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Omnibus bill provides legal certainty on Indonesia’s sovereign wealth fund
The omnibus bill on job creation mandates the establishment of an investment management agency to manage a sovereign wealth fund drawn from tax revenue and foreign investment that is intended to aid Indonesia’s development
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span>The omnibus bill on job creation mandates the establishment of an investment management agency to manage a sovereign wealth fund drawn from tax revenue and foreign investment that is intended to aid Indonesia’s development.
Chapter 10 on central government investment and national strategic projects in the bill mandates the establishment of a “special authority” agency led by the finance minister, a vehicle that President Joko “Jokowi” Widodo has described as a sovereign wealth fund.
“The finance minister, as the state treasurer, can invest in financial instruments, manage assets for investment, partner with trust funds, determine investment partners, give and accept loans and manage all assets,” Article 146 of the omnibus bill states.
The finance minister will lead the board of directors and the state-owned enterprises (SOEs) minister will act as a member of the board, Article 157 stipulates.
The investment management agency will also be led by five commissioners, three from a professional background, one from the Finance Ministry and another from the SOEs Ministry, according to Article 158.
Through the sovereign wealth 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, government officials have 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.
University of Indonesia rector Ari Kuncoro said the agency’s supervision must be conducted properly to avoid mismanagement, adding that it should be “below the President’s supervision”.
“This is about the trust foreign countries have in Indonesia, so it should be properly managed and able to generate profits,” Ari, who is also a senior economist, told The Jakarta Post in a phone interview. “The first rule is that the agency must be profitable by looking at safe investment options.”
Ari said safe investment options included infrastructure development and sovereign debt papers, adding that the agency should not invest funds in high-risk investments such as the stock market.
Economists have called on the government to prioritize good corporate governance to ensure transparency in the fund’s management. Some have raised concerns over the kind of mismanagement and fraud that marred Malaysia’s sovereign wealth fund managed by 1Malaysia Development Berhad (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.
According to the bill, the agency would be established as a sui generis institution, meaning it will be an independent institution similar to Indonesia Eximbank.
The agency will manage funds from state injections, SOEs assets, grants as well as other legitimate sources. According to the bill, the agency can partner with third party entities in managing assets, forming joint ventures or other partnership models.
The result of the investment, whether profit or loss, will be the agency’s responsibility, and the agency will need to deposit the profits into the country’s treasury fund, the bill states.
However, the agency would not be held responsible for investment losses, according to Article 160, if it could prove: It was not the agency’s fault; the agency had been careful with its investments; it did not have any conflicts of interest; or had taken measures to prevent the loss.
The government submitted the controversial omnibus bill on job creation to the House of Representatives last week with the goal of cutting regulatory red tape, attracting investment and stoking economic growth.
Deputy SOEs Minister Kartika “Tiko” Wirjoatmodjo has said the investment agency 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 in Jakarta on Feb. 5.
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.
Several investors have shown interest in investing in the fund, such as the United Arab Emirates, Japanese conglomerate SoftBank Group and the International Development Finance Corporation of the US.
