JAKARTA – Indonesia launched its new sovereign wealth fund Danantara on Feb 24, the latest initiative by President Prabowo Subianto to deliver on his ambitious economic growth target of 8 per cent within his first term.
Danantara, short for Daya Anagata Nusantara, will serve as an investment vehicle and holding company for state-owned entities (SOEs). It hopes to boost these companies’ roles in driving the national economy.
“Danantara is not just a mere institution that manages investment. It has to serve as an instrument that drives national development that will optimise our efforts in managing the wealth of our nation,” President Prabowo said in his speech to launch the fund at the presidential palace on Feb 24.
The SOEs that will be placed under Danantara are three banks – Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia – as well as state electricity utility Perusahaan Listrik Negara, oil and gas company Pertamina, Telkom Indonesia, and Mining Industry Indonesia, which owns gold, coal and nickel mines.
As such, Danantara would have about US$900 billion (S$1.2 trillion) in total assets under management, making it one of the world’s largest sovereign wealth funds and propelling it to fourth place globally, ahead of Saudi Arabia and Singapore.
The Straits Times understands that the Indonesian government may eventually include more than these seven SOEs under the aegis of the fund.
The launch comes amid nationwide student protests against Mr Prabowo’s recent budget cuts, also aimed at boosting economic growth by diverting government spending to other uses, such as injecting fresh funds into Danantara and the vaunted free-meals programme.
The Indonesian economy has been growing at an average of 5 per cent a year in the past decade.
The Prabowo administration’s 306.7 trillion rupiah (S$25.2 billion) of cuts in government spending, targeting ministries and government agencies, have sparked public outrage, with critics claiming vital sectors have been severely impacted.
In response to the backlash, the government has announced some policy reversals, including reinstating funds for scholarships and government contract workers.
“Danantara is a good idea but it must be implemented correctly so it would bring about benefits as expected and become a driver to the economy like (Singapore’s investment company) Temasek and (Malaysia’s sovereign fund) Khazanah,” said Dr Wijayanto Samirin, an economist at Paramadina University in Jakarta.
Critics have also questioned the new fund’s governance structure, and whether it can improve the SOEs’ performance in a business environment rife with red tape and corruption.
Danantara, with its full control over the selected SOEs, will report directly to Mr Prabowo. Its board members comprise former presidents, political allies close to the current administration and some influential names in business and finance.
They include Danantara’s chief executive Rosan Roeslani, who is also Investment Minister and Mr Prabowo’s campaign chief, and fund manager Pandu Sjahrir as chief operating officer. State-Owned Enterprises Minister Erick Thohir and other senior figures are also on the board of advisers.
Danantara will be the country’s second sovereign wealth fund after the Indonesia Investment Authority and will operate separately.
While consolidating the country’s SOEs, Danantara will also serve as a powerful catalyst to attract investment and fuel the nation’s ambitious growth trajectory.
To drive development in South-east Asia’s largest economy, as part of its first wave of investments, Danantara will allocate US$20 billion to fund 20 high-impact national projects.
The funds will be allocated to key sectors including downstream nickel, bauxite, copper, artificial intelligence, oil refineries, petrochemical plants, food production, aquaculture and renewable energy – programmes that are central to Mr Prabowo’s ambitious economic growth goals.
Dr Wijayanto told The Straits Times that the appointments of former presidents to the board create an impression that Danantara is more a political, rather than economic, venture.
“The installing of former Indonesian presidents in Datantara as supervisors or advisers would confirm that Danantara is a political endeavour,” he told ST.
Indonesia has also passed a law protecting Danantara’s directors from personal liability for the fund’s losses, provided they exercise reasonable care and decisions are made in good faith.
This law is aimed at encouraging business dynamism and expansion ideas, and reducing instances where chief executives of state firms have been prosecuted for pursuing business opportunities that resulted in financial losses.
- Wahyudi Soeriaatmadja has been Indonesia correspondent at The Straits Times since 2008, and is based in Jakarta.
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