Indonesia pays price of protectionism as commodity exports sink

SINGAPORE (March 29): Indonesia’s economy is losing out on commodity gains after lawmakers wrapped protectionist policies around the nation’s resources. Their next problem: finding a lucrative replacement.

Commodities now account for about 40% of all exports, down from almost 60% five years ago, according to Morgan Stanley. They make up just 6% of gross domestic product, half as much as in 2012, as trade restrictions worsened the impact of a price rout over much of that period. Crude oil and gas output has declined to levels last seen in the early 1970s.

While Indonesia’s coal output will be higher next year than in 2013, production of key mineral exports including bauxite, tin and nickel will still be well behind the commodity cycle’s peak, BMI Research estimates. The drag on activity may complicate President Joko Widodo’s plans to accelerate economic growth to 7%, with an investment push in manufacturing to offset lost commodity income yet to yield results.

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