Indonesia’s Papua Challenge

Indonesia’s Papua Challenge

Like many developing economies, Indonesia is eager to establish itself as an ideal destination for foreign investment, particularly as recent moves to tighten regulation of inbound capital have made potential investors view the country with considerable wariness.  To that end, and also like many developing economies, Indonesia’s government promotes the country’s positive qualities in ads aired on prominent business television networks.  In one such ad currently in the Bloomberg rotation, the Indonesia Investment Coordinating Board highlights the country’s political stability, among a number of other favourable characteristics.  The country has indeed embarked on a process of democratisation over the past fifteen years, the principal factor on which the claim of political stability rests.  But stability also requires a popular sense of legitimacy for the government, something Indonesia has failed to garner fully, particularly in the region of Papua.

Tensions in the region have been exacerbated this summer by a series of deadly events.  In June, a prominent leader of the West Papuan National Committee, an activist group that seeks independence for West Papua province and neighbouring Papua province, was killed by Indonesian security services, setting off a series of riots and violent clashes in the area.  In another incident, a police officer was stabbed to death and another injured after their motorcycle struck a Papuan child.  All told, more than a dozen people were killed over the course of a month, and the widespread tensions between the government and Papuan civilians have yet to abate.

In addition to being home to this simmering conflict, the region is also extremely rich in mineral resources.  The world’s largest gold mine and third largest copper mine is in Papua, a project majority owned by an Indonesian subsidiary of Freeport-McMoRan.  The presence of this mineral wealth is important to understanding the tensions.  Papuans claim they deserve a greater share of the area’s mining revenues.  The government will go to great lengths to maintain their authority over the resource-rich region that contributes so greatly to the country’s economy.

The Papua dispute is far from unique in the world.  Local populations in many countries demand greater benefits from natural resource projects.  But Papua differs from most other similar situations for two main reasons.  First, the pro-independence movement extends back to the region’s incorporation into Indonesia in the 1960s, and the movement’s anti-government grievances run well beyond disputes over allocation of resource wealth.  Secondly, the region’s inhabitants are largely ethnically distinct from the dominant groups in the rest of Indonesia.  These two factors suggest deep divisions that cannot be resolved by any short-term solutions.  Indeed, lasting reform will be required for the conflict to truly be put to rest.

The government appears anxious to encourage the belief that such reform is possible.  The same television ad that highlights Indonesia’s political stability also touts its ‘reform-minded’ qualities.  This message is certainly aimed at easing investors’ concerns, but the message is also directed at foreign governments and international organisations.  As Indonesia’s government knows, shaping the perception of the conflict in London, Washington, Canberra, and New York can have major impacts on the country’s status as an investment destination.  And this is perhaps the greatest risk for foreign investors.  Condemnation of the government’s handling of the Papua crisis has thus far been relatively muted.  If a critical mass of international opposition to the government’s actions is reached, however, businesses operating in Indonesia may find themselves facing new pressures and new challenges.