(MENAFN- Khaleej Times) SINGAPORE-BASED DBS Holdings Group announced in April it would pay US$7.2 billion to take over Bank Danamon, Indonesia's sixth-biggest bank.
Only three weeks later Bank Indonesia, the country's central bank, announced that it would issue new rules limiting international ownership in local banks, putting the Danamon takeover on hold â€" until after the new ownership rules are promulgated and Singapore agrees to reciprocal arrangements for lenders operating in the two countries. No one is certain when that will be. That has dismayed at least three other foreign banks that had plans to acquire Indonesian institutions.
The rules are the latest manifestations of Indonesia's troubling increasing economic nationalism and antipathy towards multinational investment. Despite the country's enviable economic growth over the past decade, the government is considering a raft of measures to lock in its position with state enterprise-driven resource monopolies that could well end up hurting its growth and global position.
That has troubled the international rating agency Standard & Poor's, which in late April declined to upgrade Indonesia's sovereign debt from BB+, one step below investment grade, because the country's plan to lure investment is at risk from "policy slippages."
What are these policy slippages? In late April for instance, the government announced that a government-linked company, the Indonesian Ports Corporation, would take on the monumental job of building a US$1.9 billion new port at Tanjung Priok in North Jakarta. It's arguably the biggest infrastructure project in Indonesia's history and one of the biggest port projects in the world.
The government had previously cancelled international tenders for the terminal, outraging private-public consortia that had devoted considerable funds into preparing the bids only to see them thrown out. Indonesia is largely alone in a region that has seen globalisation and FDI as the path to prosperity. Jakarta, however, is aware that it presides over Southeast Asia's biggest economy. Domestic consumption insulated it from the global financial crisis. It's also the world's largest exporter of palm oil and natural gas and the second-largest exporter of coal. Foreign investors continue to beat a wary path in because of their desire to tap the US$1.1trillion domestic economy and its export potential.
The country's ambition to own operations could ultimately drive companies like the US-based mining giant Freeport McMoRan, which operates the world's biggest copper and gold mine in the Sudirman Mountain Range in Papua, out of ownership altogether, before hiring them back as fee-based contractors.
Freeport currently operates under a 30-year contract of work that allows the company to own 90.64 per cent of the mine, the government of Indonesia owning the remaining 9.36 per cent. After the new divestment rules were announced in February, Freeport said it would be unaffected by them.
The government appears aware that the protectionist measures against the extractive industry sector will have a deleterious effect, especially in exploration, where most of the high-end activity is carried out by high-tech multinationals with the ability to go where domestics don't know where to look. Exploration has come to a virtual stop because of the tightened investment rules.
According to the Indonesian Trade Security Committee, KPPI, Indonesia was ranked third after India and Turkey on a list of countries that applied protectionist trade barriers, based on WTO data in 2010. Possibly out of retaliation, Indonesian products face antidumping and safeguarding measures implemented by more than 12 countries, according to the Trade Ministry. It's unclear what the next moves will be. One source describes the tightening process as "seeping." But it will continue.
John Berthelsen is the editor of the Asia Sentinel © Yale Center for the Study of Globalisation
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