Is Indonesia's Economic Nationalism Hurting the Country?

Although there is growing investor concern over rising economic nationalism in Indonesia, I can certainly understand the impulse. Given the long history of colonialism in Indonesia and most of Southeast Asia, it is not unusual to feel that the sovereign nation is “ours” and that somehow “foreigners” are exploiting an unfair advantage.

Indeed during the independence struggles of former colonies like Indonesia, the thunderous calls of leaders like Sukarno to fight for the native soil against foreign oppressors were both right and necessary. The colonial occupation record — the Dutch in Indonesia, the Spanish and the Americans in the Philippines, the Japanese in Korea, the British in a host of Asian countries and the French in Indochina — was appalling.

Whatever their rhetoric, the colonizing nations entered the territories they seized in order to exploit natural resources, use the land for profit and pay the lowest wages possible to “natives” they treated as racial inferiors. They universally created small groups of compradors to help them govern the colonies and most held onto their profitable outposts of empire until armed insurgents or political necessity made it too costly to hang on. In some cases the colonizers first brutally conquered a territory with arms and massacres and then later rewrote history to make it appear that their motive was the salvation of souls or the uplifting of civilization. In others, it was a more straightforward proposition.

Either way, it is for good reason that the festering wounds of conquest and racial insult can take generations to heal but unfortunately the scab can easily be picked for the wrong reasons later. That may be what we are witnessing in Indonesia.

Especially during an election season, when politicians compete eagerly to attract public sympathy with little regard for the practical effect of the policies they may advocate, it is easy for nationalist sentiment to resonate and appear reasonable. Add to that the good notices Indonesia has been getting from analysts and this may appear to some officials to be a perfect time to get tough on foreign investors who want to exploit the country’s minerals, buy its banks or make other investments that might be better off going to the sons of the soil.

But hold on a moment. The various restrictions being proposed currently on mining, bank ownership, imports and other forms of foreign investment aren’t targeted at foreign oppressors, nor do they benefit some group of noble freedom fighters. The investors are as likely to come from Asia as the West and the potential local beneficiaries of some regulations are among the wealthiest people in the region. At a time when Indonesia’s domestic market has saved it from the worst effects of global economic troubles and made it the darling of foreign investors, I fear that too much attention may have been paid by some officials and politicians to the good news. Indonesia may very well become a top-tier economy but it hasn’t happened yet. It almost seems as if some politicians believe in a kind of “Genesis effect” — if you say something will happen it already has.

But mortals don’t have that kind of power and there is now a pretty consistent chorus of caution from foreign investors: Westerners and Asians. Indonesia has every right to exercise its sovereignty, but foreign investment has been good for this country in terms of jobs, expertise, tax revenues, best business practices, etc. There is considerable concern that the nationalist sentiments currently building may only be a thinly disguised attempt by some local business groups to gain an unfair advantage over foreign companies. If that is the case, it could do immeasurable harm to the country.

Whatever the motivation, if at precisely the time Indonesia is red-hot in the eyes of the investment world, the country begins to look like it wants to turn the clock back to the 1950s, the good news could turn bad quickly. Indonesia needs the jobs and the income and the long-term appetite for risk that many foreign companies bring to the table. The best of those investors want a partnership that builds toward a mutually beneficial future. It would be unwise to make them feel unwelcome for the wrong reasons.

(A. Lin Neumann is one of the founders of Asia Sentinel. This also appeared in the Jakarta Globe.)