But as history has shown, grand restructuring plans often come with unintended side effects. Will this be a true leap forward, or just a reshuffling of the same old deck?

The Business Judgment Rule is designed to empower SOE executives, protecting them from legal liability for decisions made in good faith. This principle, common in corporate governance globally, allows leaders to take bold, innovative steps without fear of criminalization. Complementing this is the formation of Holding Investasi, commonly referred to as Danantara, tasked with managing investments in several major SOEs, including Bank Mandiri, BRI, BNI, PLN, Pertamina, Telkom Indonesia, and MIND ID. Collectively, these entities hold assets worth approximately Rp 8.9 quadrillion (around $570 billion) in assets.

With an anticipated AUM of $982 billion, Danantara is expected to rival some of the world’s largest sovereign wealth funds, such as China Investment Corporation ($1.35 trillion) and UAE’s ADIA ($993 billion). This positions Danantara as a pivotal player in Indonesia’s economic transformation, with the potential to consolidate SOE management and optimize value creation at an unprecedented scale.

The promise of efficiency is clear, but as with any restructuring of this scale, the execution is where things get complicated. The government has signaled that Danantara’s role may eventually expand to encompass more SOEs, centralizing management of a broader portfolio over time. However, the SOEs Law does not mandate that all SOEs will immediately fall under its control.

While Danantara is expected to act as the executing agency, the SOEs Ministry retains supervisory power over key strategic decisions, including dividend policies, restructuring, and national strategic objectives. With two power centers pulling in different directions, the risk isn’t just confusion – it’s a system designed for second-guessing, where authority becomes a matter of interpretation rather than execution.

While these reforms promise efficiency, they also collide with Indonesia’s existing legal framework, creating areas of uncertainty. The Business Judgment Rule is introduced as a legal safeguard, yet it still coexists with Indonesia’s anti-corruption laws, which hold individuals accountable for any action resulting in “state losses,” regardless of intent. While BJR is meant to shield executives acting in good faith, these existing statutes provide no such exception – raising concerns about whether executives will truly feel protected when making high-risk, high-reward decisions.

The Law No. 17/2003 on state finance further complicates matters by defining SOE assets as part of state finances, exposing executives to potential criminal charges for financial mismanagement. The SOEs Law does not explicitly resolve these contradictions but instead introduces governance principles emphasizing transparency and accountability. Whether these principles will translate into effective legal clarity remains to be seen.

Additionally, while SOEs under Danantara might still remain subject to state audits, the shift in governance structure raises questions about whether traditional oversight mechanisms, such as the Supreme Audit Agency (BPK), will maintain the same level of scrutiny or if a new reporting mechanism will take precedence.

Adding to these challenges are the conflicting interests among stakeholders. The SOEs Ministry retains policy authority, but investors and Danantara’s management will push for profit maximization – a potential source of friction. Global credit research firms have also raised concerns that this dual role could blur governance lines, impacting investor confidence as markets thrive on clarity – not guesswork.

The Business Judgment Rule offers SOE leaders greater freedom to innovate, but for these reforms to succeed, harmonizing the Business Judgment Rule with existing anti-corruption laws and strengthening transparency and oversight mechanisms will be crucial in ensuring that the benefits outweigh the drawbacks.

Governance also needs to be strengthened to mitigate risks. One solution is to ensure Danantara’s board and leadership include independent directors with no political affiliations, supported by clear conflict-of-interest policies. Additionally, with multiple stakeholders – from the SOEs Ministry to investors and the public – often having competing interests, clear governance structures must define who holds decision-making authority to prevent conflicting agendas from stalling progress.

Danantara’s immense autonomy also calls for independent audits and transparent reporting mechanisms. Regular public performance reviews, modeled after Temasek Holdings’ disclosure practices, could ensure that Danantara’s decisions benefit the public, not private or political interests.

Finally, fostering a culture of responsible leadership is key. Providing SOE executives with training on the new legal framework will help them navigate their expanded roles effectively. This, combined with strengthened governance measures, will ensure that the promise of efficiency and professionalism does not come at the cost of public trust.

Indonesia’s SOE reforms are undeniably ambitious, seeking to catapult state-owned enterprises into a more agile, globally competitive future. With the SOEs Law providing a new governance structure and Danantara centralizing strategic oversight, the groundwork has been laid for a major transformation.

However, much of this depends on how well governance challenges are addressed, how transparently Danantara operates, and how effectively legal ambiguities – especially around executive accountability – are resolved.

If these elements align, the SOEs Law overhaul could be the new dawn that finally unlocks the potential of Indonesia’s state-owned enterprises.

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The writer is a senior vice president at a leading state-owned bank, with extensive experience in banking, capital markets and the oil and gas sector.