Bauxite and beyond: Indonesia's sovereign wealth fund 'Danantara' to invest $20B in key sectors

Indonesia has introduced a new sovereign wealth fund, Daya ‘Anagata Nusantara or Danantara’, with an initial commitment of US$20 billion. President Prabowo Subianto launched it last week. Danantara aims to serve as both an investment vehicle and a holding company for the country’s influential state-owned enterprises.

While it has the potential to boost Indonesia’s economy significantly, its success will depend on effective management and adherence to international standards.

Danantara will allocate $20 billion in its first investment round to more than 20 projects spanning bauxite, nickel, copper processing, artificial intelligence development, oil refineries, renewable energy, and food production.

The president made the announcement before an audience of hundreds, including foreign dignitaries, business leaders, and politicians.

The President committed to transparency in managing the fund, stating that Danantara would be open to audits at any time by anyone, as it belongs to the people. However, according to his spokesperson, Danantara will establish two entities: a holding company to oversee state-owned enterprises and an investment arm.

What is Sovereign Wealth Fund (SWF)?

As defined by the US Department of the Treasury, sovereign wealth funds (SWFs) are government investment funds (or pools of money) funded by foreign currency reserves but managed separately from official currency reserves which governments use to invest, typically in foreign companies. SWFs have gained prominence in the last five years because of the many high-profile investments made by the SWFs in China, Singapore, and the United Arab Emirates (Dubai and Abu Dhabi, in particular). For example, China's SWF has purchased equity holdings in Morgan Stanley and the Blackstone Group, Dubai's SWF has purchased shares of several Asian companies, including Sony, and Singapore's SWF has purchased shares in Global Crossing.

                                                                                         Source: https://uk.practicallaw.thomsonreuters.com/

Investment Minister Rosan Roeslani, formerly a businessman and the head of Indonesian investment firm Capital Group, will also take on the role of Chief Executive at Danantara. Meanwhile, Pandu Sjahrir, Managing Partner at asset management firm Indies Capital and Founding Partner of venture fund AC Ventures, has been appointed to lead Danantara’s investment division.

Rosan has confirmed that the Indonesia Investment Authority (INA) will operate independently from Danantara. According to its website, INA currently oversees assets worth $10.5 billion, including investments from co-investors such as Dutch pension fund APG Asset Management and the Abu Dhabi Investment Authority.

Meanwhile, Danantara will manage some of Indonesia’s most prominent state-owned enterprises, including leading banks Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia, state energy giant Pertamina, national utility company Perusahaan Listrik Negara, and telecommunications provider Telkom Indonesia.

Danantara would surpass Saudi Arabia and Singapore as the fourth-largest sovereign wealth fund in the world with its vast asset base.

However, analysts note that unlike Saudi Arabia and Singapore, Indonesia has consistently run a budget deficit. While Prabowo described the proposed transfer of state-owned enterprise (SOE) assets to fund Danantara as an "efficient solution," experts have raised concerns about potential transparency issues and the risk of mismanagement.

Image credit: The Jakarta Post