Asia Sentinel: Indonesia Trade Law Worries Multinationals March 5, 2013 Asia Sentinel Concern growing that proposed
new law will include language to allow protectionism by Our Correspondent photo: Hatta says it's all ours American and European multinationals operating in Indonesia are growing alarmed that a draft regulatory trade and investment framework being circulated by the government will actually constrict investment and cut further into market access in a country increasingly in the grip of economic nationalists. The draft trade law has been under consideration for more than a year. Both the American and European Chambers of Commerce, in analyses of the measure circulated among its members, expressed concern that no foreign companies have been asked for input. Indonesia has been the focus of investor concerns over economic nationalism for months, roughly coinciding with the departure of Sri Mulyani Indrawati, the tough, globally oriented finance minister, in 2010. A dedicated exponent of free trade and globalization, Sri Mulyani was the star of President Susilo Bambang Yudhoyono's first administration but lost out in a political battle with Aburizal Bakrie, the patriarch of the Bakrie mining and property interests. Sri Mulyani left Indonesia to return to a position with the World Bank, to be replaced in name if not function by Hatta Rajasa, the coordinating minister for Economic Affairs and head of the moderate Islamic National Mandate Party. He is a candidate to succeed Yudhoyono as president. The worsening investment climate from growing nationalism is very much of a part of the 2014 presidential race. Billions of dollars in investment by foreign companies including mining and oil concerns are being held to ransom. Freeport McMoRan, the Colorado-based mining giant, reportedly has US$12 billion in investment in Indonesian operations stalled. Other oil and mining operations have as much as US$50 billion held up waiting to be invested.
adding uncertainty to the business environment. international investors have not been deterred. "The biggest concern is that if the bill is passed in its current form. but there remains the worry that a lack of direct input into such proposals means that the views of domestic business associations will trump those of foreign ones. Both the Indonesian Chamber of Commerce and Industry (Kadin) and (the Indonesian Employers Association) engage in frequent dialogue with foreign businesses. Government bonds dropped as February inflation beat analysts' estimates. The economy is running a deepening fiscal deficit. is that the law would give the government language to take measures based on subjective assessments to allow for rising protectionism. with foreign direct investment rising in the third quarter of last year from a low of US$4." the Amcham report said." The European Chamber expressed similar concerns.7 billion quarter on quarter. "This sentiment could discourage billions of dollars in foreign direct investment that the country needs to achieve its long-term economic growth goals. the European chamber said. So far. "the law is rather vague and adds additional uncertainties to traders as well as
. "there is a concern that the current draft of the trade law would allow a wide interpretation by the government on trade related issues. however. Similarly.The question is whether eventually this misguided economic policy will start to bite. "One concern is the lack of foreign stakeholder input in the initial draft. according to the Amcham analysis. adding uncertainties to traders and industry. saying that while the law aims to complete and harmonize the current available regulatory trade framework.2 billion in the second quarter to US$4." the American Chamber analysis said." US companies operating in Indonesia are concerned that the draft would allow for a loose interpretation of trade-related issues. the most significant concern. The American Chamber in Indonesia studied the draft document and submitted comments. Its currency has depreciated steadily against the US dollar on the country's fourth monthly trade deficit in January. but received no answer. it will set up a legal justification for the politicization of trade. the European Chamber assessment said. In general. has moved into a persistent trade deficit and stubbornly increasing unit labor costs.
to produce and consume is required. to protect the morals of the community. after a Constitutional Court wiped out BP Migas. to limit investment or trade under almost any situation. Owen. over refusal by the US oil giant to divest itself of gas fields coveted by Indonesian companies. Before that. saying the rule could have a negative impact on future investment in the country and that it violates existing production sharing contracts. Just two weeks ago. cited a paragraph in Article 6. b. the French-owned Total and the US-owned Chevron publicly objected to a central bank rule requiring exporters to channel all their earnings through local banks. The result has been a steady drumbeat of laws.companies active in Indonesia. regulations and court decisions that have cut steadily away at autonomy for the multinationals despite long-running contracts of work. intends to freeze foreigners out of ownership and turn them into contract operators of assets rather than owners. to maintain the payment balance of international trade" in other words. the chief executive of ExxonMobile Indonesia. Several major corporations are facing contract negotiations with trepidation.
. International investors in Indonesia. which gives the government authorization to "stipulate restriction or prohibition for goods and services trade: a. with industry insiders saying it appears the government. have come under increasing pressure for more than a year. made complacent by several years of rising gross domestic product and healthy investment." The European Chamber. e. to protect the state. safety. c. as well as for the environment. the protection against excessive consumption of natural resources. the body that replaced it in effect ordered the ouster of Richard J. and security of the community is needed. for instance. living animals and plants. particularly in mining and energy extraction. d. the country's upstream oil and gas regulator. to protect health.