Nationalist drum-beating a threat to Indonesia’s prospects – by Andy Mukherjee (Globe and Mail – May 27, 2014)

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SINGAPORE — Reuters – Indonesian politicians are playing with the fire of economic nationalism. If actual policies mimic their pre-election rhetoric, the country’s long-term growth potential will suffer.

Both presidential hopefuls are chanting the mantra of self-sufficiency. Joko “Jokowi” Widodo, the Jakarta governor and front-runner in the July 9 poll, is calling for a “mental revolution” to reduce the country’s dependence on foreign investment and technology.

He also wants to restrict the sale of national banks to foreign investors, according to local media reports. His rival, ex-army general Prabowo Subianto, wants more of Indonesia’s mineral riches exploited domestically.

The mining issue has already proved problematic. In January, Indonesia banned exports of unprocessed nickel and bauxite, and imposed steep taxes on overseas shipments of raw copper, zinc and iron ore.

The government wants to nudge mining companies – particularly large multinationals – to put up local smelters and refineries; but the miners don’t seem to be interested. Users may switch to other suppliers if Indonesia prices itself out of the market.

A narrow focus on self-sufficiency can backfire in other ways, too. With China no longer guzzling commodities, insular policies that damage already-weak productivity will make it hard to sustain 6-per-cent-plus GDP growth. Speculation that Jakarta may renounce more than 60 bilateral investment treaties is making a shaky business climate wobblier.

Recently, the government tightened foreign-ownership limits in oil and gas and telecommunications. This, too, is mistimed. Without investment and jobs, domestic savings will remain inadequate. The country will depend on hot money to drive growth.

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