Danantara will consolidate seven major SOEs in the energy, mining, telecommunications and banking sectors. — The Jakarta Post
JAKARTA: Danantara, the nation’s newly established sovereign wealth fund, may end up stifling growth instead of fuelling it, analysts warn.
They pointed out that the way the government has structured the fund appears to make it a direct competitor of private companies, which could discourage them from making new investments.
The official introduction document of Danantara stated that the wealth fund is committed to optimising the role of state-owned enterprises (SOEs) as the backbone of national development.
That vision may contradict President Prabowo Subianto’s statements in the past calling for a bigger private sector role, as he championed their efficiency, innovation and expertise.
“I have said many times that the government will handle the important matters concerning the protection of the people, among other things. But what the private sector can do, the private sector must develop. “The private sector must do it all,” Prabowo said in January, stressing the “Indonesia Incorporated” concept.
Danantara was launched by the president on Monday, and it will consolidate seven major SOEs in the energy, mining, telecommunications and banking sectors, but the agency said SOEs are expected to join the fund by the end of March, cementing its position to manage US$900bil in assets.
Armed with US$20bil in initial capital, the president has envisioned Danantara as a driving force that will raise the country’s economic growth from 5.03% last year to 8% by 2029.
The fund is set to focus on a wide range of strategic sectors, from the downstream nickel, bauxite and copper industries to artificial intelligence data centres, oil refineries, petrochemicals, food production, aquaculture and renewable energy.
Riandy Laksono, a researcher at the Centre for Strategic and International Studies, cautioned that Danantara’s focus on domestic projects could trigger a “crowding out” effect, squeezing private players out of the competitive landscape.
“This could lead to a decline in overall investment,” Riandy warned during a media briefing on Tuesday.
With no real increase in government spending, he said, it would be hard to imagine how gross domestic product growth could jump by two or three percentage points, pointing to recent budget cuts ordered by Prabowo to fund Danantara’s establishment rather than stimulating the slowing economy.
He said that Danantara faces a dilemma: whether to dive into profitable ventures while potentially edging out the private sector or targeting less lucrative sectors and risk falling short of optimal returns.
“If Danantara ventures into profitable markets, it could repeat the mistakes of the previous administration, which over-leveraged construction SOEs, and pushed aside private players,” Riandy added.
Ronny P Sasmita, an economist at the Indonesia Strategic and Economic Action Institution, noted that President Prabowo’s decision to make ministers and government-affiliated individuals Danantara’s leaders has blurred the line between SOE regulators and operators. — The Jakarta Post/ANN
