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The establishment of Danantara, Indonesia’s new sovereign wealth fund (SWF), has sparked both optimism and scepticism. Modelled after successful SWFs like Singapore’s Temasek and Malaysia’s Khazanah, Danantara is expected to optimise the management of state-owned assets, drive economic growth, and enhance national welfare.
However, its potential impact on the governance of state-owned enterprises (SOEs) and the country’s future economic performances remains in question.
This article will discuss the potential impact of Danantara’s establishment, focusing on its governance effectiveness, its influence on the state budget, and the implications for the national economy.
In my view, while the promise of greater efficiency and investment potential is enticing, Danantara’s success will hinge on transparency, good governance, and insulation from political interference. Given Indonesia’s track record, achieving these objectives will not be easy.
What is Danantara and what does it do?
Danantara, short for Daya Anagata Nusantara (‘Future Power of Indonesia’), is designed as a unique entity to consolidate and leverage state assets to create a more efficient investment vehicle.
This strategy involves aggregating assets from various state-owned enterprises, special mission vehicles (SWV) or other businesses entities, like PT Sarana Multi Infrastructure and the country’s first sovereign wealth fund, the Indonesian Investment Authority (INA). Aggregating them is intended to allow them to be used more strategically.
By consolidating these assets, Danantara aims to amplify their value through financial leveraging and optimised management, so it can serve as an economic engine alongside the state budget. The government envisions Danantara as an alternative funding mechanism to accelerate economic growth, ensuring that public spending remains focused on essential social and infrastructure projects.
For the initial stage, Danantara will consolidate Indonesia’s so-called ‘Magnificent Seven’ SOEs: PT Bank Mandiri, PT Bank Rakyat Indonesia (BRI), PT Bank Negara Indonesia (BNI), state energy company Pertamina, state electricity company PT PLN, state telecommunication company PT Telkom, and state mining holding company MIND ID.
Danantara’s initial funding is projected at USD 20 billion, sourced from the government’s recent tough budget cuts. It would eventually have about USD 900 billion in total assets under management, making it one of the world’s largest SWFs and propelling it to fourth place globally, ahead of Saudi Arabia and Singapore.
Danantara funds will be channelled to national priority sectors, including infrastructure development, food security, energy security, industrial downstreaming, import substitution industries, and digital transformation.
How Danantara will change SOE governance
The governance structure of Danantara places it directly under the president’s authority, with the Minister of State-Owned Enterprises (SOEs) serving as chair of its supervisory board. The fund’s operational management is entrusted to the Danantara Investment Management Agency (BPI Danantara).
This changes the role of Ministry of SOEs, which will no longer directly oversee SOEs’ operations, but will instead focus on regulation and policy making. This structure is intended to ensure professional management and reduce political interference. It aims to allow Danantara to deliver positive changes to the governance of SOEs by increasing professionalism and efficiency.
By focusing more on profitability, SOEs can become more competitive globally, particularly if high standards of transparency and accountability are upheld. Additionally, Danantara can provide greater access to global investments, allowing strategic investment partners to enhance the competitiveness of Indonesia’s SOEs in international markets.
However, Danantara’s current structure may not effectively address what are currently the three main problems of SOE governance in Indonesia: the principal-agent problem (different interests between the management of SOEs and the public as the owner of SOEs), soft budget constraints (a situation where SOEs expect a bailout for their overspending or inefficiency), and multiple objectives (SOEs not only aim to maximize profits but also strive to achieve other goals).
According to Law Number 1 of 2025 on State-Owned Enterprises, BPI Danantara is, as mentioned, under the authority of the president with its mandate delegated to the SOE minister. This means it is inherently tied to the government and political influence, which is not necessarily always in line with the interests of the public.
Meanwhile, the Ministry of Finance, beyond its supervisory role, regulates state capital participation and aids in rescuing struggling SOEs, ensuring losses are covered by state capital injections. While positioned as an investment vehicle, Danantara also serves to support government programs and economic growth.
This all means there are potential conflicts of authority between Danantara and the Ministry of SOEs, and even the Ministry of Finance. Without clear management, this industrial policies become complicated and hinder SOEs’ operational effectiveness.
Overall, Danantara’s structure merely adds another bureaucratic layer, exacerbating existing bureaucratic inefficiency. This could lead to a new form of “bureaucratic capitalism” where decision-making is slowed further by red tape and competing interests.
Boon or disaster for Indonesia’s economy?
Danantara’s impact on the state budget and economic growth carries both opportunities and risks.
On one hand, it has the potential to diversify national revenue sources, reducing dependence on taxes and SOE dividends. By minimising reliance on capital injections (PMN) from the state budget, the government can allocate more resources to social and infrastructure spending. Additionally, increased efficiency and profitability in SOEs can accelerate productive investments, fostering higher-quality economic growth.
On the other hand, there are significant short-term risks, such as potential losses in state revenue from SOE dividends, which now flow to Danantara. This could strain the state budget during the transition period. Given current limited fiscal space (that is, ability to finance non-discretionary expenditure) and economic growth stagnating at around five percent, Danantara will likely focus on domestic investments. This also presents risks as the targeted sectors—such as downstream industries, food and energy security, and import substitution industries—are still largely untested in terms of investment returns.
Moreover, the reliance on budget reallocation and efficiency measures for Danantara’s initial capital raises questions about its long-term sustainability and impact.
Other concerns include the possibility of failed investments and increasing debt load. Without stringent oversight, Danantara could fall into the same pitfalls as 1MDB in Malaysia, where misallocated funds and corruption led to a multi-billion-dollar scandal. If investments underperform, an excessive use of leverage (debt financing) could create long-term financial risks, leading to potential bailouts from state budget (APBN).
Overall, If Danantara is not managed effectively, rising debt and unprofitable investments could become new financial burdens, threatening not just SOEs but even Indonesia’s fiscal stability and the national economy’s growth prospects.
Public subsidies and essential services from SOEs could also be threatened if Danantara prioritises profit over social objectives. This could have negative implications for social welfare and public trust in the government, potentially leading to social unrest and political instability. The government should ensure that Danantara’s investments do not come at the expense of essential public services, and its funds should prioritise projects that contribute to social welfare and economic development.
Transparency and accountability needed
The establishment of Danantara has marked a significant step in restructuring and optimising Indonesia’s state assets. It has the potential to professionalise SOE management, attract global investment, and diversify state revenue, driving Indonesia’s economic growth. However, the risks of political interference, mismanagement, and short-term revenue loss cannot be ignored.
Danantara’s success hinges on strong governance, transparency, and independence from political interference. If managed properly, it could serve as an effective tool to boost investment and SOE efficiency. If not, it risks becoming a new fiscal burden and creating even greater problems for the Indonesian economy.
Given the high stakes involved, several strategic steps must be taken to ensure Danantara can achieve its objectives and does not become a liability for the state. These include strengthening transparency and accountability through regular public financial reports and independent audits, ensuring independent governance free from political interference, and focusing on market-based investment strategies.
Moreover, diversifying investment portfolios can mitigate risks and prevent overloading the state budget. Lastly, a balance between dividend distribution and reinvestment must be maintained to protect public interests.
