JakartaPost-Feb 3, 2023
The government has taken issue with the domestic banking industry’s reluctance to finance the development of downstream mining industries, which has left foreign financiers to fill the gap. Foreign banks typically require only a 10 percent equity stake for downstream projects in Indonesia and offer comparatively low interest rates, Investment Minister Bahlil Lahadalia said on Jan. 24, while domestic banks called for equity of between 30 and 40 percent and demanded higher interest rates for the same undertaking. Even if local banks’ high requirements were met, he added, there was no guarantee that such loans would be granted. He warned that Indonesian banks were in danger of missing out on the down-streaming opportunity. “This is homework for our banks and financial institutions,” Bahlil said at the Mandiri Investment Forum in Jakarta on Wednesday. He lamented that 90 percent of smelters built in the country were owned by foreign entities, even though 80 percent of mining business licenses (IUP) were held by Indonesians. Most of the revenue from these companies, Bahlil said, would likely be channeled abroad to pay debts to foreign banks, which would cause foreign exchange outflows and could threaten the stability of the rupiah. Indonesia is seeking to transform from a raw materials exporter to an exporter of higher-value products through increased industrialization. The government’s strategy to achieve this has included bans on the export of certain key commodities. The country’s current nickel export ban will be supplemented by a ban on the export of bauxite, the ore from which aluminum is commercially extracted, in June of this year. Tin and copper export prohibitions are to follow sometime this year. Experts said Indonesian banks were willing, in principle, to finance downstream projects but that there were constraints preventing them from doing so at the scale the government wanted. Read more at:
https://www.thejakartapost.com/paper/2023/02/03/local-banks-steer-clear-of-downstream-projects.html.
