Clyde Russell is a Reuters columnist. The views expressed are his own.
LAUNCESTON, Australia, April 23 (Reuters) – Indonesia’s decision to start cancelling investment treaties with 62 countries has passed with little comment, but the move may have a greater impact than the recent banning of mineral ore exports.
Indonesia last month kick-started the process of terminating all of its bilateral treaties by notifying the Netherlands that its agreement to protect and promote investment would end in 2015, and signalling that the others would end as soon as possible.
The agreements, which are common between states, protect the rights of investors in each other’s country, and typically include clauses about fair treatment, no expropriation and guarantees that profits can be repatriated.
Most importantly for many investors in countries like Indonesia, with its patchy record on legal certainty, is the right of appeal to the Washington-based International Centre for Settlement of Investment Disputes (ICSID).
Among the countries that have treaties with Indonesia are major foreign investors including China, India, Australia, Britain, Singapore and Russia. However, the United States and Japan are among nations that don’t have agreements.
Why would the Indonesian government seek to end agreements that were designed to foster foreign investment and economic development, as well as protect Indonesian investments abroad?
The main argument seems to be that their time has passed and they belong to an earlier era when foreigners feared assets would be nationalised.
The treaties are seen favouring foreigners over domestic investors, something at odds with the government’s drive to ensure greater control of Indonesia’s mineral resources.
This can be seen against the backdrop of a raft of changes to Indonesian law and regulations, which among others enforced a ban on exporting unprocessed ores, mandated the building of smelters and introduced laws to force the sale of stakes to locals of foreign-owned mines.
Indonesia is the world’s biggest exporter of nickel ore and supplies about two-thirds of top buyer China’s imported bauxite, the raw ingredient for making aluminium.
London-traded nickel has gained almost 32 percent so far this year after the export ban came into force in January, with China’s imports of nickel ore from Indonesia plunging 79 percent in March from a year earlier and bauxite slumping 86 percent.
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