With the creation of state-owned super holding company Danantara earlier this year, Indonesia now finds itself with not one, but two sovereign wealth funds. Why is this remarkable? Because state-owned investment funds like these are usually found in countries that have large financial reserves, generally because they are net exporters and run surpluses in their balance of trade.
A classic example would be Norway, which accumulated vast financial reserves over many decades because it is a small country that exports a lot of oil and gas. This surplus has been continually reinvested by a state-owned fund to generate returns for Norwegian citizens. That’s why they are called sovereign wealth funds, because they are managing the accumulated wealth of a country for the benefit of its citizens.
What’s remarkable about recent developments is that we are seeing sovereign wealth funds pop up in countries that are not big surplus countries and which don’t have vast accumulated reserves, like Indonesia. Many people were surprised when Indonesia announced it was launching its first sovereign wealth fund, the Indonesia Investment Authority (INA), a few years ago, because it was not clear exactly what sovereign wealth the fund would be managing.
And it turns out that’s because the INA is not a sovereign wealth fund in the conventional sense. It was capitalized with an initial injection of around $2 billion in cash from the state and $3 billion in shares from a pair of profitable state-owned banks. Sovereign wealth funds are not usually capitalized like this, and the whole project raises interesting questions about whether ownership in state-owned banks should be considered part of a country’s sovereign wealth. In any case, it was an innovative way to leverage some of Indonesia’s more profitable state-owned assets to get the fund up and running.
The other thing about the INA is that it doesn’t function like a typical investment fund, but more as a co-investment fund. The fund is primarily set up to partner with foreign investors looking to enter the Indonesian market with a focus on priority sectors like pharmaceuticals, logistics, transportation, and the digital economy. Because investors sometimes have doubts about the regulatory and business environment in Indonesia, having a partner like the INA is intended to provide reassurance and reduce uncertainty.
According to the latest Annual Report, in 2024, the INA and its partners invested $1.2 billion across a range of sectors. Of this, the INA contributed $352 million or 29 percent. Some of the bigger projects include a data center on the island of Batam being developed with Singapore’s DayOne, a joint venture with the UAE’s DPWorld to manage a new container terminal in Sumatra, and a strategic partnership with Global Infrastructure Partners, a BlackRock-owned fund looking to expand its footprint in Southeast Asian infrastructure. The INA has also helped facilitate significant investment from foreign partners in segments of the Trans-Java Toll Road.
Although the INA has only been around for a few years, its form and function as a state-owned co-investment fund have been snapping into sharper focus and it has been gradually building its profile in Indonesia’s wider political economy and investment ecosystem. The arrival of Danantara, a newer and much larger state-owned investment fund, adds an interesting twist.
Is there enough room in Indonesia for two state-owned investment funds, when just a few years ago there were none? Initially, there were indications the INA might come under the control of Danantara or be merged in some way, but I don’t believe that was included in the final legislation, and it appears for now the INA will continue to operate as a separate entity.
Based on what we know, there is no pressing reason why the two funds should be consolidated, as they have different mandates. The INA is geared toward boosting foreign financial inflows by pitching itself to strategic investors as a co-development partner. Danantara’s remit is broader and more focused on protecting and promoting the national interest through various mechanisms. Of course, Danantara is very new, so we can’t yet say for sure what its final form and function in the Indonesian economy will be. But at least in principle, these funds can be kept separate and deployed toward achieving different objectives.
Whatever ends up happening, the most remarkable thing about this is how it aligns with a broader trend, both inside and outside of Southeast Asia, where governments have become increasingly bold and inventive about leveraging the power of the state to intervene in markets. We see this with trade and industrial policy, but state-owned financial resources are also being leveraged and deployed in fascinating new ways. For better or worse, Indonesia finds itself in the vanguard of this movement with its two freshly minted state-owned investment funds.