Indonesia’s widening deficit takes toll on resource nationalism drive – by Fergus Jensen and Randy Fabi (Reuters India – September 17, 2013)

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JAKARTA, Sept 17 (Reuters) – Indonesian policymakers are scrambling to ease nationalistic resource rules that threaten to slash mining exports from January and potentially widen a current account deficit already at a near-record high.

The deficit, which reached $9.8 billion in the second quarter, or more than 4 percent of GDP, has become enemy No. 1 for President Susilo Bambang Yudhoyono’s administration, and any policies that worsen the situation have come under fire.

Regulations initially passed more than a year ago to allow Indonesia to seize more control over its natural resources are being reviewed as the government looks to bolster exports to offset a bulging import bill.

“For exports, this is an emergency,” Energy and Mineral Resources Minister Jero Wacik told reporters recently. “What is important is that the balance of imports and exports improves for our country.”

The trade deficit in July widened to a record $2.31 billion from $880 million the previous month due to a spike in oil imports. The trade balance along with investment income make up Indonesia’s current account deficit.

Among the policies the government is reconsidering are a pending ban on mineral ore exports, and a royalty hike and export tax on coal. Shipments from the two industries represent more than 15 percent of Indonesia’s total exports by value, or around $2.5 billion a month.

Indonesia is the world’s top exporter of nickel ore, thermal coal and refined tin.

“A ban applied (on mineral ore exports) in January 2014 would lead to a significant disruption of exports,” Barclays analysts said in a research report.

“This could aggravate market concerns regarding the country’s current account deficit, which would be an unattractive proposal for the government.”

LOOKING FOR A WAY OUT

The Energy and Mineral Resources Ministry has initiated talks with lawmakers to revise the 2009 law that requires mineral ores to be processed domestically before export, starting from January.

One option being discussed is to allow limited exports from companies that have already made investments or signed agreements to process ore domestically, such as PT Perusahaan Perseroan Aneka Tambang (Antam).

“Those who have shown good intentions (in processing ore domestically) should be allowed to continue exports, but they need a legal umbrella first,” Thamrin Sihite, a director general at the ministry, told reporters last week.

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