Panicked Investors Should Give Indonesia A Second Look

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Indonesia has just pulled off something rare in global finance: it has named serious, heavyweight figures to the advisory board of its new US$900 billion sovereign wealth fund, Danantara.
Yet, despite the caliber of the appointments-Ray Dalio, Jeffrey Sachs and others-markets reacted with sharp skepticism. Jakarta's benchmark index fell by as much as 4.7%. That's not just a surprising reaction. it's a mistake.
These appointments should be seen for what they are: an encouraging sign that Indonesia is serious about professionalizing and globalizing its approach to sovereign wealth. Investors worldwide ought to welcome this development-not recoil from it.
Ray Dalio is one of the most respected investors of our time. Jeffrey Sachs has spent decades advising governments on sustainable development and sustainable economic policy. Both have signed up as unpaid advisors.
This alone speaks volumes about the seriousness of the mission and the stature of the initiative. It's a clear sign that Indonesia wants world-class thinking and isn't afraid to be held accountable by those who operate at the highest level.
There should be more of this across Asia. The region is home to several state-linked funds and conglomerates that are ripe for reform-but too few have made credible efforts to embrace transparency or international oversight. Indonesia's move is a model worth replicating.
Of course, the market's unease is rooted in genuine questions. Danantara, created by President Prabowo Subianto and launched in February, consolidates state-owned enterprise (SOE) assets and reroutes their dividends-$5.4 billion last year-away from the national budget and into the fund.
It's a big shift in fiscal policy. It also puts immense power in the hands of the president, who will directly oversee the fund. Investors are right to be alert to any signs of overreach or opacity, particularly in a region that birthed Malaysia's 1MDB state development fund, characterized by some as the biggest heist in financial history.
But to assume from day one that this effort is doomed or dangerous is to misread the bigger picture. Indonesia is confronting two structural economic challenges. First, its SOEs-sprawling, cash-generating giants in banking, energy and telecoms-are under-optimized.
With over $900 billion in assets, they're too important to remain fragmented and politically tethered. Second, the country faces a slowing economy and budget pressures, exacerbated by new spending commitments like Prabowo's $28 billion annual free lunch program. These are real concerns.
Danantara is designed to address both. Consolidating SOEs allows for more coordinated investment, particularly in critical industries like minerals, AI, energy and food security.