Unfinished Business

By Poppy S. Winanti, Professor of International Relations at the Universitas Gadjah Mada in Yogyakarta, Indonesia

As a country with abundant natural resources, Indonesia has adopted a nationalist policy to reduce its reliance on foreign technology, markets and capital. This approach has been a core part of its economic development since its independence and applied in several natural-resource sectors, including recent initiatives.

Indonesia has long heavily depended on the extraction of resources and export of commodities as a key feature of its economic development. This includes plantation and agricultural products like timber and palm oil as well as minerals such as coal, tin, copper and nickel. Relying on these commodities contributed to economic growth but did not reduce dependence on foreign markets, and it left Indonesia in a less prominent role in global supply chains. The country was mainly a supplier of raw materials while industrialisation made other countries more developed. Consequently, even after over 70 years of independence from colonial rule, Indonesia continues to import finished products and shows limited ability to develop its own industrial and manufacturing sectors that add value locally.

Since independence, Indonesia’s policies surrounding the extraction and export of commodities have fluctuated and been adjusted. The combination of domestic political shifts and global political dynamics caused an alternation between openness and restriction. First, the country adopted more protectionist and nationalist policies shaped by the Bandung Spirit to eliminate the colonial legacy. This involved converting Dutch-owned companies into national enterprises, mainly in the plantation and agricultural sectors. By the end of President Sukarno’s era, most of the natural-resources sectors had come under state control.

Change in domestic political power in the mid-1960s led to a more open stance, with foreign investors welcome as Indonesia adopted a pragmatic approach to economic development. It was not until about 20 years ago that the government introduced a new policy aimed at reducing the export of commodities. This was a response to changes in the global political environment with the increasing movement for a green transition to fight climate change. Indonesia viewed the increasing worldwide demand for green energy as an opportunity to strengthen its position in global supply chains and to support its domestic industries.

Resource nationalism refers to policies that aim to increase local ownership of land and resource industries or to promote localisation, while also strengthening the economic position of domestic companies against foreign entities by leveraging land and natural resources for industrialisation.

It is viewed as a government-led strategy that aims to gain greater control over natural resources, with a primary focus on industrialising the extraction sector. The main goal is to manage a country’s natural resources. Another key objective is to increase state ownership of strategic industries. This can include measures from minor regulatory adjustments that restrict foreign involvement and limit exports to conserve resources to renegotiating contracts with foreign firms on more favourable terms, and even to more politically sensitive and risky actions such as nationalising foreign companies. Ultimately, a resource-rich country pursues resource nationalism to secure economic gains by increasing ownership and control over extractive industries while maximizing domestic political and economic benefits through developmental spill-overs.

In the late 2000s, Indonesia started adopting policies that can be seen as a form of resource nationalism. This began with the 2009 Law on the Mineral and Coal Mining Industries, which established requirements for processing raw minerals domestically to increase value added through local smelting facilities. From 2009 to 2020, over 20 regulations were enacted to enforce this law, including local content obligations, which require companies to provide domestic employment and to use local goods and services. Another aim was to increase state control over resources through divestment by foreign firms and to restrict foreign influence. The 2018 divestment of Freeport Indonesia (a subsidiary of the US company Freeport-Mc-MoRan) was a notable example of Indonesia’s effort to take control. The 2009 law was amended in 2020 to prohibit the export of more than 200 types of mineral ore. This was driven by the view that multinational corporations had profited excessively, leaving local people with insufficient benefits; thus, resource control was seen as necessary to secure a fair share for the country.

Resource nationalism remains a key feature of Indonesia’s approach to extractive industries, although its implementation has been inconsistent due to internal and external pressures. Internal pressure arises from large businesses operating in the country delaying implementation and requesting exceptions. External pressures are exemplified by the challenges by the European Union through the World Trade Organization’s dispute-settlement mechanism, as the policy was perceived as violating Indonesia’s international trade commitments.

To what extent does a current policy by a Global South country reflect the spirit established 70 years ago? The Bandung Spirit was formed during the Cold War, a period dominated by ideological and geopolitical rivalry between the Soviet Union and the United States, which shaped global politics around two blocs. Although today’s world is mainly defined by a complex multipolar system, some global issues still bring to mind the motivations behind the 1955 Asian-African Conference. These encompass disparities in global relationships; conflicts over spheres of influence; access to resources, markets, and technology; and unequal participation in global governance structures.

Although the global landscape has evolved since the Bandung Conference, the underlying spirit from that event resonates today. Indonesia’s resource nationalism can be seen as reflecting the Bandung Spirit, which prioritised national sovereignty and independence – core reasons for asserting control over natural resources and strategic sectors. While the original aim of Bandung was to foster economic cooperation and development among newly independent nations, resource nationalism is often a strategy to stimulate economic growth by capturing more resource rents. The conference sought to reduce dependency on superpowers and encourage South-South cooperation, and resource nationalism diminishes reliance on foreign companies. Resource nationalism also seeks to strengthen national autonomy and self-determination, which aligns with the Bandung Spirit. Furthermore, it ensures that the benefits from natural resources are shared primarily with the domestic population rather than foreign interests, echoing Bandung’s emphasis on equitable resource distribution.

The Bandung Spirit has laid a solid foundation for developing countries in shaping and guiding their relationships with each other. It has also inspired domestic economic development policies, including in the form of resource nationalism, that countries like Indonesia have embraced. However, whether adopting resource nationalism will directly benefit the people remains uncertain. Limiting foreign control over natural resources does not necessarily bring prosperity for the broader population in developing countries. The extractive industry relies mainly on capital and technology provided by large enterprises. As a result, these policies have been criticised for potentially benefiting primarily large domestic and international companies. The focus on extraction is also criticised for worsening environmental degradation and harming local communities. Since domestic inequality gaps are not addressed by resource nationalist policies, adopting the Bandung Spirit as a guiding principle for economic development in relations with other countries cannot fully realise its ultimate goal of bringing prosperity to the people and becomes less meaningful. Therefore, there should also be substantial domestic reforms to guarantee that resource nationalism policies benefit the broader population in developing countries, not just the elite. Prioritizing a reduction in dependence on extraction and implementing serious measures to develop a more sustainable natural-resources sector are crucial to addressing the environmental degradation resulting from extraction.

In today’s global political economy, developing countries confront cross-border challenges like climate-change adaptation and mitigation that transcend the North–South divide. To address these effectively, countries such as Indonesia must forge strategic partnerships within South-South cooperation and with Global North countries. Since transitioning to green energy in the Global South demands substantial financial aid, collaboration with the Global North is crucial. In 2022, Indonesia launched a Just Energy Transition Partnership (JETP) with an International Partners Group (IPG) during the G20 Summit in Bali, demonstrating how North-South cooperation can tackle urgent global issues. However, the United States withdrew as co-leader of the JETP earlier this year, prompting a reorganization of the IPG. Germany took over as co-leader, alongside Japan, promising to uphold the JETP’s objectives. If the JETP fulfils its promises, Indonesia might avoid nationalist policies and instead strengthen its collaboration with dedicated countries supporting the partnership.

The JETP illustrates that, in order to effectively address cross-border challenges, especially climate change, countries such as Indonesia need to develop policies that meet their needs while also considering geopolitical dynamics.