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View all search results[COMMENTARY] Indonesia’s planned $5b sovereign wealth fund raises questions
The newly passed Job Creation Law stipulates the establishment of an Indonesian SWF to be called the Indonesia Investment Authority (LPI) with an initial capital of Rp 15 trillion (US$1 billion) derived from the state budget.
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I
ndonesia will soon join the prestigious club of the few Asian countries that have established sovereign wealth funds (SWF). The newly passed Job Creation Law stipulates the establishment of an Indonesian SWF to be called the Indonesia Investment Authority (LPI) with an initial capital of Rp 15 trillion (US$1 billion) derived from the state budget.
Few technical details are available so far, as presidential and ministerial regulations have yet to be enacted to guide the operation and management of the LPI, but Finance Minister Sri Mulyani Indrawati says the LPI will consist of development and stabilization funds.
Sri Mulyani said the government would immediately increase the LPI capital fivefold to $5 billion, of which $2 billion would be in cash (state budget) and the remaining $3 billion in shares of state-owned enterprises (SOEs) and other state assets.
As a former managing director of the World Bank, she should have sensed a positive international market reaction to such a huge investment fund, which is why the government seemed so optimistic that the LPI would be able to attract $15 billion investment from the United States, Japan and the Gulf.
The billion-dollar question, nevertheless, is whether the international market could have confidence in an SWF launched by a government with relatively high corruption, a fiscal deficit and oil deficits, a tax ratio of less than 11 percent and heavy domestic and foreign debt burdens.
Last year, the Transparency International Corruption Perceptions Index ranked Indonesia 40th on its scoreboard of 180 countries surveyed, ranging from 0 (highly corrupt) to 100 (very clean).
The omnibus law stipulates that the LPI aims at optimizing asset value in the long-term as part of efforts to support sustainable development. The LPI will answer to the President, and its board of directors will be appointed by a five-member supervisory board, which in turn is appointed by the President. The finance and SOEs ministers will serve ex-officio on the LPI supervisory board, alongside three professionals.
