Indonesia Should be Careful in Renegotiating Mining Contract

TEMPO.CO, Jakarta - Nobel laureate economist Joseph E. Stiglitz has warned Indonesia to manage its natural resources carefully, warning against exploitation by mining firms proposing “bad contracts” that would put the government at a disadvantage, as reported by Antara News.

Stiglitz, who advised US leaders Barack Obama and Bill Clinton on economic policies, cautioned Indonesian policymakers against “asymmetry of information” during the renegotiation of mining contracts, with the government particularly susceptible to unfair dealings and excessive business exploitation.

The situation could happen because most developing economies tend to have a limited grasp of mining operations, said Stiglitz, who won the Nobel Prize in economics in 2001 for his theory of markets with asymmetric information.

“For instance, a lot of the contracts say if the commodity prices go down, the country has to give a discount, but if the prices goes up, the company gets to keep all the profits,” he said in an economics seminar in Nusa Dua, Bali on Saturday, as quoted by Jakarta Post.

“There’s an idea where many [mining] companies have to disclose all their financial dealings with emerging economies, and not all were surprised when many of the companies did not like that,” added Stiglitz, a professor of economics at Columbia University.

Among the mining giants operating in Indonesia currently approaching the end of their contracts is Freeport McMoran Copper & Gold. Inc, which operates the world’s largest gold mine in Grasberg, Papua.

The work contract between Freeport and the Indonesian government will end in 2021, with negotiation on the contract’s extension to begin two years prior to the deadline, or in this case in 2019.

However, Freeport had lobbied the current administration to sign the amended contract before President Susilo Bambang Yudhoyono leaves office on October 20, Sukhyar, a director general for mineral and coal at the Energy and Mineral Resources Ministry, said this week.

Natural resources play an important role in the Indonesian economy so policymakers must consider the country's best interests when negotiating with the mining firms, said Stiglitz, a former World Bank chief economist who is known for an advocate of stronger government intervention in the economy.

“There are a lot of bad contracts signed in the past [by emerging economies],” warned Stiglitz. “There is this unfairness that is going on.”

ANTARA NEWS | JP