Jakarta. Institute for Development of Economics and Finance (Indef) believes the establishment of Danantara as a policy instrument will deliver significant and lasting benefits to Indonesia’s economy, particularly by lifting productivity and supporting long-term capital accumulation.

Indef’s optimism follows the formal introduction of Danantara by President Prabowo Subianto at the World Economic Forum 2026 in Davos, Switzerland, on Thursday, where the president positioned Danantara as a cornerstone of Indonesia’s future growth strategy.

Speaking at the forum, Prabowo said Danantara was established in February as Indonesia’s sovereign wealth fund with $1 trillion in assets under management. “With Danantara, I can stand here in front of you as an equal partner,” he said. “Indonesia is now, not only a land of peace and stability, but increasingly a land of opportunity.”

Prabowo expressed confidence that Indonesia’s economic growth would “significantly surprise many in the world,” adding that Danantara would enable Indonesia to co-invest and grow alongside global partners. He said the fund was created to finance and co-finance future-oriented industries as part of the government’s broader push to accelerate industrialization, underpinned by strong oversight and institutional accountability.

Danantara currently manages 1,044 state-owned enterprises, but Prabowo said the government plans to streamline the number to around 300. “We will rationalize, we will get rid of inefficiency. We want the best governance and the best management under international standards,” he said, adding that Danantara has been allowed to recruit expatriates and foreign professionals to attract “the best brains and the best minds in the world.”

Indef Executive Director Esther Sri Astuti said Danantara is designed as a government endowment fund to finance strategic sectors such as education, food security and innovation through sustainable investment returns, rather than routine state budget spending. The model, she said, is expected to strengthen the foundations of long-term economic growth.

“Danantara-based reforms show positive impacts on macroeconomic indicators,” Esther said. “Gross domestic product initially rises sharply, reaching nearly 3% above the baseline, before gradually stabilizing at around 2% in the long run, reflecting a persistent growth effect.”

According to Indef, the expansion is largely driven by higher capital stock, lower capital taxes, and rising productivity, with capital accumulation approaching a peak of nearly 3%. Aggregate consumption is projected to increase gradually by up to 1.5% as real incomes and productivity improve, although short-term consumption adjustments may occur as resources are reallocated toward productive investment.

Indef also noted a moderate decline in labor supply of around 0.8% due to a work–leisure substitution effect, as higher productivity and real wages give households greater flexibility in allocating time. However, the think tank said the dynamic does not undermine economic performance, as growth remains driven by productivity gains.

Rising total factor productivity boosts the marginal productivity of labor, translating into higher real wages, while increased corporate income and profits allow businesses to offer better compensation. In a competitive labor market, companies are incentivized to raise wages to retain skilled workers.

Esther underscored that Danantara’s success will depend heavily on governance quality, project selection, and fiscal discipline. Indef also highlighted the need for complementary policies to manage distributional impacts across income groups.

“Targeted social programs such as the free nutritious meal program (MBG) can help cushion short-term impacts while strengthening the legitimacy of the reform,” she said.

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