Turning inward

Economic nationalism can mar Indonesia's prospects

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 frontrunner 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.

Not all nationalism is misguided. Both candidates want to boost Indonesia's farm output, and both agree that self-sufficiency in energy requires curbing wasteful subsidies. But Prabowo's plan to turn Indonesia into an aircraft manufacturing hub smacks of outdated industrial policy. Jokowi is also romanticizing the past by invoking founding President Sukarno's concept of "three powers" for Indonesia: economic self-reliance, political sovereignty, and cultural identity.

Some of the ideals that captured popular imagination in a newly independent Asia are past their sell-by date. Voters in India's recent election rejected statist policies and expressed a preference for growth and jobs. Indonesian politicians need to tone down their nationalistic rhetoric, and embrace the world.