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How Danantara would change Indonesian fiscal landscape
There have been worries about the independence, integrity and credibility of Danantara. There is also skepticism about Danantara’s ability to operate independently of political influences.
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A security guard walks near the building housing the sovereign wealth fund known as Daya Anagata Nusantara, or Danantara, on Feb. 24 in Jakarta. (AFP/Bay Ismoyo)
O
ne day after Danantara, Indonesia’s new sovereign wealth fund, was launched by President Prabowo Subianto on Feb. 24, the financial market responded with a brutal sell-off, one that we have not witnessed for several years.
The Jakarta Composite Index (JCI) and the rupiah fell sharply. The JCI dropped 163 points or 2.2 percent. The drop continued and by the end of the week reached 480 points, or 7.1 percent. Share prices of some state-owned enterprises (SOEs) that would be taken over by Danantara plunged steeply such as Bank Rakyat Indonesia (-14.5 percent), Bank Mandiri (-8.5 percent) and Telkom (-9.6 percent). The rout in the JCI was reminiscent of the one during the Global Financial Crisis (GFC) in 2008.
The United States Federal Reserve monetary policy and the degradation of Indonesian listed companies in the Morgan Stanley Capital International (MSCI) played parts in the plunge of the JCI, but the major factor was the fear of the market of the impact of Danantara establishment over Indonesia’s fiscal stance.
As President Prabowo’s priority programs start rolling out this year, the government budget is undergoing significant changes that would affect the structure of its spending as well as revenues in the 2025 fiscal year.
The government has decided to reallocate Rp 308 trillion (US$18.6 billion) from its 2025 budget into President Prabowo’s priority programs. Out of these, Rp 100 trillion would be used to pay for the cost of the free nutritious meal program for school children. The rest will most likely go to Danantara that will eventually take over and manage Indonesian SOEs assets estimated to be worth US$983 billion.
Government revenue would decrease further when the dividend from SOEs, which is estimated at Rp 85 trillion in 2024 and Rp 90 trillion in 2025, will be taken over by Danantara.
Instead of being spent to support immediate economic activities by the Finance Ministry, these SOEs dividends would be invested by Danantara to get a long term gain (or losses), risking the erosion of fiscal prudence.
