Prabowo’s export control move could boost Indonesia’s revenues, but experts worry about stronger state hand
analysis Asia
Prabowo’s export control move could boost Indonesia’s revenues, but experts worry about stronger state hand
The new initiative will tighten state control over key commodities such as coal and palm oil.
JAKARTA: A new mechanism to tighten state control over key commodity exports is Indonesia President Prabowo Subianto’s latest push to plug what he says are long-running revenue leakages costing the government billions.
Experts say the move is well-intended, but could unsettle businesses if the new export control body takes a heavy-handed approach.
The export mechanism, overseen by a new export body, Danantara Sumber Daya Indonesia (DSI) under sovereign wealth fund Danantara, will manage key commodities, including crude palm oil, coal, and ferroalloys, said Prabowo during a rare address in parliament on Wednesday (May 20).
He added that Southeast Asia’s largest economy has lost as much as US$908 billion in revenue over the last 34 years because its commodities were sold at a discount.
Nickel pig iron, a low purity nickel metal which makes up the majority of Indonesia’s nickel exports, and some refined palm oil products will be exempt from the centralistion, Coordinating Minister for Economic Affairs Airlangga Hartarto said on Thursday, according to media reports.
The plan signals a stronger control over natural resources and a belief that Indonesia has not captured enough value from its own commodities through underpricing, experts told CNA.
But they warned that its success will depend on implementation and how exactly the body will oversee exports of these commodities.
“This is not yet clear,” said Yusuf Rendy, an economic researcher from think tank Center of Reform on Economics (CORE) Indonesia.
Danantara’s chief executive officer Rosan Roeslani said at a press conference on Wednesday that the body’s aim was to ensure exporters were being truthful in their reports, by comprehensively checking whether figures mentioned in their trade documents aligned with the global market index.
Rosan, however, stayed tight-lipped on the leadership structure of the export body, saying that the top positions will go to the people who have a good grasp of the industry.
He added that the agency was also “open” to having qualified foreigners in senior positions.
Experts also expressed concerns about whether DSI would operate transparently enough, or merely become a mandatory gatekeeper for exporters.
They added that the implications of the new regulation and DSI would be significant as the country’s commodity sectors are not just sources of export but also deeply linked to jobs, regional economies, industrial policy and fiscal stability.
“It’s not just the conglomerates that will suffer, but rather the industries that employ millions of people, such as plasma farmers (farmers who partner with large companies through government programmes) that will suffer,” said economist Andry Satrio Nugroho, who heads the Center of Industry, Trade and Investment at the Institute for Development of Economics and Finance (INDEF).
STATE-LED ECONOMY
The government wants a bigger role in deciding how natural resources are sold, priced and monitored, said economist Wijayanto Samirin from Paramadina University.
This reflects Prabowo’s broader economic vision towards a more centralised, state-led model, he added.
“He addressed the direction of the economic policy, in which the government plays an increasingly important role, particularly regarding the export of natural resources,” said Wijayanto.
Besides DSI, Prabowo has launched other initiatives that demonstrate how the economy has become more state-led.
“Other programmes include the Red-White village cooperative and the free meal programmes that are managed and funded centrally,” Wijayanto said.
“Various decisions also appear to be top-down, without a public discourse process.”
Prabowo’s ambitious US$25 billion Red-White village cooperative initiative aims to help rural communities through programmes such as loans for underbanked farmers or subsidised goods and food aid.
His free meals programme is targeted at providing nutrition to 9 million schoolchildren and pregnant women. As of the end of April, around US$4.24 billion has been spent on the programme, according to media reports.
This is not the first time Indonesia has launched initiatives to increase state control over commodities.
Yusof noted that in the 1990s, the son of then-President Soeharto, businessman Tommy Soeharto, also established a special agency to oversee the trade of a crucial commodity at the time, cloves, but it did not succeed in increasing state revenue.
However, previous presidents were not as aggressive as Prabowo, said Wijayanto, adding that the country’s current eighth president appears to be confident that the government and state-owned enterprises can improve the economy.
Economist Andry from INDEF, said that stronger state control, particularly in strategic export sectors, would not necessarily solve the underpricing issue.
He said that the idea that Indonesia has been deprived of revenue through underinvoicing and transfer pricing is likely to resonate with voters, especially when framed as a matter of national sovereignty, but establishing a new body to fix the problems may not be the answer.
While the government could frame the policy as an effort to ensure that the country’s natural wealth benefits the Indonesian people rather than intermediaries, multinational buyers or politically connected exporters, the economic risks are equally clear, he said.
“If the new body becomes a single compulsory export channel, it could reduce competition (through monopolising the market), create uncertainty over pricing, delay transactions and limit the flexibility of private exporters,” said Andry.
In sectors such as palm oil and coal, where global buyers can switch suppliers or adjust contracts quickly, any disruption could carry costs, he added.
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