Singapore-based DBS Holdings Group announced in April it would pay US$7.2 billion to take over Bank Danamon, Indonesia's sixth-biggest bank. Only three weeks later Bank Indonesia, the country's central bank, announced that it would issue new rules limiting international ownership in local banks, putting the Danamon takeover on hold - until after the new ownership rules are promulgated and Singapore agrees to reciprocal arrangements for lenders operating in the two countries. No one is certain when that will be. That has dismayed at least three other foreign banks that had plans to acquire Indonesian institutions.
The rules are the latest manifestations of Indonesia's troubling increasing economic nationalism and antipathy towards multinational investment. Despite the country's enviable economic growth over the past decade, the government is considering a raft of measures to lock in its position with state enterprise-driven resource monopolies that could well end up hurting its growth and global position.
That has troubled the international rating agency Standard & Poor's, which in late April declined to upgrade Indonesia's sovereign debt from BB+, one step below investment grade, because the country's plan to lure investment is at risk from "policy slippages."
What are these policy slippages? In late April for instance, the government announced that a government-linked company, the Indonesian Ports Corporation, would take on the monumental job of building a US$1.9 billion new port at Tanjung Priok in North Jakarta. It's arguably the biggest infrastructure project in Indonesia's history and one of the biggest port projects in the world. The government had previously cancelled international tenders for the terminal, outraging private-public consortia that had devoted considerable funds into preparing the bids only to see them thrown out.
These protectionist predilections, built on the country's steady 6 percent-plus growth and its stellar performance during the global credit crunch that struck in 2007, have emboldened the government and particularly Kadin, the Indonesian Chamber of Commerce, to continue to tighten against international entry.
Indonesia is largely alone in a region that has seen globalization and FDI as the path to prosperity. Jakarta, however, is aware that it presides over Southeast Asia's biggest economy. Domestic consumption insulated it from the global financial crisis. It's also the world's largest exporter of palm oil and natural gas and the second-largest exporter of coal. Foreign investors continue to beat a wary path in because of their desire to tap the US$1.1trillion domestic economy and its export potential.
