Opinion: Finding ways to cure the Indonesia natural resource curse – Edi Suhardi (Malaysian Insider – November 23, 2013)

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Indonesia’s vast natural resource wealth has been the backbone of its economic growth for years. It started with the oil bonanza in 1970-1980s, followed by timber and forest extraction in the 1980-1990s, mining spree in the 2000s and palm oil windfall in the last 10 years.

Such diversity of valuable resources if managed under prudent governance would indeed be a viable driver to propel the country to prosperity. However, as in any third world country, Indonesia is also plagued with the “resource curse” or the paradox of plenty that the resource-rich countries have less economic growth compared with countries which have less natural resources.

The country has failed to capitalise on the abundance of resource wealth to spur sustained economic growth due to poor governance and mismanagement. As a result, the contribution of natural resource development to the country’s economic growth has been disproportionately minimal.

A number of studies show that Indonesia is one of the most resourceful countries in term of mining potential and cultivation land. However, its resource mismanagement and poor governance regime have failed to make the country attractive for investment and instead choked the otherwise effective engine for the economic growth.

Fraser Institute, a leading Canadian public think tank in its Annual Survey of Mining Companies 2012/2013, released in February 2013, again ranked Indonesia as the country to avoid for mining investment. The survey covers 96 jurisdictions (country and state) around the world.

The survey identifies the worst place for mining investment in terms of the Policy Potential Index (PPI), a comprehensive assessment of the attractiveness of mining policies. Indonesia ranked near the bottom, even below countries known for their unfavourable investment climate, such as Vietnam, Venezuela, Republic of Congo, Zimbabwe and Guatemala.

The survey, however, reveals that Indonesia is one of the most stellar in mining resource potential. If it improves its existing regulatory regime and adopts the industry best practices in managing the country’s mineral potential, the country will become the second most attractive for mining development after Mongolia.

The survey also concludes that despite their tough environmental protection laws, Finland and Sweden emerged as the top worldwide mining destinations of 2013 followed by Canada, the United States and Norway. It shows that investment in the extractive industry can go hand in hand with environmental conservation.

It is inevitable for the Indonesian government that in order to attract investments on sustainable mining it has to improve its regulatory framework and governance by reducing red tape, minimising risk with regard to policy changes, respect negotiated contracts and improve business governance.

The Resource Governance Index by the New York-based Revenue Watch Institute in May 2013 gave a better but gloomy picture of the investment climate of Indonesia. The country is ranked 14th from 58 natural resource-rich countries according to transparency and accountability in their oil, gas and mining sectors.

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