Indonesia’s Nationalism

Indonesia has been plundered since the Dutch began collecting nutmeg and cloves from what they called the East Indies 400 years ago. Its mineral treasures, scattered across 17,000 islands, include the world’s largest gold mine and second-biggest copper mine. Commodities account for more than half its exports, which include the most power-station coal, palm oil and tin. Indonesia’s modern identity was forged by decades of sometimes savage dictatorship that sold the country’s riches overseas. In recent years the nation has sought to keep more wealth at home for the benefit of its 265 million people. Amid sputtering economic growth, the pursuit of resource nationalism has proven to be a vote-getter but is threatening to undo the formula that for years brought much-needed foreign investment to the world’s third-biggest democracy.

Indonesia’s size, resources and location should give it a “natural appeal” to investors. Consumer-product companies are lured by its youth (half the population is under 30) and by a middle class expected to double to 141 million by 2020. But the country has underperformed. OECD data showed foreign direct investment at $22 billion in 2017, an improvement over past years but far behind the nearly $43 billion that went to neighboring Australia. While Indonesia that same year topped a global index of mineral potential by the Fraser Institute, a Canadian think tank, it did poorly in terms of investor perception, ranking 99th out of 104 mining jurisdictions covered. Indonesia in recent years has banned the export of metal ores to encourage domestic smelting, leading to mine closings and a surge in nickel prices. Newmont Mining Corp. and BHP Billiton Ltd. both sold their mines to local players. (The ban was later relaxed.) Energy companies such as Total SA and Chevron Corp. were pressured to cede assets. Freeport-McMoRan recently agreed to divest majority ownership in its massive copper mine to the state for a license to operate until 2041. The government has moved to make it easier for foreigners to get work permits, but also imposed a language requirement. It recently ordered oil producers to sell only to state refiner PT Pertamina in a bid to shore up Indonesia’s flagging currency, the rupiah.