Indonesia eases ban on mineral exports

Indonesia has relaxed a controversial ban on the export of unprocessed minerals in a policy flip-flop that highlights the financial pressures and unpredictable investment climate in Southeast Asia’s biggest economy.

Indonesia, an important global commodities producer, halted exports of some mineral ores in 2014 as part of plan to boost economic growth by promoting the development of a domestic processing industry.

That move, which was initially opposed by many mining companies, later prompted pledges of billions of dollars of investment in smelters and other processing facilities.

But the government said on Thursday it would reverse the prohibition on the export of nickel ore and bauxite, used to make aluminium, and extend a temporary deal to allow the export of copper concentrate.

The decision upset those who have been building expensive processing facilities in the belief they would have a guaranteed supply of ore. It could lead to legal challenges from investors and civil society groups, at a tense time in the world’s most populous Muslim-majority nation.

President Joko Widodo is under pressure from conservative and hardline Islamic groups who last year rallied in their hundreds of thousands to demand that his ally Basuki Tjahaja Purnama, the ethnic Chinese and Christian governor of Jakarta, be prosecuted for allegedly insulting Islam and Muslims. Mr Purnama is currently on trial, and denies the allegations while also fighting for re-election.

Bill Sullivan, a lawyer at Christian Teo and Partners in Jakarta, said the government had reversed course on the mineral export ban to boost the economy and to help tackle the social inequality that some argue lies behind the anger towards Mr Widodo, Mr Purnama and the minority Chinese community.

“The government is doing this at least in part because it is so spooked by the social unrest,” he said. “It has decided that this is an economic issue and people are unhappy at the lack of jobs and low economic growth, so it can no longer afford to pursue a suboptimal industrial policy.”

Mr Sullivan and other lawyers who advise international mining companies have long argued that the mineral export ban was an ineffective way of promoting economic development and that it would shrink the government’s coffers.

The law was first enacted in 2009, at a time when the Indonesian economy was growing rapidly and investors considered it one of the world’s hottest emerging markets.

But economic growth, which peaked at 6.5 per cent per year in 2011, has slowed since then, with the finance ministry forecasting that gross domestic product will expand by just 5.1 per cent this year.

Sri Mulyani Indrawati, the finance minister, told the Financial Times this week that the government would have to be “very conservative” with its budget planning this year because of global uncertainty stemming from the US election of Donald Trump and the fact that Indonesia had few other levers with which to uplift the economy.