IMF Recommends Phasing Out Mineral Export Bans in Indonesia

IMF Recommends Phasing Out Mineral Export Bans in Indonesia

The International Monetary Fund (IMF) has recommended that the Indonesian government gradually eliminate its policy of imposing export bans on minerals. The IMF’s latest country report for Indonesia, released on Monday, emphasizes the need for a thorough analysis of costs and benefits before implementing such policies. It further suggests that export restrictions should not be extended to other commodities and warns against the destabilization of the multilateral trade system caused by increasing trade measures and industrial policies.

While the IMF’s criticism extends beyond Indonesia, the organization highlights that trade uncertainty has reached record levels since 2018, negatively impacting investment and growth in affected countries. The IMF cautions against the growing risk of geoeconomic fragmentation driven by unilateral trade measures, including restrictions on critical raw material and technology exports.

In addition to export bans, the IMF expresses concerns about subsidies, acknowledging their potential to address market failures but warning against disorderly subsidy races and discriminatory trade provisions. It argues that such practices can lead to costly countermeasures and hinder efficiency by creating imbalances between supply and demand. The statement notes that while some countries may gain strategic advantages in specific sectors, there are likely significant economic costs incurred on aggregate.

In response, Coordinating Economic Minister Airlangga Hartarto criticized any attempt by foreign countries or international organizations to regulate Indonesia’s export policies, dismissing it as a form of modern-day colonialism. He argues that those opposing export restrictions fail to understand the importance of value addition. The Indonesian government aims to derive more value from commodities like coal, tin, copper, steel, gold, and petroleum through the development of downstream industries, promoting domestic metal processing and advancing the commodities value chain.

Supporters of Indonesia’s downstream development policy argue that the export ban on nickel ore has driven investment in nickel processing, leading to a significant increase in foreign direct investment (FDI) in 2022. However, some experts, including Yusuf Rendy Manilet from the Center of Reform on Economics (CORE) Indonesia, find the IMF’s stance contradictory, as it supports downstream value addition but opposes the ban on raw commodity exports. They suggest that the IMF’s concern may be related to preventing global price hikes, given Indonesia’s status as a major producer of important commodities.

It is worth noting that last November, the World Trade Organization (WTO) ruled against Indonesia in a case brought by the European Union regarding the nickel ore export ban. To avoid potential WTO action, mining industry analysts recommend that Indonesia focus on aggressively developing its downstream industrial capacity rather than simply banning unprocessed nickel exports. They cite China as an example, where a ban on coal imports from Australia was not subject to WTO scrutiny because it was unofficial and based on appeals to domestic firms.

Moving forward, the IMF hopes for a more objective approach from Indonesia, considering that not all mining materials in the country are suitable for downstream usage. The export ban on bauxite, for example, may present challenges due to Indonesia’s weaker global market position in this aluminum raw material compared to nickel.

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