Indonesia has launched a new sovereign wealth fund, Danantara, enlisting billionaire investor Ray Dalio and economist Jeffrey Sachs as advisers. Unveiled in February by President Prabowo Subianto, the fund consolidates state-owned enterprises (SOEs) valued at over $900 billion, aiming to drive economic growth through strategic investments.
Yet, its direct oversight by the president and the redirection of SOE dividends have triggered concerns about governance, transparency, and fiscal stability, unsettling investors and prompting a sharp stock market decline.
High-Profile Advisers and Management Team
Danantara’s advisory council boasts prominent figures, including Ray Dalio, founder of Bridgewater Associates, and Jeffrey Sachs, a distinguished economist who will serve without compensation and abstain from transactional involvement.
Joining them are Chapman Taylor, former equity portfolio manager at Capital Group, and Thaksin Shinawatra, ex-Prime Minister of Thailand. The steering committee features former Indonesian presidents Joko Widodo and Susilo Bambang Yudhoyono.
Chief Operating Officer Dony Oskaria, leading the management team, underscored that these appointments followed a meticulous selection process, aligning with Prabowo’s vision of a transparent and well-governed fund.
Ambitious Objectives and Investment Plans
Danantara targets a $20 billion investment in critical sectors mineral processing, artificial intelligence, energy, and food to bolster Indonesia’s economic development.
By unifying SOEs, including seven giants with assets worth $570 billion (about 40% of GDP) and four listed firms with a combined market cap exceeding $100 billion, the fund seeks to optimize state resources.
Prabowo has framed this overhaul as a catalyst for growth, funded partly through budget cuts, though the shift in dividend flows has raised eyebrows.
Governance and Transparency Concerns
Despite its lofty goals, Danantara’s structure has sparked alarm. Directly controlled by President Prabowo, the fund faces accusations of potential political interference.
The decision to channel SOE dividends previously a $5.4 billion annual contribution to the state budget into Danantara has intensified scrutiny over transparency and accountability.
These governance gaps have fueled investor skepticism, casting a shadow over the fund’s credibility.
Stock Market Reacts Negatively
The Indonesian stock market mirrored this unease, with Jakarta’s benchmark index plunging as much as 4.7% after the announcement.
Charlie Linton, Asia-Pacific equity portfolio manager at Ninety One, pointed to the opaque governance framework and consolidation of listed SOE holdings as key drivers of foreign investor caution.
He noted that Prabowo’s populist policies mark a shift from the Widodo era, amplifying market jitters amid fears of an economic slowdown.
Fiscal Challenges and Budget Implications
The diversion of $5.4 billion in SOE dividends from the state budget to Danantara exacerbates Indonesia’s fiscal woes. With revenues already declining, this move widens an existing deficit, threatening the funding of major initiatives like Prabowo’s $28 billion annual plan for free lunches for schoolchildren and pregnant mothers.
The redirection underscores the tension between the fund’s ambitions and the government’s strained finances, raising questions about long-term sustainability.
Danantara positions Indonesia to leverage its $900 billion in state assets for economic advancement, backed by the expertise of advisers like Ray Dalio and Jeffrey Sachs. However, its success hinges on resolving governance and transparency issues that have rattled markets and investors.
With a fiscal deficit looming and populist promises at stake, the government must prioritize clear oversight and robust communication. If these hurdles are cleared, Danantara could emerge as a cornerstone of Indonesia’s economic future.
