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RI to follow Russian model to establish sovereign wealth fund
Indonesia will follow Russia’s model to establish the sovereign wealth fund announced by President Joko “Jokowi” Widodo during his visit to the United Arab Emirates (UAE) in mid-January, a top ministry official has said
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ndonesia will follow Russia’s model to establish the sovereign wealth fund announced by President Joko “Jokowi” Widodo during his visit to the United Arab Emirates (UAE) in mid-January, a top ministry official has said.
Deputy State-Owned Enterprises (SOE) Minister Kartika “Tiko” Wirjoatmodjo said the fund would be different from the sovereign wealth funds of developed countries, like the United States or Norway, as Indonesia’s version would raise the required funds from private investors instead of from the country’s reserve funds.
“In countries with budget surpluses, the sovereign fund is used to invest in overseas projects, but ours will be similar to the Russian Direct Investment Fund [RDIF] and will be used as a catalyst for attracting direct investment into the country,” he said on the sidelines of the Mandiri Investment Forum 2020 in Jakarta on Wednesday.
According to the RDIF’s website, the fund has invested and committed 1.7 trillion rubles (US$26.85 billion), of which 1.6 trillion rubles came from coinvestors, partners and banks. It has also attracted over $40 billion in foreign capital into the Russian economy through long-term strategic partnerships since its establishment in 2011.
Tiko said the SOE Ministry would provide suggestions and advice on the projects that would be financed by the planned sovereign fund.
“We will provide suggestions on the business framework for the fund, which will be directly overseen by the Finance Ministry,” he said.
Tiko added that the sovereign wealth fund would be established as a sui generis institution, meaning it will be an independent institution similar to the Indonesia Eximbank.
Through the fund, investors will act as anchor investors for entire projects or as coinvestors for specific projects in a range of fields, including infrastructure, energy and resources, health care, tourism and technology, he said.
The fund, alongside the partners, will then be directed to finance both greenfield and brownfield projects. They will also be directed to invest in recycling projects in the future.
“We will also direct investments toward the construction of the new capital city,” he said.
The sovereign wealth fund’s establishment will be regulated through the much-anticipated omnibus bill on job creation, which will soon be submitted by the government to the House of Representatives for approval. The bill is seen as essential to support the government’s efforts to attract investment to fuel the country’s sluggish economic growth.
During his meeting with Abu Dhabi's Crown Prince Sheikh Mohammad bin Zayed Al Nahyan in Abu Dhabi on Jan. 12, Jokowi unveiled his plan to establish the sovereign wealth fund, which will be used to pool investment funds from a number of countries including the UAE. The President expressed hope the fund could attract at least $20 billion in foreign investment.
Center of Reform on Economics (CORE) Indonesia economist Piter Abdullah said on Friday that he was optimistic foreign investors would be enticed by the fund, as it would act as a “special channel” to facilitate foreign investment.
“Foreign investment will be channeled through the planned fund and the [fund managers] will decide how to use the money,” he told The Jakarta Post via text message. “This means that investors don’t need to take care of land acquisition or other licensing process.”
Although the government has yet to submit the draft omnibus bill to the House, Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan said on Jan. 13 that several investors had shown interest in investing in the fund, such as the UAE, Japanese conglomerate SoftBank Group and the International Development Finance Corporation (IDFC) of the US. He added that there was potential for other parties to join the fund.
The UAE government has prepared $6.8 billion to invest in Indonesia’s development projects, while the IDFC has pledged to invest $5.5 billion. SoftBank Group, meanwhile, has offered up to $40 billion in investments for the development of the country’s new capital city.
Despite the potential, Piter said the government needed to be accountable by following good corporate governance principles and ensuring transparency in order to prevent the kind of mismanagement and fraud that marred Malaysia’s sovereign wealth fund managed by 1Malaysia Development Board (1MDB).
The fund has been in the spotlight following alleged money laundering and financial fraud involving Malaysian businessman Jho Low and former prime minister Najib Razak.
“I also believe we can prevent this from happening so long as the Corruption Eradication Commission [KPK] is functioning properly,” said Piter.
