New Indonesia Fund Rings Early Alarm Bells On Prabowo

However, the sudden announcement that this idea would be put into practice still caught many by surprise. With Thohir, a billionaire and powerful political operator, reappointed to the position he had held under President Joko Widodo, many assumed he would continue to play a powerful role in consolidating and rationalizing the SOE sector under Prabowo.

The announcement of an apparently parallel organization, with scant details about its remit, has thrown all this into doubt. As late as November 4, Thohir still seemed out of the loop on Danantara.“I don't know exactly. I'm just preparing the office,” he replied when asked by reporters whether the new holding company would be inaugurated on November 8.

Control over SOEs is a particularly powerful position in Indonesia. In 2023, SOEs controlled US$671 billion in assets, equivalent to 48.9% of the country's gross domestic product (GDP), in sectors spanning energy, mining, finance, agriculture and construction.

In addition to running big businesses in key sectors, Indonesia's SOEs carry out government policies as varied as distributing subsidized fuel and food, to building new infrastructure projects, to making micro-loans to the poor. Their power to appoint people to plum positions and distribute contracts also make them a rich source of patronage.

So what's likely behind Danatara's creation? Muliaman Hadad, who will head Danantara and formerly served as chair of Indonesia's financial services authority, invoked both Singapore's Temasek and Indonesia's INA as models for the fund in recent comments to the press.

While these adopt very different strategies – the former investing heavily in overseas assets plus a few strategic Singaporean companies and the latter more focused on co-investing with big foreign funds in Indonesian infrastructure – the analogies seem designed to reassure markets. Both Temasek and INA are respected institutions known for good governance and technocratic management.

However, initial reports plus information from various sources suggest Danantara may turn out to be something rather different. Reporting by Katadata suggests that Danantara will control Indonesia's seven SOEs that are currently the largest dividend contributors.

These include three big state-owned banks, namely Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia, monopoly electricity distributor PLN, oil and gas giant Pertamina, telecoms conglomerate Telkom Indonesia and mining giant MIND ID.

There are also reported plans to merge the respected INA into Danantara, making for a potential culture clash of bureaucrats and private professionals. The INA currently holds shares in Bank Mandiri and Bank Rakyat Indonesia, and has also invested in a portfolio of private companies and SOEs concentrated in infrastructure.

Some special investment vehicles under the Ministry of Finance's control, including perhaps Indonesia Infrastructure Guarantee Fund (IIGF) and Indonesia Infrastructure Financing (IIF), may also come under Danantara's control.

The result, some investors and analysts fear, is that the new super-holding company will represent yet another layer of bureaucracy and special interests to navigate and placate. There are also concerns the new entity could jeopardize partnerships INA currently has with many large global investment, pension and sovereign funds.

Moreover, Hadad's appointment to head Danantara has raised certain concerns about the body's governance.

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That's because Hadad served as deputy to Burhanuddin when as Bank of Indonesia governor the latter oversaw payments of some $10 million to members of parliament and covered the legal fees for ex-senior central BI officials who faced corruption charges.

One of those officials assisted in this way was Sudrajad Dwjiwandono – Prabowo's brother-in-law. Burhannudin was later convicted and sentenced to five years in prison for his actions.

There are already several signs Prabowo is keen to install loyalists in key positions across the SOE sector.

On November 5, it was announced that Simon Aloysius Mantiri, a member of Prabowo's Gerindra party and deputy treasurer of his presidential campaign, would be the new CEO of the state-owned oil and gas giant Pertamina.

Greater presidential control over SOEs via Danantara would facilitate more political appointments of this ilk, critics say.

Prabowo earlier moved to calm market concerns surrounding his robust spending plans and governance ahead by reappointing Indonesia's trusted finance minister, Sri Mulyani Indrawati, and by signaling he could trim funding for some signature policy promises.

That didn't address concerns about his big boat cabinet, the largest ever since the mid-1960s with some 48 ministers and 56 vice-ministers. The appointees are notably heavy on political party honchos and light on economic technocrats.

How markets will react to Danantara's creation is still unclear. But the sudden and, in many ways, suspect move so early in Prabowo's term could well reignite those market jitters in the days and weeks ahead as his vision for the fund becomes clearer.

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