Much well-intentioned economic policy that looks good in theory hits a brick wall when actually implemented. As resource-rich Indonesia is discovering after imposing legislation it hopes will force global mining companies to invest in beneficiation. The country’s politicians are discovering you can’t have one law for big foreign groups and another for local operations. President Susilo Bambang Yudhoyono (pictured below), who was forced into a last minute dilution of the law, has ended up with the worst of both worlds. The foreigners stared down the Government, betting that the law won’t actually be implemented. And local players are either closing down or being forced to retrench masses of workers – with a serious backlash from trade unions that threatens the political party’s hold on power. The Indonesian experience provides a case study for the kind of similarly misguided policies propagated by economically naive politicians elsewhere, most obviously in Zimbabwe but also Julius Malema’s EFF. A politician’s hold on power is a lot more tenuous than many many believe. And in this networked age, the unintended consequences of dumb decisions soon come back to bite.  – AH  Â
By Kanupriya Kapoor and Yayat Supriatna of Reuters:
JAKARTA, Jan 12 (Reuters) –Â Indonesia, one of the world’s biggest resource exporters, halted all mineral ore exports on Sunday in a bid to promote domestic processing, but the country’s president passed a last-minute regulation to ease the ban’s impact on major miners.
In one of his biggest economic policy decisions since taking office nearly 10 years ago, President Susilo Bambang Yudhoyono approved the ban, but allowed U.S. mining giants Freeport McMoRan Copper & Gold and Newmont Mining Corp to continue to ship billions of dollars worth of copper overseas.
The Southeast Asian nation is the world’s biggest exporter of nickel ore, refined tin and thermal coal and home to the fifth largest copper mine and top gold mine.
The long-expected ban aims to boost Indonesia’s long-term return from its mineral wealth by forcing miners to process their ores domestically. But officials fear a short-term cut in foreign revenue could widen the current account deficit, which has undermined investor confidence and battered the rupiah.
“Starting at midnight on Jan. 12, 2014, raw ore definitely cannot be exported,” Energy and Mines Minister Jero Wacik told reporters after a meeting with the president and cabinet.
However, Yudhoyono’s last-minute regulation will allow 66 companies, which include Freeport and Newmont, to continue to export processed mineral as they have provided assurances to the government that they will soon build the necessary smelters.
“As long as they can fulfill the requirements, Freeport and tens of national miners are still allowed to export,” Industry Minister M.S. Hidayat told Reuters.
Details of the regulations were to be released later.
Most of the companies expected to feel the impact of the ban are small domestic miners, numbering in the hundreds, that cannot afford to invest the hundreds of millions of dollars needed to build a smelter.
Mineral shipments totalled $10.4 billion in 2012, or around 5 percent of Indonesia’s total exports, according to the World Bank.
HALTING SHIPMENTS
Shortly before the ban took effect, Freeport halted copper exports and would not resume them until there was clarity on which minerals can be shipped, a union official told Reuters.
“There will be no concentrate exports from Freeport Indonesia in Papua as long as there is no government policy providing certainty on concentrate exports,” said union official Virgo Solossa, adding that the firm has not made a shipment from its port since Dec. 15.
It was not immediately clear if the government announcement late Saturday would be enough for Freeport to resume exports immediately. A company spokeswoman said Freeport continued to provide copper to its local smelter for domestic use.
Freeport, the country’s dominant copper produce with 73 percent market share, last month warned that an unrevised export ban would cut output at its Grasberg mine by 60 percent and lead to layoffs of half of its 15,000 Indonesian employees.
Under the proposed regulation being reviewed by the president in the run-up to the deadline, Freeport, Newmont Mining Corp and other miners would be allowed to export copper, manganese, lead, zinc and iron ore concentrate until 2017. But nickel ore and bauxite exports worth more than $2 billion annually would still be banned, while coal and tin shipments would not be affected.
However, it was not clear whether the final regulation had been revised.
“In our discussion (about the ban), our considerations were first about the workforce, which shouldn’t face mass layoffs,” Energy and Mines Minister Wacik said.
“Second was about the local economy, so it doesn’t face any burden from the new regulations. Then, domestic companies should be allowed to continue operating.”
More than 100 mining companies have been forced to reduce or shutdown operations due to the uncertainty surrounding the mineral export ban.
Along with Freeport, Indonesian miner Perusahaan Perseroan Aneka Tambang (Antam) also stopped nickel ore exports a few days ago, the firm’s corporate secretary Tri Hartono said.
BAN COULD BECOME ELECTION ISSUE
A major economic impact could make the ban a hot political issue in this year’s legislative and presidential elections, especially if it sparks a wave of layoffs in the world’s fourth most populous country.
Thousands of mine workers have already been laid off ahead of the ban, sparking protests in Jakarta.
“We call on all mining workers to prepare to go on the streets and swarm the presidential palace if the government goes ahead with the implementation of the ban,” said Juan Forti Silalahi of the National Mine Workers Union in a statement earlier on Saturday.
Police have been stationed at ports and around mines to secure those places in case of public disturbances, said national police spokesman, Boy Rafli Amar. – Reuters
