Arcelor Mittal $8 billion Indonesian deal goes sour

Posted by: Frederik Balfour on May 5, 2009

We rarely write about Indonesia in the Eye on Asia blog, and when we do, it’s usually prompted by bad news. Well, today’s posting will continue in that tradition I’m afraid, because there have been two unfortunate developments so far this week: the arrest of the country’s head of anticorruption agency as part of a murder investigation, and the suspension of a potential steel and mining investment worth a $8 billion by steel giant Arcelor Mittal.

The arrest of graft fighter Antasari Azhar, chairman of the independent Corruption Eradication Commission, known as KPK is a major blow for incumbent president Susilo Bambang Yudhoyono. Though he has only been detained so far as a witness, his detention will be a setback for the agency which in recent years has made significant progress in fighting corruption. Indonesia currently places 126th on Transparency International’s list of most corrupt countries, with first place indicating the lowest level of corruption.

There are many theories on his possible involvement in the murder of pharmaceutical company director who was shot near a golf course. Samotalis, a blog which promotes good governance, democracy and transparency suggests the slain victim and Azhar may have been part of a love triangle involving a female golf caddy. A more prosaic possibility is that the victim had been a witness in one of the PKP’s investigations.

The Arcelor Mittal deal is potentially a bigger blow to the Indonesian economy, which has had trouble attracting foreign investment in recent years because of its labyrinthine bureaucracy, opaque judiciary, and investment laws which have become increasingly protectionist in recent years. Indonesia is a resource-rich country that lacks sufficient capital to get minerals out of the ground, and the Indian steel maker’s project would have given Indonesia a much-needed boost, as well as send a strong signal that the country is truly open for business. Arcelor Mittal suspended the project to build a steel plant and invest in an iron ore mine because of the economic downturn which has sent steel and metal prices plunging. However had Indonesia been more accommodating during negotiations which involved the purchase of a struggling state-owned steel maker Krakatau Steel, the deal first mooted a year ago might have already gone ahead by now.

Reader Comments

tonystark2201

May 7, 2009 2:07 AM

The indonesian government would have never approved the sale of a state owned company anyway, its too much of a strategic risk to let it go to foreign hands, no matter the efficiency and GCG that they will bring to the company.

In the past corrupt officials have been getting rich of the sale of state assets, that was another factor that mitigated the move, SBY (the current president) would have lost his job in the coming election if that had gone through.

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