¿Qué hacemos?

Omar Narrea, CECHAP researcher, during his stay in Jakarta, Indonesia, had the opportunity to talk with M. Habib Abiyan, a prominent analyst at the Center for Strategic and International Studies (CSIS) and expert on sustainable development, non-traditional security, and political economy. In this conversation, Habib shared his clear perspectives on Indonesia’s role on the international stage, discussing key topics such as natural resource policies, the transition to sustainable energy, and bilateral relations with China. This interview provided valuable insights into the challenges and opportunities Indonesia faces on its path to economic and technological development.

What has been the impact of Indonesia’s policies on its natural resources in the country’s economic growth?

Reflecting from the case of Indonesia’s nickel policies, I think there are both positive and negative impacts to the country’s growth. The policies here are including the nickel ore export ban and tax holiday for building nickel construction.

The most visible contribution lies on the increased inbound investment and added value of nickel exports. Indonesia received $11.7 Billion in 2023 just from the “basic metal, metal goods, and other non-machinery” sector alone — or increased almost five times just over a decade. This sector is related to the mineral down-streaming agenda. For export, Indonesia managed to flip the trade balance with China to its favour. In 2014, Indonesia suffered $13 billion trade deficit with China. Indonesia recorded surplus around $2 billion dollar in 2023 thanks to its export of intermediate nickel products.

There are two downsides of these policies at the very least. One is the tendency to utilize natural resources as dominant force to attract foreign direct investment. This is unhealthy because any kind of natural endowment will exhaust if exploitation continues to take place, leaving significant vulnerability to generate economic growth in the future. Next, Indonesia could not reap maximum tax revenue from the construction and operation of nickel smelters. That  amount might be bigger than inbound investment or the increased export values.

What are the main challenges Indonesia faces in its transition to more sustainable energy?

Two main challenges.

1. Oversupply of coal-fired power plants. Indonesia miscalculated electricity demand at the Yudhoyono and Widodo presidency (2004-2024). His administration initially thought that Indonesia could reach economic growth more than 5% and would eventually need more electricity to power the economy. However, the growth was stagnant at around 5% while million-worth contracts with independent power producers have been sealed and will incur fines should the projects get cancelled. This situation discourages the state-owned electricity company to fully embrace renewable energies in the very first place.
2. The availability of financing and the apprehension of stranded assets. Related to the first point, Indonesia does not have enough fiscal space to finance the expansion of green technologies. The state budget is still largely burdened by fossil fuel energies and to some extent electricity subsidies. If the government reallocates the subsidy post to renewable energies, it will likely cause public protests as the infrastructure is yet ready. What is the most important for the constituents is cheap electricity price rather than clean electricity. At the same time, the state-owned electricity company is concerned about the potential loss from the stranded assets.

Chinese investment has been key to building the first high-speed rail in Asia. How has this project influenced bilateral relations between China and Indonesia?

It strengthens the overall relationship. Indonesians have more alternatives to commute between Jakarta and Bandung in a swift and convenient fashion. For China, the project offers a concrete proof that the country can now compete with Japan for cutting-edge train technologies. However, some concerns linger in the Indonesian side — especially on the profitability of the project and the involvement of state budget to cover the loss and service the debt.

Peru is in negotiations for a trade agreement with Indonesia. How do you perceive such agreements between Global South countries and their potential impact on economic development?

It is necessary for Global South countries to keep expanding their economic entanglement. In the time when the economy of industrialized countries goes stagnant if not necessarily declining, the economy of developing countries still offers much untapped promises and potentials. There is certain degree of mutual understanding and willingness to refrain from imposing non-economic-related standards.