* All major parties beating nationalistic drum
* Ban on export of raw minerals upset foreign miners
* Foreign investment appears to be peaking
* Election for new parliament on April 9; president on July
By Rieka Rahadiana
JAKARTA, March 31 Dressed in the style of
Indonesia's first leader, even using replica 1950s microphones,
presidential hopeful Prabowo Subianto roared to thousands of
supporters at a recent rally in the capital: "Indonesia cannot
It is a nationalistic tone that has been on the rise in
campaigns by the major political parties ahead of elections to
choose a parliament on April 9 and a new president on July 9.
The question of whether Indonesia is souring on the foreign
money that helped bankroll much of its growth was thrust into
the spotlight this year with a new law that aims to boost the
country's profits by banning the export of minerals unless they
have been processed first.
That threatens the fortunes of some of Indonesia's biggest
investors, notably two major U.S. mining companies with large
operations in the country - Freeport-McMoRan Copper & Gold
and Newmont Mining Corp.
To continue exporting, mining firms must now either pay
20-25 percent tax from this year, rising to up to 60 percent by
the second half of 2016, or invest hundreds of millions of
dollars on new smelters.
The more prickly language, and its occasional echo of the
jingoistic rhetoric of founding president Sukarno who famously
told the United States in 1964 to "Go to hell with your aid!",
comes as record foreign direct investment looks to be peaking.
In part, that reflects investor concern over muddled
government policy, barely functioning infrastructure and a sharp
rise in labour costs in the world's fourth most populous
country. Approved foreign investment outside the oil, gas and
banking sectors last year was around $22 billion, roughly the
same as 2012 in dollar terms.
"In dealing with globalisation, Indonesia should have a
stronger position ... We should ensure that we are independent,
not relying only on foreign investment," said Budiman
Sudjatmiko, a member of parliament of the PDI-P party.
Opinion polls suggest that PDI-P, currently in opposition,
will win the most seats in parliament and easily grab the
presidency with its hugely popular candidate, Jakarta governor
Joko "Jokowi" Widodo.
He has won national approval for his straight-forward
leadership style but has yet to detail any economic policy.
Behind PDI-P are Prabowo's Gerindra party and also Golkar,
the parliamentary vehicle for autocrat Suharto's 32-year rule,
which has managed to resurrect its fortunes in the 16 years
since its patron was forced from office and Indonesia became a
Several political analysts expect PDI-P to team up with the
pro-business Golkar for its vice presidential candidate.
All major parties favour keeping the law banning mineral ore
exports despite criticism from the World Bank that it will
damage the economy.
"Indonesia has to be nationalistic ... But it doesn't mean
that if national interest is at the forefront of our policy then
foreign companies cannot come to our country," said Burhanuddin
Abdullah, a former central bank governor who chairs the council
of experts at Gerindra.
CURRENT ACCOUNT DEFICIT
However much the election speeches are tinged with
xenophobia, all the top parties promise to address more
fundamental economic challenges.
That includes a large current-account deficit that threatens
confidence in the currency and the budget-sapping cost of huge
fuel subsidises at a time when the outlook for economic growth
has softened to barely 5 percent this year.
"Raising fuel prices, but gradually, will be one of the
options. We will let the people choose, cheap fuel prices but
poor roads or paying a higher price and getting good roads,"
said Harry Azhar Azis, a senior member of Golkar's economic
Investors who commit to broader economic development would
win favour. Others may find Indonesia less welcoming, he said.
"It will be a bit tougher ... Particularly investors who
only play in the portfolio market, unless the investment has a
strong correlation to industry development," Azis said.
The director of PDI-P's Megawati Institute think tank, Arif
Budimanta, said the country should develop infrastructure and
lure investment into adding value to the country's natural
resources, much of which are exported unprocessed.
"There has to be synergy. With better competitiveness, the
current-account deficit will improve gradually," he said.
PDI-P wants to spend around 20-30 percent of the budget,
from about 11 percent now, on infrastructure, whose weakness is
a major factor in keeping economic growth below its potential.
"We will prioritise the quality of growth, not just growth
but also in terms of even distribution," he said.
About 11 percent of Indonesia's 240 million people live
below the poverty line. Another 30 percent are barely above it,
many of them in the rural sector.
Gerindra says the government needs to return to the 1970s
emphasis on agriculture to lift the economy and has repeatedly
warned that the ever yawning gap between the rich and the
have-nots threatens social stability.
"The focus of our programme is agriculture and education ...
If we want to develop our industry, it has to be agri-based
industry," said Abdullah.
His party wants to boost budget spending on agriculture to 5
percent in 5 years, from around 2 percent now. It will also
press banks to lend more to the agriculture sector.
The front-running PDI-P has also stressed education for an
exceptionally young population - about half is under 30 - whose
classrooms churn out workers barely able to compete with
Skill levels had to rise so locals could compete against
outsiders coming into Indonesia's growing job market, said
($1 = 11,380 rupiah)
(Additional reporting by Kanupriya Kapoor and Jonathan
Thatcher; Editing by Dean Yates)