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Indonesia has named billionaire investor Ray Dalio and economist Jeffrey Sachs as advisers to its new sovereign wealth fund Danantara, amid growing investor concerns over governance at a fund that is expected to manage state assets worth about $900bn.
The fund on Tuesday also named Chapman Taylor, equity portfolio manager at Capital Group, and former Thai prime minister Thaksin Shinawatra to its advisory council. Former Indonesian presidents Joko Widodo and Susilo Bambang Yudhoyono have also been named to the fund’s steering committee.
President Prabowo Subianto launched the Danantara fund in February, bringing the country’s state-owned enterprises under one roof in a massive overhaul. The government expects the fund to boost economic growth by investing in strategic projects and industries.
However, the fund’s direct control by Prabowo and the diversion of the SOEs’ dividends from the state budget to the new fund have raised questions over political interference, transparency and lax governance.
Those concerns have weighed on the Indonesian stock market, adding to mounting worries over an economic slowdown and a weakening fiscal position. Monday’s appointments failed to reassure markets, with Jakarta’s benchmark stock index tumbling as much as 4.7 per cent.
Indonesia’s SOEs are estimated to have assets worth more than $900bn across banking, energy and telecommunications. The seven largest companies alone have assets valued at $570bn — about 40 per cent of the country’s annual GDP.
Four of the seven companies are publicly listed, with a combined market capitalisation of more than $100bn. Units of some of the other companies are also traded on the Indonesian stock exchange.
“Investors are concerned over the consolidation of listed SOE holdings into a new sovereign wealth fund where little detail has been disclosed around the governance at this point,” said Charlie Linton, Asia Pacific Equity Portfolio Manager at Ninety One.
Linton said this had increased foreign investors’ wariness over the new government’s policies that were “far more populist” than the previous Widodo administration.
At the launch in February, Prabowo said Danantara would invest $20bn in the mineral processing, artificial intelligence, energy and food sectors. The president said Danantara would be funded by budget cuts.
Dividends from all the SOEs — which were typically sent by the companies to the government’s annual budget — will now be channelled to Danantara. Last year, the companies paid a total of $5.4bn in dividends.
That diversion will leave a gap in the budget — which is already in deficit so far this year owing to a decline in revenue — adding to worries over how the government will fund its major policies and development programmes.
The state budget is under pressure owing to Prabowo’s flagship policy to provide free lunches for schoolchildren and pregnant mothers at the cost of $28bn annually.
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