a friend — a close adviser to a top government official. He laughed at my confusion. “You have to understand, this is a lucky country,” he said.

Growth, he said, could even slip to 4 percent and it wouldn’t make much difference. Palm oil prices could drop on the global market and that would be a problem for exporters but domestically, cooking oil would go down in price and that would be a plus for consumers. High-grade coal, the kind that Indonesia exports, could be hurt by fallen prices but that won’t have much impact on local demand, which should rise given current infrastructure investments.

“So you see,” he said with a big smile. “There is no incentive here to make good policies. We won’t lose regardless.” The biggest problem, he noted, was that some businesses are finding it hard to source sufficient cement to build the toll roads, ports and airports that are either under construction or in the pipeline. “And the government has plenty of money,” he said. “Don’t worry. If we keep spending on infrastructure, everything will be OK and then the world economy will recover.

“And don’t forget, an election is coming up here. There will be plenty of money moving around. That’s always good for the economy. Indonesia is a really lucky country!”

A. Lin Neumann, founding editor of the Jakarta Globe, is the host of the Insight Indonesia talk show on BeritaSatu TV.