Jakarta pledges $5bn to Indonesian sovereign wealth fund

The authorities in Jakarta are getting set to sink just over $5bn in the new Indonesian sovereign wealth fund that it hopes will attract a further $15bn from abroad. The funds will be used to help the country’s economy weather the effects of the coronavirus pandemic, improve its infrastructure and boost its healthcare, energy, tourism and technology sectors. Finance Minister Sri Mulyani Indrawati said that $2bn of the capital would be committed in cash, while the remainder would be in the form of shares in state-owned enterprises (SOEs) and other state assets.

Indonesian Finance Minister Sri Mulyani Indrawati

“The model of this sovereign wealth fund is a combination of development and stabilisation fund and we would use other international sovereign wealth funds as the standard for best practice,” she said. “We hope we can get reputable strategic partners so we can develop these assets to attract investment better.”

The  UAE, the Japanese Softbank conglomerate and the US-based International Development Finance Corporation (IFDC) have already been lined up to invest in the fund, according to officials.

Authorisation for the new Indonesian sovereign wealth fund – known officially as the Investment Authority Indonesia – was enshrined in the Omnibus Law on Job Creation that was given the seal of approval by the Indonesian House of Representatives earlier this month. The law was met with widespread protests and criticism from labor unions and civil groups over its potentially negative impact on labor rights and the environment, with thousands of workers and students protesting across the country as they joined in  a three-day national strike

Omnibus Law on Job CreationThe new law is intended in make doing business in Indonesia easier by reducing red tape, simplifying land acquisition processes, easing restrictions on foreign investment, loosening labor laws and providing more incentives to free-trade zones.

President Joko Widodo’s government hopes that the reforms will also allow Indonesia to capitalise on shifts in global manufacturing supply chains brought on by the current US-China trade war. This has prompted many multinationals to seek to diversify their supply chains away from China to elsewhere in Asia. While some have relocated their operations to Indonesia, the local business environment is acknowledged to have kept their numbers down.