Indonesia's Dialogue with the Deaf

The discussion over what foreign investors call “resource nationalism” and what Indonesian politicians call the “value-added economy” seems to become more flawed by the day, with both skirmishing and then withdrawing to their respective echo chambers to complain that the other side doesn’t get it.

“We have invested billions here and we want to invest more but we get the feeling the country really doesn’t want foreign investors any longer,” a businessman said recently. Investors say that changes and flip-flops on policy over mineral exports, pharmaceutical rules, food imports and various other issues are leading them to question whether Indonesia is still a good place to be.

Events like the recent Constitutional Court decision abolishing upstream oil and gas regulator BPMigas lead analysts to wonder where the industry is headed. With billions of dollars and an appetite for long-term risk needed to explore new energy fields, industry players say the current regulatory and political environment might jeopardize the long-term development of sorely needed domestic energy resources.

Privately, investors can be scathing. Some say the country’s leaders are ignoring the benefits investors bring in terms of employment and revenues. Global companies have global options and some are starting to question any deeper involvement in Indonesia, despite having made enormous profits here.

“There is absolute consensus on the value-added economy,” a top political leader said privately recently. “No one will disagree with this direction.” Indonesia is no longer the struggling underdeveloped country that once opened its doors to multinational mining and energy companies in exchange for healthy taxes and royalties. It is time for these companies to play by whatever rules Indonesians set, the argument goes.

Privately, the sentiments run deep. “I am sick of these foreigners coming here and taking our resources and leaving us with nothing,” someone told me recently. “They had it easy for too long.” Left unsaid is the fact that without foreign capital and expertise, most of the nation’s energy and mineral resources would still be underground, the government tax coffers would be in bad shape and the growth Indonesia is enjoying today would be far more modest.

Increasingly, these two sides are talking past each other. Indonesian policymakers seem to be offering a one-size-fits-all proposition, especially when dealing with resource operations but also including sectors like finance, food and agriculture. Indonesia is hot, everyone wants to be here and if old-line investors walk away there is a long line of new investors just waiting for a chance. In the halls of power, these sentiments are reinforced with reference to things like the recent McKinsey report and other predictions of an eternally rosy future.

Investors shake their heads, retreat to the bar with their colleagues and wonder if the game is up. They lament the state of infrastructure, policy coherence and the rule of law.

Both sides need to find a better way of talking to each other. Foreign companies do not by and large dispute the need to add value to mining exports, for example, but they do want policies that are forged by experts instead of politicians and they want a coherent say in how regulations are decided. They think their investment dollars have earned them a role in the debate. Indonesian policy experts know the strengths and weaknesses of domestic expertise and capacity and they also don’t want politicians using an industry as a way to score points.

As quickly as a volatile economy like Indonesia’s can catch fire, it can grow cold. In the past, at moments of deep crisis, like 1998 and beyond, reform-minded policies opened up the economy and spurred growth. And investors perhaps found it easy to cut good deals with a struggling country. Now, when things are good, investors and politicians should start listening more closely to each other. Indonesia can’t afford to erode the confidence of investors who equally do not want to miss out on what should be a very good ride.

(A. Lin Neumann is a founding member of Asia Sentinel. He wrote this for the Jakarta Globe.)