Four years ago, when Indonesian President Prabowo Subianto was Defense Minister under then-President Joko Widodo (Jokowi), Indonesia created its first state-run investment fund, the Indonesia Investment Authority (INA). President Jokowi directed the INA to invest in priority sectors – transportation, logistics, healthcare, green energy, and the digital economy.
A major reason for creating INA was to alleviate investor uncertainty, which has long been a huge barrier to foreign direct investment thanks largely due to an unfriendly regulatory structure. To overcome investor hesitancy, INA’s mission was to foster partnerships with foreign investors in priority sectors.
The INA was initially seeded with $5 billion in state capital, most of which went into interest-bearing bank deposits and government bonds. About $1.7 billion of the total was in cash, while the other $3.3 billion consisted of shares in two state-owned banks, Bank Mandiri and Bank Rakyat Indonesia.
By 2023, INA’s value had grown to $7.3 billion, with a net profit of $269 million. Because Indonesia’s banking sector is seeing strong growth, the value of INA’s shares in the two banks rose by $1.4 billion in just two years.
One of INA’s first projects was creating sub-holding companies that invested in telecom tower operator Mitratel and state-owned pharmaceutical company Kimia Farma. But most of INA’s activity has been from other sub-holding companies that acquired stakes in several toll roads in Java and Sumatra. INA is akin to a sovereign wealth fund but is more of a co-investment fund designed to attract foreign capital to help grow key parts of the national economy.
Perhaps that is why President Prabowo decided to launch a true sovereign wealth fund to take charge of key state-owned enterprises. The Danantara Investment Management Agency intends to maximize dividends, increase investment opportunities, and attract global investors while seeking to assuage concerns over potential political interference.
Initially, Danantara will manage assets totaling about US$572 billion, far surpassing the minimum capital requirement specified in the nation’s amended SOE law. Prabowo is seeding Danantara with an initial fund of US$20 billion garnered from budget cuts across ministries and state agencies as part of his austerity measures.
While on a five-nation tour to boost bilateral ties, President Prabowo announced that Qatar will place US$2 billion into Danantara. The announcement came after a “productive” meeting with Sheikh Tamim bin Hamad Al-Thani, the Emir of Qatar.
Danantara is a vehicle to consolidate SOE assets and investments as part of President Prabowo’s vision that SOEs should generate their own funding rather than rely on state subsidies. Their profits can then be used to accelerate investment and grow the economy. This centralizing assets under a single holding marks a major shift in how Indonesia manages SOEs.
Danantara, an aggregate of daya (energy or strength), anagata (future), and Nusantara (the Indonesian homeland), was enacted into law in February and formally launched in March. The “super holding” will manage seven state-owned enterprises (SOEs) its initial stage – a major shift in how Indonesia manages SOEs.
These include PT Pertamina (oil and gas), PT Mineral Industri Indonesia (MIND ID) (mining), PT PLN (electricity), PT Telekom Indonesia (Tbk) (telecommunications), PT Bank Rakyat Indonesia (BRI) (microfinance and small- to medium-sized business banking), PT Bank Negara Indonesia Tbk (BNI) (commercial banking), and PT Bank Mandiri (Indonesia’s largest state-owned bank by assets).
It should be noted that Indonesia's private sector is also budding - Take Paragon Corp., the nation's largest cosmetics manufacturer - As the company begins to roll out its diverse product portfolio, internationally, it stewards an industry valued at approximately USD 1.94 billion, marking a significant increase from USD 1.31 billion in 2021—a 48% growth over three years.
Danantara will ultimately form a holding company to oversee state companies' operations and an investment arm. Investment Minister Rosan Roeslani, a former businessman who led Indonesian investment firm Recapital Group, will serve as Danantara's chief executive, while Pandu Sjahrir, managing partner at asset management firm Indies Capital and founding partner of venture fund AC Ventures, will head Danantara's investment arm.
For the time being, the Indonesia Investment Authority (INA) will operate separately from Danantara. But it is expected that INA will be folded into Danantara as part of President Prabowo’s broader consolidation strategy, which is inspired by Singapore’s investment model.
Danantara’s primary mission will be to invest in Indonesia’s natural resources and assets to support sustainable and high-impact projects in renewable energy, advanced manufacturing, downstream industries, food production, and food security. If the merger with INA is completed, Danantara would also focus on attracting foreign investors to co-invest with the SOEs.
If all goes well, this massive undertaking will foster streamlining of asset management, boost investment returns, and attract global capital to help Indonesia meet its growth milestones. The success of Danantara, however, will require transparency, accountability, and strong oversight to ensure stability and investor confidence – often a challenge for sovereign wealth funds.
Temasek, Singapore’s state-owned investment fund, has grown from its creation in the 1970s to manage a portfolio worth hundreds of billions of dollars. State-owned investment funds have also been a staple of Malaysia’s economy for many decades. The Philippines just created its own state-owned investment vehicle, the Maharika Wealth Fund, which is preparing to make its first investment later this year.
Malaysia and Singapore, which have long histories of trade surpluses, have used their sovereign wealth funds manage the resulting large foreign exchange reserves in the public interest. The Philippines and Indonesia, however, have often run trade deficits (importing more than they export) that have made it more difficult for them to accumulate reserves through exports. That is why Indonesia is relying on its profitable SOEs to provide a sound capital structure.
There are inherent risks in any venture that can impact even the strongest sovereign wealth funds. Norway’s Norges Bank Investment Management, the world’s largest, just reported a first-quarter loss of US$40 billion, citing weakness in the tech sector as the cause. About 70% of the fund’s investment is in equities, an asset class for which it recorded a loss of 1.6% for the quarter.
Despite student-led concerns about possible mismanagement of the fund, President Prabowo insists that Danantara will be “a strategic and efficient solution to optimize state-owned enterprises.” Indonesia, he says, is not only investing state companies’ dividend payments into industries that support long-term growth, but “we will also transform our state companies to become world leaders in their respective sectors.”
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