AS Indonesia heads for elections, some politicians are taking a more nationalist line on the country's vast natural resources, a move that could scare off much-needed foreign capital amid the global credit crunch. While some industry experts see the rumblings over foreign investment as campaign trail posturing, the rhetoric highlights the risks for investors in Southeast Asia's biggest economy, particularly in its energy and mining sectors. Indonesia has some of the world's largest deposits of natural gas, nickel, copper, tin and coal, and several global resource firms, including Chevron Corp and Newmont Mining Corp, operate in the country. US-based risk analyst Daniel Wagner said it was natural to see a more nationalistic stance on resources during elections, but that Indonesia could lose out given the scarcity of capital. “Since foreign investors are generally hesitant to invest in emerging markets at this time, sending the wrong signals to the global investment community now could result in decreased foreign investment when the world emerges from this economic convulsion,” said Wagner, managing director of Country Risk Solutions. The fact is that even during the commodity boom of the past few years, Indonesia missed out because of uncertainty over its mining laws and a difficult investment climate. The fall in world demand has hit commodity prices, leading to a slump in Indonesia's commodity exports and job lay-offs. All this has contributed to making resource exploitation a hot campaign topic ahead of parliamentary elections on April 9 and presidential polls on July 8. The outcome will determine whether reform-minded technocrats exert greater influence over a host of economic, investment and resources-related policies. If President Susilo Bambang Yudhoyono is re-elected with a strong mandate, he is expected to push ahead with reforms which could encourage more foreign investment. But if he forms a coalition with nationalist parties opposing foreign investment, it may prove tough to attract overseas capital -- even though Indonesian firms including state energy company Pertamina and local mining tycoons admit to needing foreign funds and technology for refineries, exploration and smelters. No Venezuelan-style risks Despite a long history of foreign involvement in the economy, some firms have run into trouble in Indonesia, with the situation often made worse by red tape, graft and a weak legal system. Newmont's Indonesian unit is in arbitration with the government over share divestiture, with the findings due on March 31. Oil major Exxon Mobil Corp is involved in a dispute over the status of its contract to develop the giant Natuna D-Alpha gas field in the South China Sea. The government has appointed Pertamina as the operator of Natuna. Such cases are closely watched by foreign investors for any indications that Indonesia might favour sweeping Venezuelan-style nationalization programs. So far, there is no cause for concern that any of the political parties favor such a plan, said Chris Kanter, vice president of the Indonesian chamber of commerce. But what will alarm investors are some of the comments made by politicians over these cases. Vice President Jusuf Kalla, who as head of the Golkar Party has said he may run against Yudhoyono for the presidency, told a business forum last month he would evaluate “unfair” energy contracts, specifically citing Natuna, Newmont and gas contracts with China involving a BP-led project in Papua. Another presidential contender, Prabowo Subianto of the nationalist Gerindra party, plans to review government contracts deemed “unfair” to the national interest. The controversial ex-general, who was sacked in 1998 over the abduction of democracy activists, is trailing in the polls but his party's slick advertising promoting a strong Indonesia has raised his profile making him a potential coalition member where he could influence government policy. Peter Fanning, head of the international chamber of commerce in Indonesia, played down excessive worries over pre-election nationalism and said foreign business executives had met government officials to air concerns, although he doubted it would be a “deal breaker”. The reality is that with its dwindling oil output and huge untapped energy and mineral reserves, Indonesia needs to step up exploration and for that it requires foreign capital and expertise. In the case of oil and gas, many of the existing fields are ageing and some potential new ones lie in deep water, requiring billions of dollars of investment and specialised technology.
