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Protectionism, nationalism

Publication Date : 17-06-2014

 

Several analysts seem to read too deeply into what they consider the strident tones of nationalism and protectionism in the nationally televised debates between the two presidential candidates, Joko “Jokowi” Widodo and Prabowo Subianto on Sunday night.

But we assure foreign investors within and outside the country that much of the talk about the dominant role of foreign capital and the urgent need to restrict foreign investment is mostly nationalistic rhetoric that usually acquires political currency during the presidential campaign. None of those themes reflect an outright xenophobic stance.

Certainly, it would aggravate the general public if either of the candidates spoke out too strongly in favor of foreign investments, let alone openly inviting as many foreign investors as possible to tap the country’s natural resources.

But notice Jokowi’s firm stance on the inviolability (sanctity) of business and investment contracts; despite stressing the need to empower more domestic businesses to play a bigger role in the economy, especially in natural resource sectors like mining. Both candidates seem to fully grasp the fact that due to the country’s deep ties to the global economy as well as its continued need for foreign direct investment and portfolio capital, excessive nationalism and xenophobia would be economic, and eventually, political suicide.

They simply do not have the luxury — misguided as it was — to act as then Venezuela’s resident Hugo Chavez chose in the late 1990s and early 2000s, when he nationalised the oil industry, forcing foreign companies to cede majority-control of their oil projects to the government-owned company.

Venezuela has one of the world’s largest oil reserves, while Indonesia suffers from an oil deficit — at present more than 600,000 barrels a day must be imported to meet demand.

Foreign investors who have been in Indonesia for a long time now will emphatically confirm that businesspersons who make good-faith deals, fully implement high standards of corporate governance and do not exploit government weakness will have nothing to worry about later in October when a new government will take over.

The two candidates’ pronouncements on the protection of the domestic market is also very much part of the campaign rhetoric.

Indonesia’s economy has been able to reach its internationally acclaimed prominence now due in part to investment in human and physical capital, openness to trade, foreign investment and technology transfers.

As both candidates have accumulated years of experience in the business sector, they are also fully aware that excessive protectionism is little more than pandering to vested interest groups, and that it hurts businesses — notably, manufacturing companies that rely on imports.

Moreover, Indonesia is bound by the rules of the Geneva-based World Trade Organisation. In fact, as the recent scandals of rice, beef and horticulture imports have revealed, non-tariff barriers to imports such as quotas and restricted-import licenses have become major sources of income for corrupt officials.


 

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