Concerns over Jakarta’s policy changes

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Concerns over Jakarta’s policy changes

Concerns over Jakarta's policy changes

Mr Faisal Basri, head of Indonesia’s reform team for the oil and gas sector, has said that expiring oil and gas concession contracts should be given to state-owned oil company PT Pertamina to manage, except in cases of reciprocity.

President Joko Widodo never fails to extend an open invitation to foreign investors to do business in Indonesia at every chance he gets at international forums.

At home, however, the signals appear mixed, with politicians and policymakers sounding increasingly nationalistic and worrying foreign investors.

Take the recent case of Mr Faisal Basri, head of the reform team for the oil and gas sector, who said that Indonesia should turn over expiring oil and gas concession contracts to state-owned oil company PT Pertamina to manage, ruling out renewals except in cases of reciprocity.

“The oil and gas contracts can be extended on condition that Pertamina gets exploration and exploitation contracts from the government of the country where the company getting the renewal is from,” he said last month.

Mr Faisal was referring to concession contracts that include five oil and gas blocks expiring in 2017, followed by eight in 2018 and three in 2019.

Most of the investors operating them are foreign companies such as Exxon Mobil, Total S.A., Chevron Corp and ConocoPhillips.

Mr Faisal’s stance was echoed by the powerful chairman of the ruling party Indonesian Democratic Party – Struggle (PDI-P), Ms Megawati Sukarnoputri. In a fiery speech at a party congress, just a week after Mr Faisal’s remarks, Ms Megawati said Pertamina must be given priority when oil and gas block concession contracts are granted.

Other recent policy changes have also raised concerns of growing nationalism, particularly in the economic sphere.

On March 31, Indonesia’s central bank banned the use of foreign currencies in domestic transactions, starting from July 1.

The Financial Services Authority will also issue a regulation later this year requiring banks to have data-processing centres onshore.

These moves come amid a slowdown in South-east Asia’s largest economy.

Between 2007 and 2012, Indonesia’s economy led the region with growth at over 6 per cent, but in the first quarter of this year, the figure had slumped to 4.7 per cent from the same period a year earlier – the lowest since 2009.

The rupiah has weakened and private consumption is down, leading economists to predict that growth targets will be missed this year.

Mr Anton Supit, deputy chairman of the Indonesian Employers Association, has dismissed concerns that slower growth has led to rising nationalist tendencies, insisting that recent remarks by politicians and policymakers were mere rhetoric for the local audience.

“Don’t listen to what they say, just watch what they do,” Mr Anton told The Straits Times on the sidelines of an investment seminar. “It is not a good time to engage in rhetoric. It is time to really commit to efforts to strengthen our economy.”

Economist A. Prasetyantoko urged the government to pay special attention to boosting investments. He told The Straits Times: “Many are saying the slow growth can be fixed by increasing government spending. That would not be enough. We cannot deny that we need to push the manufacturing sector and for that, investment is needed.”

This article was first published on May 15, 2015.

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