Economic nationalists are risking Indonesia's future with reckless nickel bets

In Indonesia, a significant policy change occurred in 2014, when the government decided to prohibit the export of unprocessed ores. This decision was aimed at compelling foreign companies that sought the country's vast mineral resources to refine them within Indonesia's borders. The intent behind this strategy was not only to attract foreign investments but also to generate local jobs and foster economic growth. Despite the ambitious goals, this move attracted skepticism from multilateral institutions and was criticized by economists, including The Economist, which warned that decreasing ore-export revenues could escalate the current-account deficit and impact the national currency, the rupiah. Since the ban, Indonesia's economic landscape has been tumultuous. Policymakers firmly believed they were making the right choice by promoting domestic processing facilities, anticipating that it would lead to job creation and technology transfers that could bolster the national economy. However, critics argue that the reliance on attracting foreign investments through stringent regulations might backfire, especially if investors become dissuaded by higher operational costs stemming from the need for more refined processing within the country. Moreover, there have been concerns that this economic nationalism could lead to a reduced competitiveness of Indonesia's mining sector. As global demand for electric vehicles (EVs) rises, Indonesia has positioned itself as a potential hub, given its rich nickel deposits. Yet, the government’s strict policies raise questions about whether these nationalistic goals could ultimately hinder the mining industry's ability to adapt to fast-changing global market dynamics, particularly when it involves foreign partnerships and investments critical for innovation and growth. The situation suggests a precarious balance for Indonesian leaders. While on one hand, they face pressure to ensure that their policies benefit the national economy and its workforce, on the other hand, they must also consider the long-term ramifications of turning away potentially valuable investments. As the world shifts towards more sustainable technologies, Indonesia's approach to managing its natural resource wealth carries implications not only for its domestic stability but also for its standing in the competitive global market.