Indonesia pitches its plan to leverage natural resources as a model for other developing nations
4 min
A few years ago, Indonesia set out to turn its treasure trove of nickel into an electric-car manufacturing boom.
It imposed a sweeping ban on the export of raw nickel. That meant that companies wanting to tap the world’s largest source of the mineral—used in the most powerful type of EV batteries—would have to build smelters in Indonesia. Officials bet that factories to make EV batteries and entire electric cars would also follow, spawning end-to-end supply chains close to the mineral bounty.
The smelters came, and Indonesia’s nickel industry witnessed explosive growth. But powering it is a coal binge that is throwing off the country’s climate goals. And Indonesians are still waiting for EV makers to lay down production lines.
As President Joko Widodo prepares to leave office this year after a decade—the most he can serve—he is exhorting his potential successors to stick with the policy that is at the centre of his economic legacy. Indonesia holds presidential elections on Feb. 14, and a new leader will take charge in October.
Widodo has cast his plan, referred to in economist-speak as downstreaming, as the answer to the question of how Indonesia will become a rich nation. He says the country is reversing a 400-year pattern dating back to colonial times of being exploited for its natural resources and getting little in return. He has prodded other developing nations to follow its lead.
Last year, officials escorted delegations from mineral-rich Papua New Guinea and the Democratic Republic of Congo to one of Indonesia’s largest nickel industrial parks to show them the scale of Indonesia’s achievements. New Chinese-built smelters dot the archipelago. The value of Indonesia’s nickel exports is up four times since 2019 to around $33 billion.
Not everyone believes the silver metal is a silver bullet.
Nickel smelters have led to a surge in coal use, with new coal plants coming up at a time when the world is trying to phase out the fossil fuel. A January report by Climate Rights International, a U.S. environmental group, said that a single nickel-focused industrial park located on eastern Indonesia’s Maluku islands will burn more coal than Spain or Brazil when it is fully operational.
“We are sacrificing the environment and society, while at the same time getting limited profits for the country,” Muhaimin Iskandar, a vice-presidential candidate in the coming election, said during a televised debate with his political opponents.
Other candidates have pledged to carry forward the president’s nickel policies, including the front-runner for president, Prabowo Subianto, who has said it is much better to export electric-vehicle batteries than raw nickel.
The “dirty nickel” reputation is threatening the very economic opportunities Indonesia covets. In October, nine U.S. senators signed a letter opposing a proposed free-trade agreement to source critical minerals from Indonesia, citing environmental and safety concerns. Without a free-trade deal, EV batteries with substantial quantities of Indonesia-processed nickel won’t be eligible for a major U.S. tax credit.
That makes the country’s nickel less attractive to Western EV makers, who are already battling questions from green groups about the environmental fallout of the country’s sprawling nickel operations.
In a sign of the growing unease, a deputy director for batteries and critical materials at the U.S. Energy Department, Ashley Zumwalt-Forbes, voiced concern in a LinkedIn post last month about what she called the grip of dirty Indonesian nickel on the market. Indonesia accounts for half the global nickel supply, up from a quarter in 2018.
The problems with nickel are also pushing EV makers to rework car batteries and go nickel-free. A lithium-iron-phosphate alternative is gaining traction, though it remains less powerful than batteries containing nickel.
Then there is the question of whether the policy is taking Indonesia toward Widodo’s goal of downstreaming—that is, a shift to higher-value manufacturing. Widodo has long said the endgame isn’t localising nickel processing but rather attracting EV and battery factories. Anything less, he says, could put Indonesia on the same track as some commodity-rich Latin American economies that have languished.
But so far, EV makers haven’t rushed into Indonesia. Tesla, which Widodo has assiduously courted, including on a 2022 trip to Texas to meet with founder Elon Musk, hasn’t shown any signs it plans to set up a factory in the country. No other Western automakers have built EV factories either, though General Motors has a stake in one China-based automaker producing electric cars in Indonesia. Some, like Ford, have made deals to tie up nickel supply.
Korean automaker Hyundai has since 2021 operated one of Indonesia’s only EV factories, focused on the domestic market. The unit can produce 150,000 vehicles a year, but made fewer than 9,500 in 2022 and 2023. Hyundai and Korea’s LG expect to begin producing battery cells at a plant in West Java this year.
Automakers generally look to set up battery and EV plants in the markets where people are already buying electric cars. That puts Indonesia, where few consumers have switched from combustion-engine vehicles, at a disadvantage. The country has a limited charging network and gasoline is heavily subsidised.
Indonesian policymakers who believe the country’s nickel bounty gives it leverage over carmakers are mistaken, said Tom Lembong, a former trade minister under Widodo. He pointed to the growth of nickel-free batteries as a warning against betting big on nickel.
Lembong, who is advising presidential candidate Anies Baswedan—whose ticket advocates focusing on promoting labor-intensive industries—said Indonesia has made limited progress moving up the value chain.
“The irony about this is they call it downstreaming, but we’re still very upstream,” he said.
Septian Hario Seto, a senior Indonesian official involved in nickel policymaking, acknowledged that EV battery and car factories have been slower to come than nickel smelters. The government has brought new regulations to address that, he said, such as one that makes it easier for EV makers to import cars into Indonesia on the condition they later build a factory.
Last month, Chinese EV giant BYD said it would begin car sales in Indonesia, and break ground on a manufacturing unit later this year.
Overall, Seto said the nickel policy has been successful, boosting economic growth in less-developed eastern regions where the nickel is found, and providing jobs and tax revenue. The government has taken steps to limit environmental degradation, such as by banning companies from jettisoning mining waste into the ocean, and will try to bring hydropower projects online as an alternative to coal, he said.
Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics in Washington, D.C., said there are two ways to assess Indonesia’s industrial policy.
“It’s been successful at driving foreign investment and building nickel processing capacity,” he said. “So far it hasn’t achieved the fully integrated mine-to-EV battery assembly to which it aspires.”
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
