Prabowo's 'Audacious' Wealth Fund
A sovereign investment fund takes charge of Indonesia’s government assets
Since Indonesian President Prabowo Subianto on February 24 launched his massive sovereign wealth fund Danantara, theoretically to be worth US$900 billion by 2029, it has run into increasingly heavy going. Its CEO, Rosan Roeslani, last week had to bat down reports that its most illustrious adviser, Bridgewater Associates founder and CEO Ray Dalio, was backing away from a role on the advisory board. Dalio, the founder of Bridgewater Associates, denied he had dropped out although the offer has yet to be formally accepted. Prabowo reportedly personally offered Microsoft founder Bill Gates a seat on the board, but Gates is said to have declined.
Supposedl, Danantara has hit the ground running, reportedly considering a minority investment in the domestic PT GoTo Gojek Tokopedia, or GoTo, although later denied, which is planning a merger with the wildly successful Singapore-based Grab ride-hailing group, which has expanded into food and other deliveries and financial services while expanding across Southeast Asia. There are concerns over Danantara, a state institution, acting as both a regulator and minority operator, with the possibility that government-linked investment could discourage competitors.
“What began as cautious optimism has quickly evolved into a widespread public assumption that Danantara will underwrite Indonesia’s major development ambitions, from the new capital city project in Kalimantan, Nusantara, to the revival of struggling state-owned enterprises such as Garuda Indonesia,” cautioned an unsigned article in the May 8 Jakarta Post by Tenggara Strategics, a business and investment research and advisory institute.
When fully operational, Danantara, short for Daya Anagata Nusantara, is expected to revolutionize Indonesia’s government, managing the affairs of Indonesia’s 70-odd SOEs, which hold assets equivalent to 52 percent of GDP. They include the country’s three biggest banks and the national energy, national electricity, national telecommunications and national mining companies, as well as dozens of others that are money-losing and riddled with inefficiency and corruption.
“This phenomenon, now colloquially referred to as the ‘Danantara effect,’ reflects a dangerous overreliance on the fund,” said Tenggara Strategics. “Many, including policy analysts and academics, have suggested that the government could scale back investment allocations from the state budget, assuming Danantara will seamlessly shoulder the burden.”
The president launched the fund amid a blaze of publicity on February 24 with an initial injection of US$20 billion, projected to become a global concern resembling Singapore's Temasek Holdings, a behemoth with 14 offices in 10 countries around the world stretching from Beijing to London to New York to Mexico City and with a net portfolio approaching US$300 billion. But there are concerns that Danantara will end up more like Malaysia’s Khazanah Nasional, also one of the world’s largest sovereign wealth funds, into which the Malaysian government has repeatedly dumped nonperforming assets taken over to rescue cronies of governing political parties, such as the benighted and money-losing Malaysian Airline System, Renong Bhd, UEM, and many others. Khazanah delicately classifies them as “assets which require turnaround in terms of profitability and sustainable operating cash flows.”
Unfortunately, in what was hardly a vote of confidence, there has been a loud chorus of concern from independent media and investment analysts not only in Indonesia but across the region, including in the respected East Asia Forum, an analysis unit of the Crawford School of Public Policy at Australian National University, which has carried four articles urging restraint including one on May 29 which cautioned that “Danantara’s leadership is dominated by active politicians, handpicked by and reporting directly to Prabowo.” That carries the risk of “decision-making being driven by partisan interests rather than professional evaluation, heightening the risk of poorly vetted projects without proper due diligence,” the authors said.
International investment has been sinking steadily in Indonesia, with capital outflows reaching US$1.18 billion over the first six months of this year, as international investors pulled back over economic instability and the potential for political and social unrest, with the government beginning to look increasingly like Suharto’s military New Order.
GDP is predicted to remain steady at 4.7 percent by the World Bank and the IMF although the country faces challenges over government policies implemented without adequate risk mitigation that are undermining market trust and accelerating capital outflows. Prabowo’s government has had to reduce funding for essential public services including in elementary and higher education, health care spending, and delivered a huge 73 percent cut in spending for public works and infrastructure.
The cuts, along with Prabowo’s free nutritious meals program to feed 15 million children in 2025, projected to expand to 82.5 million recipients by 2029 at an estimated cost of Rp400 trillion (US$24.4 billion), have eroded public confidence and stampeded foreign investors. There have been two instances when the Jakarta Stock Exchange has fallen so sharply that trading had to be suspended briefly.
For those looking for reassurance, the Danantara structure includes a Supervisory Board and Steering Committee and an advisory board that, in addition to Dalio, is made up of economist Jeffrey Sachs, Blackstone alternative assets manager Helmut Sitohang – and former Thai Prime Minister Thaksin Shinawatra, who is regarded as more controversial.
The CEO, Roeslani, is a former official in the notorious Aburizal Bakrie corporate empire who played a major role in a muddy brouhaha when financier Nat Rothschild bought into what became the heavily indebted Bumi Coal, which loaned £310 million to businesses controlled by Roeslani. Rothschild ended up losing multiples of millions in what was called “one of the most reputationally damaging episodes in the City of London's recent history.”
The chief investment officer is Pandu Patria Sjahrir, who is closely tied to Luhut Binsar Pandjaitan, his uncle and chairman of Indonesia’s National Economic Council, raising concerns over potential conflicts of interest and lack of transparency surrounding the appointments of key personnel. Luhut is a retired four-star general considered to be one of the country’s most influential figures.
In fact, given the makeup of the board of directors, which includes Roeslani and Pandu, Chief Operating Officer Dony Oskaria, who played a key role in SOEs including Garuda Indonesia during Jokowi’s administration, and others, it is Prabowo’s baby unlike Temasek and Khazanah, which are independent of the government, even if Khazanah occasionally must do its “patriotic” duty.
There is also the question of what to do with the Indonesia Investment Authority, launched by the government under former President Joko Widodo in 2021 with a capital base of just US$10.5 billion to seek foreign investment into infrastructure, banking, and state-owned enterprises. Danantara could bigfoot the smaller IIA, with its much broader economic mandate to directly oversee SOEs, approve capital increases, and restructure the ailing SOEs through mergers, acquisitions, and spin-offs.
Revitalizing what historically have been underperforming and corruption-riddled state entities is theoretically in line with Prabowo’s ambitious economic agenda, which seeks to achieve 8 percent annual GDP growth during his five-year term, a figure that is at odds with projections by the IMF, the World Bank and the Asian Development Bank and Indonesia’s own current precarious economic picture.
“Danantara is an audacious move,” said a western businessman with extensive experience in Indonesia. “The problem is that all the talk about the US$900 billion is nonsense. Those are illiquid SOE assets. At most, they have SOE dividends of about US$5 billion. The consensus is that they will end up borrowing money to be able to invest. This is why people think it's basically lipstick on a pig.”