The mining industry in Indonesia is contracting due to declining investment and depletion of mineral reserves. Several major mines will close by 2005 with no new mines scheduled. Investors have been deterred by legal uncertainty, taxation issues, and threats to mining operations. Without reforms to the legal framework and investment incentives, the government will undermine its goals of regional development and prosperity by rejecting responsible mining investment and development. The government needs to create a transparent mining law with strong incentives to bring the industry back and encourage exploration of new resources.

1. Mining Industry
Overview
The mining industry is contracting and consolidating worldwide. As a result of this
contraction, there is less investment globally available for exploration and development.
In terms of global competitiveness, the attractiveness of the Indonesian mining sector has
plummeted relative to other mineral rich countries throughout the globe. (see appendix
for global comparison) Mineral reserves are being depleted and the state is not adhering
to its responsibility to further resource development. Five major mines in Indonesia will
close between now and 2005 with no new mines scheduled for start-up during that same
period. Indonesia needs to bear in mind that it has no competitive or economic
advantages by virtue of having rich mineral resources in the ground. It is only the manner
in which these resources are developed that will determine whether the country enhances
or even maintains the benefits derived from mining investment. The Government can
utilize the “god given wealth of the nation” as a tool for economic recovery but without
significant change, the mining industry is absolutely confident that there will be no new
investment because it will take at least a decade for regional governments to develop the
capacity to create an attractive mining investment regime.
Investors have been deterred from the mining sector for many reasons. Most major
mining operations are now the targets of a number of groups, who seek to destabilize or
undermine their operations. Most lenders refuse to lend to mining projects in Indonesia
based on country risk and vast legal uncertainty. Ambiguity as a result of decentralization
has made it impossible for the government to determine the process/procedures for
foreign direct investment. Additionally, there is a lack of transparency in current laws and
often times contradiction in laws and regulations passed by various ministries and
legislators. There is no functional mechanism for the government ministries involved in
regulating taxation, mining, and investment to communicate in order to make laws that
are consistent with one another. There is no means to provide feedback in the
development of new laws in a democratic process. Taxation is an additional problem as
VAT taxes and duty on the raw materials coupled with inability to recover VAT makes
products uncompetitive internationally and domestically.
Without thoughtful restructuring, the government of Indonesia is undermining its own
goals of bringing prosperity and empowerment into Indonesia’s regions. Indonesia should
strive to continue to develop the legal mining industry. The mining industry is one
whereby if a project develops in country it will be there with a long term commitment to
that area. Additionally, the legal mining projects bring about human resource
development and skills transfer, community development and environmental best
practices providing one of the largest multiplied effects of any type of investment.
Rejecting responsible development means an increase in the number of illegal companies
operating. These operators do not pay their taxes, do not look after the environment, and
to not practice community development. Regional equality is unlikely without the

2. development of the legal mining sector. Government leaders are ignoring the industry
which is best positioned to support new national and regional goals.
Objective: Create a framework that encourages legal mining. Provide an investment law
with sufficient incentives to bring the mining industry back to Indonesia and allow for
exploration of new resources for continued sustainability.
Position:
• Create a mining law that offers strong incentives for investment (exploration and
development)
• Government must communicate/consult with industry while it is devising new
laws and regulations
• Adhere to contractual obligations
• Create investment laws that can be understood by Indonesian and foreign
governments
• STOP illegal mining activity
• Encourage investors to explore and develop new mines.
• Eliminate uncompetitive transaction taxes on capital goods, operating materials
and support services, tax profits only.
For more information please contact: The Executive Director, American Chamber of
Commerce Indonesia, (62)(21) 562 2860 Fax (62) (21) 526 2861 or email
info@amcham.or.id