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Economic Nationalism Drumbeat Grows Louder Before Presidential Election

Economic Nationalism Drumbeat Grows Louder Before Presidential Election

By Agence France-Presse on 11:45 am Jun 12, 2014

  1.  Indonesia’s two presidential candidates are outdoing each other with hardline policies to rein in foreign firms and control the resources sector, risking a lurch towards nationalism in Southeast Asia’s top economy, analysts say.

Frontrunner Joko Widodo and ex-general Prabowo Subianto have said they will favor domestic companies in the lucrative oil and gas industry and have pledged to stick with a controversial mineral ore export ban ahead of the July 9 polls.

Indonesia has long been a major investment destination but in recent years nationalist politicians have campaigned to clip the wings of foreign firms they say have reaped huge profits and given little back.

The policies include restrictions on foreign energy firms hiring expatriates, and limits on the stakes that banks can buy in one another — a policy introduced after a Singapore lender sought to take over an Indonesian bank.

Observers say that the election platforms of Joko and Prabowo suggest that, whoever wins, the climate is unlikely to change under the next government.

Indonesia’s economy is one of the world’s liveliest, expanding at an annual six percent clip, powered by voracious demand for its commodities exports — particularly from China — and the spending power of an emerging middle class.

Jakarta argues that while painful in the short term, moves such as the mineral export ban, which forces companies to process more of their products in Indonesia, are the only way to develop national industries.

Analysts say that while the goal is laudable, the policies are badly thought out and that corruption-prone Indonesian industry is not yet ready to meet the ambitious objectives.

Different candidates, similar policies

Superficially, the two candidates are starkly different.

Joko won legions of fans as Jakarta governor and is seen as a refreshing break from the three-decade Suharto dictatorship that ended in 1998, while Prabowo is a ex-military figure with a dark past who has long railed at foreign control of Indonesia’s resources.

But as the election race has tightened in recent weeks, with Prabowo making strong gains in opinion polls, Joko has taken on a more nationalistic tone and their economic policies appear to be converging.

In a recent op-ed piece for Kompas newspaper, Joko wrote: “We need to review foreign investment policy… because most investments are directed towards capital-intensive, extractive sectors that do not create a lot of jobs but merely turn as great a profit as possible.”

Wellian Wiranto, a economist from OCBC Bank in Singapore, warned there was a risk of “a blind lurch towards nationalism” which could scare off foreign investors as the economy seeks to recover after last year’s emerging market turmoil.

“While it is understandable that both would inject nationalistic fervor into their campaign in order to secure votes on July 9… there is a risk of the country stepping onto a slippery slope,” he said.

Joko’s policy program calls for restrictions on the sale of banks to foreigners, potentially creating problems for investors eying the fast-growing sector in a country where millions still do not have accounts.

Prabowo meanwhile wants the state-controlled energy firm Pertamina to play a greater role in running oil and gas blocks, his brother and senior economic advisor, Hashim Djojohadikusumo, said recently.

His program also calls for more involvement by state-owned companies in processing mineral ores, and talks of developing national industries, from car-making to ship-building — projects that have failed elsewhere in Asia.

Public anger

Both candidates are betting such language will appeal to many of the 186 million eligible voters resentful of foreign companies operating in Indonesia.

One lightning rod for public anger is US mining giant Freeport-McMoRan, which for decades has run one of the world’s biggest gold and copper mines in the remote eastern region of Papua.

The company has been accused of destroying the environment and failing to invest in local communities, although Freeport counters it has ploughed huge sums of money into Papua and given many people jobs.

Some observers say the rhetoric may merely be designed to win votes, and that whoever is elected will likely pursue milder policies when in power — Joko told local entrepreneurs last week that he would make it easier to do business in Indonesia.

“Anti-foreign rhetoric is the easiest way to influence voters everywhere, including in Indonesia,” Kennedy Muslim from pollster Indikator Politik Indonesia told AFP.

 

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KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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