(MENAFN- Asia Times) The International Monetary Fund's
June 2023 assessment
of Indonesia's export ban policy has reignited debate on Indonesia's downstream industrial policy.
Advocates emphasize its substantial impact on export revenues and value addition, while critics pinpoint the fiscal cost and the market distortions caused by the policy. A more nuanced assessment suggests the merits of both perspectives.
Indonesia's experiment with downstream industrial policy began with the 2009 Mining Law signed by former president Susilo Bambang Yudhoyono, which
mandated the domestic processing
of all mineral commodities mined in the country.
But the policy was only implemented in 2014 for nickel and bauxite amid widespread opposition from the mining sector. It was in nickel that Indonesia found its success.
Before banning nickel ore export in 2014, Indonesia predominantly exported raw nickel ore, which is minimally processed into nickel matte. The country's nickel-related exports were a modest US$6 billion in 2013.
By 2022, this figure had skyrocketed to nearly $30 billion , propelled by the exports of higher value-added products such as stainless steel and battery materials.
The most crucial factor to this success appears to be Indonesia's exploitation of its“market power” in nickel production through an export ban.
Chinese firms that were large players in the downstream nickel-based production had no choice but to expand their operations within Indonesia to
secure access
to its abundant nickel resources.
The rapid growth of the nickel sector was facilitated by concessional financing under the Belt and Road Initiative. Chinese state-owned banks financed the construction of coal power plants and basic infrastructure, integral components of the industrial areas that fostered economies of scale and agglomeration.
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