Foreign miners in Indonesia must be beneficial to country, warns Finance Minister

AIIB will respond to development challenges in Asia: Indonesia finance minister
AIIB will respond to development challenges in Asia: Indonesia finance minister

Foreign miners in Southeast Asia's largest economy must prove their businesses are advantageous to the country, warned Indonesian Finance Minister Sri Mulyani Indrawati, as her government faces allegations of resource nationalism.

"This is supposed to be mutually beneficial ...You need to be able to explain to the people of Indonesia what the value of (your) investment is," Indrawati told CNBC on the sidelines of the Asian Development Bank's 50th annual meeting in Yokohama.

Her comments amid a heated dispute between Indonesian President Joko Widodo's administration and miner Freeport-McMoRan, who operates one of the world's largest gold and copper mines in the Indonesian province of Papua.

A change in Indonesian mining rules in January led to a standstill in Freeport's copper concentrate exports. In order to comply with the new regulations, miners in Indonesia must now obtain a special contract — a rule that Freeport says violates its existing contract.

The company has threatened arbitration but Indonesia's mining minister said on Thursday that both parties are close to reaching a deal that would allow Freeport to resume exports, Reuters reported.

"We are communicating directly with Freeport ... It's a normal negotiating process in which both parties have good intentions of maintaining mutually beneficial relationships," Indrawati said. "We want to say to all investors in Indonesia that if you have agreed to enter negotiations, we will enter with goodwill."

Trucks operate in the open-pit mine of PT Freeport's Grasberg copper and gold mine complex near Timika, in the eastern region of Papua, Indonesia.
Muhammad Adimaja | Reuters

The nation has proved its commitment to economic and structural reforms — a key issue for foreign investors — through measures such as a tax amnesty directive so that should help clear up the misconception that Indonesia isn't welcoming to overseas firms, she continued.

The current episode isn't cause for alarm because Freeport's work contract with the country, originally designed in the early 1990s, has frequently experienced revisions throughout the decades, she added.

Even though Freeport employs locals, many Indonesians believe the firm is destroying Papaua's famed biodiversity and taking advantage of the government — complaints reflected by anti Freeport protests around the country. More broadly, the episode reflects criticism of foreign ownership over Indonesian resources that include natural gas and various minerals.

"The ideological foundations of resource nationalism have deep roots in Indonesia (and) the contemporary political milieu has given it more political utility and enduring appeal as politicians mobilize nationalist narratives to satisfy public demands," said Eve Warburton, a scholar at Australian National University, in a recent report published on the Lowy Institute.