Indonesia’s resource nationalism may be aimed at lifting rupiah as well as widening tax base

President Prabowo Subianto recently announced plans to channel all of Indonesia’s “strategic” commodity exports through DSI, a new company set up by the sovereign-wealth fund. The move has unsettled foreign investors as well as Indonesia’s own mining and agricultural sectors.

Starting with #coal, ferroalloys and palm oil, DSI would control close to 40% of the nation’s export value. The government has said DSI is aimed at gaining bargaining power with buyers, as well as curbing “under-invoicing” that lets companies book profits in lower-tax jurisdictions. The new DSI plan is also widely seen as a way for Prabowo to widen the tax base.

The move can also be read as an attempt to defend the currency, which has been trading near record lows – in part on concern about Prabowo’s spending plans. The central bank has been selling reserves and raising rates to shore up the rupiah, but reliance on foreign inflows and the central bank to maintain the balance of payments will likely keep the currency volatile.