JAKARTA, Indonesia (AP) 鈥� Indonesia is overhauling its trade policies for key commodities in a sudden move that some experts liken to a hostile takeover of major industries in the resource-rich nation, with global implications.
The new regulation by Indonesian President mandates that a recently set up state-owned enterprise will handle the country’s exports of coal, palm oil and iron alloys by September.
Prabowo said one aim is to increase tax revenues. That would help restore dwindling government reserves that have been exhausted by the from the . Given Indonesia’s role as a major commodities exporter, the new rules likely will ripple across international supply chains.
Indonesia is the , which is burned for energy, and palm oil, a key ingredient in everything from to . The Southeast Asian nation of roughly 287 million people also has the world’s biggest known reserve of nickel, a mineral needed for and stainless steel.
As Indonesia’s largest trading partner, China will feel the brunt of this policy pivot, experts said.
China is closely watching Indonesia鈥檚 鈥渋nitiative to nationalize鈥� and considering 鈥渉ow it would impact China鈥檚 further cooperation,鈥� said Lei Xie with the UK-based think tank Third Generation Environmentalism. 鈥淭he future path that Indonesia is taking is highly important for China.鈥�
The swiftness of the new rule’s implementation could affect access to needed resources for China’s , which use Indonesian commodities to supply growing . Chinese companies are major investors in many Indonesian industries, including critical minerals.
鈥淚ndonesia has become vital to China” since it supplies the commodities that “underpin China鈥檚 dominance in electric vehicles, batteries, and industrial manufacturing,鈥� said Li Shuo with the US-based Asia Society Policy Institute鈥檚 China Climate Hub. 鈥淏ut the relationship is evolving.鈥�
If handled well, the centralization of Indonesia’s trade may also open the door to more American investment, analysts said, as it competes with China for key resources.
鈥淪uch a move is a clear signal that U.S. investment is being attracted to come to Indonesia even more,鈥� said Bhima Yudhistira with the Jakarta-based Center of Economic and Law Studies. He called the new policy a 鈥渉ostile takeover鈥� that will mean every contract in industries controlled by China may be revised.
Indonesia tightens its grip on natural resources
Prabowo told lawmakers Indonesia had lost as much as $908 billion because exporters underreport their sales to avoid paying taxes and other fees.
鈥淭he primary objective of this policy is to strengthen oversight and monitoring 鈥� and to combat under-invoicing, transfer pricing and the diversion of export proceeds,鈥� he said.
The new entity taking over Indonesia’s exports of these commodities 鈥� PT Danantara Sumberdaya Indonesia 鈥� was officially registered the day before Prabowo’s announcement. It is 99% owned by Danantara, the sovereign wealth fund the president launched last year, and will strengthen the government’s influence on setting the price of its commodities.
This 鈥渞epresents a governance reform, a step toward strengthening our credibility in managing strategic commodity trade in an orderly and accountable manner,鈥� said Yvonne Mewengkang with Indonesia鈥檚 Ministry of Foreign Affairs.
From June to August, private companies are expected to turn over their import and export transactions to Danantara, which by September should manage all trade transactions with foreign buyers.
鈥淭here will be an explanation for investors later, so that stakeholders will be informed before June 1,” said Airlangga Hartarto, the coordinating economic minister in Indonesia. 鈥淎fter all, in the initial phase, we are focusing on transparency in reporting.鈥�
Trade analysts are skeptical that the government will be able to seamlessly take over trade in all those industries within less than four months.
New policies hurt Chinese industries
China is Indonesia’s top trading partner and one of its biggest sources of foreign direct investment.
Chinese firms dominate Indonesia’s nickel industry and China is a top importer of the resources affected by the trade takeover.
Other major importers of Indonesian palm oil, coal and nickel include the U.S. and the European Union. India, Japan and South Korea and neighboring Malaysia, Vietnam and the Philippines would also be affected.
Under , the government has been increasing control over strategically important commodities, cracking down on unauthorized mining operations, taking over plantations and pushing for the development of a domestic refining industry for critical minerals.
Even before Prabowo’s announcement, the China Chamber of Commerce in Indonesia sent a five-page protest letter last week highlighting investors’ concerns about Indonesia’s unstable business climate.
Chinese enterprises recently have faced 鈥渆xcessively stringent regulation, over-enforcement, and even corruption and extortion by competent authorities,鈥� the letter said. This has 鈥渟everely disrupted normal business operations” and 鈥渦ndermined long-term investment confidence.”
鈥淧rabowo didn鈥檛 listen to the complaint from these Chinese companies and then did something very, very shocking with this new body to control the export,鈥� said Yudhistira with CELIOS.
It’s an opening for other investors
By exerting state control over key industries, Indonesia is trying to diversify its investors, according to Yudhistira. Reducing Chinese control may attract interest from others, like the U.S.
This will only intensify the between the two superpowers, he warned.
Whether this new policy does attract new investors, however, will depend on the transparency of its implementation, said Syahdiva Moezbar with the Finland-based Centre for Research on Energy and Clean Air in Jakarta.
Private businesses say they are still in the dark.
Danantara’s impact on small-volume trade, specialized product exports and downstream industries still needs to be spelled out, according to Eddy Martono, chairman of the Indonesian Palm Oil Association.
鈥淓xporters usually already have their own established markets,” he said. 鈥淲e must ensure we do not lose these markets if they are not managed properly.鈥�
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Delgado reported from Bangkok.
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