A Tale of Two Funds

Jakarta bets big on Danantara to fuel its economic ambitions, but risks abound in Indonesia’s new sovereign gamble.

Indonesia’s government has just placed a bold wager with the House of Representatives approving the creation of Danantara, the country’s second sovereign wealth fund (SWF) in five years. While many resource-rich nations have SWFs to manage their windfalls, maintaining two parallel funds is an anomaly. The move signals President Prabowo Subianto’s ambition to supercharge Indonesia’s economic growth, yet it also raises pressing concerns about governance, legal oversight and the necessity of a second fund in a nation still grappling with fiscal constraints.

Danantara, an acronym for Daya Anagata Nusantara (the future power of Indonesia), is set to become a financial juggernaut. With an initial asset pool of approximately $600 billion sourced primarily from seven state-owned enterprises (SOEs), it could soon swell to nearly $1 trillion, making it the fourth-largest SWF globally. Its size will put it in the same league as Norway’s Government Pension Fund and China’s Investment Corporation.

Unlike INA, the Indonesia Investment Authority, which was established in 2020 to attract foreign investment, Danantara is designed to play a more active role in managing state assets. It will consolidate control over some of the country’s largest SOEs, including banking giants Bank Mandiri and Bank BRI, energy behemoth Pertamina, and telecom leader Telkom Indonesia. The government argues that streamlining the management of these enterprises will improve efficiency, but skeptics warn that such centralization carries risks.

President Prabowo has grand economic ambitions. He wants to push Indonesia’s GDP growth to 8 percent by the end of his term and fund large-scale initiatives like free school meals. However, his government faces a chronic fiscal deficit which is expected to widen further. Danantara, in theory, provides a mechanism to finance these goals without further burdening the state budget.

Yet the logic behind its creation remains murky. Indonesia already has an SWF in the form of INA, which was launched under Prabowo’s predecessor, Joko Widodo, with a mandate to attract foreign capital. Some officials have suggested that INA will eventually be folded into Danantara, though details remain unclear. If the objective is to improve management of state assets, why not expand INA’s scope rather than create a competing institution?

A more troubling concern is whether Danantara will function as a political tool. Unlike INA, which operates under the Finance Ministry, Danantara will report directly to the president. This raises fears that it could be used to advance political priorities rather than sound financial investments. Given Indonesia’s checkered history with corruption and mismanagement of state resources, placing an entity of this scale under direct presidential control could be a recipe for trouble.

Danantara’s creation was made possible through a controversial amendment to Indonesia’s 2003 Law on State-Owned Enterprises. The revised law grants Danantara sweeping powers, including the ability to merge or split SOEs and create new holding companies. Perhaps most alarmingly, it provides the fund with immunity from asset seizures by law enforcement agencies. This provision, while ostensibly aimed at protecting state assets from external claims, also raises concerns about a lack of accountability.

Indonesia is no stranger to scandals involving state funds. In the early 2000s, the Bank Indonesia Liquidity Support scandal saw over $13 billion in emergency bailout funds misused. More recently, the Jiwasraya scandal—a multibillion-dollar fraud involving the state-owned insurer—exposed deep vulnerabilities in financial oversight. Given these precedents, the idea of a trillion-dollar fund operating with limited legal scrutiny is cause for concern.

With parliamentary approval secured, Danantara is now a reality. The immediate challenge is securing its promised startup capital of $61.3 billion without diverting funds from other critical government programs.

Indonesia’s economic potential is undeniable. It is Southeast Asia’s largest economy, with vast natural resources and a growing middle class. However, economic ambition must be matched with institutional safeguards. Without clear legal boundaries and robust oversight, Danantara risks becoming an opaque financial behemoth.