Indonesia Takes Xenophobic Turn

After a contentious and polarizing election season, Indonesia’s government appears to be taking a concerning turn toward economic nationalism and xenophobia. Recent signs point to policy shifts that could significantly impact the business climate and foreign investment in Southeast Asia’s largest economy.

Interior Minister Tito Karnavian recently sparked controversy when he called for a sweeping review of all expatriate workers in Indonesia, framing the issue as one of protecting domestic jobs. His comments came alongside suggestions that foreigners were potentially taking employment opportunities from local workers, a narrative that has gained traction in political circles since the heated election campaigns earlier this year.

This rhetoric represents a sharp departure from Indonesia’s previous welcoming stance toward foreign investment. Under President Joko “Jokowi” Widodo’s administration, the government had made significant strides in opening up the economy, streamlining business permits, and creating a more investor-friendly environment. These efforts had begun to bear fruit, with foreign direct investment reaching record levels in recent years.

Economic analysts warn that this nationalist pivot could have serious repercussions. Shinta Widjaja Kamdani, deputy chairwoman of the Indonesian Chamber of Commerce and Industry (KADIN), expressed concern that such statements create uncertainty among international investors at a critical time for Indonesia’s economic recovery.

“When senior government officials make such pronouncements, it sends troubling signals to the global business community,” Kamdani said. “Foreign expertise remains essential in many sectors where we still have skills gaps, particularly in technology and specialized industries.”

The timing is particularly problematic as Indonesia works to position itself as a key player in emerging industries like electric vehicle manufacturing and renewable energy. These sectors require significant technical expertise that often necessitates bringing in foreign specialists, at least initially.

Data from Indonesia’s Investment Coordinating Board (BKPM) shows that foreign direct investment accounted for approximately 48% of total investment in Indonesia last year, highlighting the importance of maintaining an open stance toward international capital. Several major projects, including nickel processing facilities in Sulawesi and automotive manufacturing expansions in Java, depend heavily on foreign investment and technical knowledge.

Market observers note that this isn’t the first time Indonesia has flirted with economic nationalism. Throughout its history, the country has oscillated between openness to global markets and protectionist policies. However, the current administration had previously been recognized for its pragmatic approach to economic policy.

The xenophobic rhetoric comes against a backdrop of broader regional competition for investment. Vietnam, Thailand, and Malaysia have all implemented aggressive incentive packages to attract multinational corporations, particularly those looking to diversify their supply chains away from China.

“Indonesia cannot afford to send mixed messages about its investment climate,” said Jusuf Wanandi, senior fellow at the Centre for Strategic and International Studies in Jakarta. “The global competition for capital is fierce, and investors have options.”

Labor market experts point out that foreign workers represent less than 0.1% of Indonesia’s total workforce, making concerns about job displacement largely unfounded. Most expatriate positions are in specialized roles that complement rather than compete with local employment.

The business community hopes this xenophobic rhetoric will prove temporary. Many point to Indonesia’s fundamental economic strengths – its large domestic market of 270 million people, abundant natural resources, and strategic location – as reasons for long-term optimism despite short-term policy fluctuations.

For now, investors are watching closely for concrete policy changes that might follow the nationalist rhetoric. Any substantial tightening of work permit regulations or additional barriers to foreign investment could undermine Indonesia’s ambitious economic growth targets and jeopardize its position in global value chains.

As Indonesia navigates this delicate balance between protecting domestic interests and remaining open to global capital, the government’s ability to maintain policy consistency will be crucial for the country’s economic trajectory in the coming years.