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View all search resultsThe likely road map for Indonesia’s SWF
The IIA plans to proxy itself to Russia's SWF, the Russian Direct Investment Fund (RDIF), because it has the same goal of establishment in the early years, namely accelerating infrastructure development and strategic sectors.
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bserving the government's rhetoric recently, we may be confused about the planned sovereign wealth fund (SWF). Why is that? Because one may not understand what kind of SWF Indonesia will establish as the fund does not fit into any of the three most popular SWF categories in international markets: To manage natural resources fund surplus or income diversification as the United Arab Emirates, to manage foreign exchange surplus or energy security as China, or to manage a fiscal surplus and pension fund.
Well, as Article 157 Chapter X of the Job Creation Law stipulates, the SWF, known as the IIA (Indonesian Investment Authority), is an investment institution specially formed by the central government to collaborate with domestic and foreign investment to invest in projects and assets. The IIA is a special platform provided for investors who are interested in partnering directly with the central government specifically or limited to investing in certain assets or projects to be developed to boost the domestic economy.
In this framework, it can be said, that if the central government contributes Rp 1 trillion, it is expected that direct partner investors will contribute as much as, for example, Rp 3 trillion or, in other words, a co-invest ratio of 1:3 in the initial stage.
We understand from government explanations that the IIA plans to proxy itself to Russia's SWF, the Russian Direct Investment Fund (RDIF), because it has the same goal of establishment in the early years, namely accelerating infrastructure development and strategic sectors.
The RDIF is a little different from countries that have many idle funds, such as the some in the Middle East and Scandinavia. The RDIF serves to attract foreign investors to enter projects, especially domestic infrastructure. In the past 10 years, the RDIF has expanded from the infrastructure sector to the healthcare sector, especially health facilities for cancer treatment. Russia has grown its coinvest ratio tenfold to 1:10, that is, for every 1 trillion rubles the government of Russia’s contributes, they get a 10 trillion-ruble contribution from partner investors.
If in the initial stage the IIA will follow Russia’s RDIF, then in the next stage the IIA can follow countries that have idle funds from economic surpluses and redirect itself to maintaining retirement savings for the current generation of youth who in 20 years’ time will be 50 years and above.
Indonesia suffers an oil deficit, its foreign exchange reserves are mostly short-term portfolio money and its state budget has always been in deficit at least over the last decade. Economists like to call this a twin deficit. So, how will the government put up the seed capital of $5 billion (Rp 70 trillion) in cash?
