Indonesia launched its new sovereign wealth fund, Danantara, on February 24, as a move by President Prabowo Subianto to meet his ambitious target of 8% economic growth in his first term. The fund, which has the official name Daya Anagata Nusantara, will be both an investment vehicle and a holding company for strategic state-owned enterprises (SOEs) to enhance their role in national development.
"Danantara is not simply an institution for investment management. It must be a vehicle that accelerates national development which will maximize our effort in managing the wealth of our nation," President Prabowo said at the official launching ceremony at the palace.
The fund will manage seven of Indonesia's largest SOEs, which are Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia, Perusahaan Listrik Negara, Pertamina, Telkom Indonesia, and Mining Industry Indonesia. These companies collectively account for around US$900 billion in assets, making Danantara the fourth-largest sovereign wealth fund in the world — beating Saudi Arabia and Singapore.
Government reports suggest that other SOEs could be merged into Danantara in the future, increasing its power further. Consolidation of assets by the fund should improve efficiency, draw foreign investment, and speed up Indonesia's economic growth.
The launch, however, coincides with increasing popular unhappiness. The recent 306.7 trillion rupiah (S$25.2 billion) in budget cuts — to reallocate cash to Danantara and a free-meal scheme — have triggered protests by students as well as outrage among the public. Critics complained that reductions in crucial sectors have undermined public services. The government has since rolled back some of the cuts, restoring funds for scholarships and contract workers.
Economists are optimistic about the fund but emphasize the need for good governance. "Danantara is a good concept, but it has to be executed properly so it would yield benefits as anticipated and become a booster to the economy like Temasek or Khazanah," said Paramadina University's Dr Wijayanto Samirin.
Issues have also been expressed regarding the governance of the fund. Danantara, having complete authority over the chosen SOEs, will be directly accountable to President Prabowo. Its board features high-profile political supporters, past presidents, and businesspeople. Notable figures are Rosan Roeslani, Investment Minister and campaign manager of Prabowo, who will head Danantara as CEO, and Pandu Sjahrir as COO. State-Owned Enterprises Minister Erick Thohir is also a member of the board of advisers.
In spite of the worries, Danantara's establishment is a turning point for Indonesia's economic policy. The fund will seek to emulate the success of sovereign wealth titans such as Singapore's Temasek and Malaysia's Khazanah, transforming Indonesia's enormous state holdings into growth drivers. It will be a separate entity from the current Indonesia Investment Authority, creating another layer in the country's changing financial landscape.
By consolidating state resources and increasing flows of investment, Danantara can become a force to be reckoned with for Indonesia's economic aspirations. The journey is sure to be difficult, but with proper management, the fund has the potential to be the key driver of bringing the country towards its growth horizon and making it a full-fledged economic power in the world.