AN INDONESIAN trade minister, Rachmat Gobel, once wanted to ban the import of secondhand clothing because, he said, it could transmit the HIVvirus. He also restricted imports of beef to promote the dubious goal of self-sufficiency; the result was not rendang in every pot, but soaring beef prices, butchers’ strikes and protests. Mercifully, Mr Gobel was shown the door last August, and his replacement, Tom Lembong, seems to believe that a country’s trade ministry should facilitate rather than impede free trade.
But Mr Gobel’s views remain all too common in Indonesia, and Mr Lembong’s
all too rare. The world’s fourth-most populous country is blessed with a
natural bounty of coal and oil under ground and, above it, forests and
plantations producing rubber and palm oil. But its huge potential in other
areas is still unrealised (see our special report in this
week’s issue). As with many resource-dependent economies,
protectionism and rent-seeking have flourished. The government shields large
domestic players at the expense of consumers. In 2007 Indonesia expanded the
number of industries in which foreign investment is barred or restricted from
83 to 338, making it South-East Asia’s most hostile country to foreign capital.
When commodity prices were high and China was buying, this model appeared to
work reasonably well. Indonesia’s economy grew, and if foreign companies wanted
what was in Indonesian mines they had to play by Indonesian rules. Now that
commodity prices have plummeted, output is sputtering and Indonesia’s
weaknesses are apparent.