Jakarta. The Indonesian government secured parliamentary approval on Tuesday to establish Danantara, the country’s second sovereign wealth fund (SWF) in five years. While it is common for resource-rich nations to set up an SWF, having two is a rare occurrence.

During President Joko “Jokowi” Widodo’s administration, Indonesia founded the Indonesia Investment Authority (INA) in 2020 to manage $10.5 billion in capital and state assets, becoming operational in 2021. Now, under President Prabowo Subianto, the government aims to accelerate economic growth to eight percent by the end of his term -- a goal that requires trillions in new investments and millions of new jobs. This has led to the creation of Danantara.

Danantara is poised to become one of the world’s largest sovereign wealth funds, playing a crucial role in managing Indonesia’s state-owned enterprises and strategic investments. However, its ambitious scope, legal uncertainties, and potential overlap with INA have sparked debate over its necessity and risks.

What Is Danantara?
The name Danantara is an abbreviation of Daya Anagata Nusantara, which translates to “the future power of Nusantara” (archipelagic Indonesia). President Prabowo initially planned to launch Danantara in November, but the process was delayed due to a lack of preparations. The agency’s primary role will be consolidating the management of state-owned enterprises (SOEs) and handling their dividends and investments.

Danantara was formally established on Tuesday after the House of Representatives approved the third amendment to the 2003 Law on State-Owned Enterprises, allowing it to take over certain SOE management functions. The law mandates Danantara to secure at least Rp 1,000 trillion ($61.3 billion) in startup funding from state investments or other legal sources.

Which SOEs Will Be Managed by Danantara?
Government officials have indicated that seven major SOEs from the banking, mining, energy, and telecommunications sectors will form the backbone of Danantara. These include Bank Mandiri, Bank BRI, and Bank BNI from the banking sector; Pertamina in the energy sector; PLN in electricity; Telkom Indonesia in telecommunications; and MIND ID as the mining holding company. These enterprises are among Indonesia’s largest in terms of assets and consumer reach.

What About INA?
Initial reports suggest that INA, the Indonesia Investment Authority, will eventually be integrated into Danantara. However, questions remain about how the two sovereign wealth funds will coordinate their roles, as they could have overlapping responsibilities in managing state investments in strategic sectors. A key distinction is that INA operates under the supervision of the Finance Ministry, whereas Danantara will report directly to the president.

How Big Will Danantara Be?
Danantara is designed to be significantly larger than INA. It will manage combined assets worth approximately $600 billion, sourced from the seven SOEs and INA. This amount is projected to increase to $982 billion, making Danantara the fourth-largest sovereign wealth fund in the world, following Norway’s Government Pension Fund, the Abu Dhabi Investment Authority, and the China Investment Corporation. Some of the SOEs under Danantara generate substantial revenue. Bank BRI, for example, recently distributed Rp 20.4 trillion ($1.25 billion) in dividends.

Who Will Lead Danantara?
The amended law stipulates that Danantara will be governed by an Oversight Board and a Managing Board. The three-member Oversight Board will be chaired by the Minister of State-Owned Enterprises, a position currently held by Erick Thohir. He will be accompanied by a representative from the Finance Ministry and a third official appointed by the president.

Danantara’s Managing Board is led by CEO Muliaman Darmansyah Hadad, a former head of the Financial Services Authority (OJK). Muliaman has played a significant role in shaping Indonesia’s fiscal and monetary policies and previously served as a deputy governor of Bank Indonesia. He was also Indonesia’s ambassador to Switzerland from 2018 to 2023. Assisting him as deputy CEO is Kaharuddin Djenod, a naval architect and former CEO of state-owned shipbuilder PAL Indonesia. The two will be supported by six executive directors.

Why Does Prabowo Need Danantara?
President Prabowo has several budget-heavy programs ahead, including his flagship initiative of providing free meals to school-aged children, which is projected to cost the government over Rp 100 trillion ($6.1 billion) in 2024 alone. Another major spending commitment is the completion of the new national capital, Nusantara, a project initiated by Jokowi and one that Prabowo has pledged to complete.

The challenge lies in funding these ambitious programs. Indonesia’s state budget has been in deficit for decades, with the deficit standing at Rp 507.8 trillion ($31.3 billion), or 2.29 percent of GDP, in 2024. Finance Minister Sri Mulyani Indrawati has projected an even higher deficit of Rp 616 trillion for the current fiscal year. With these financial constraints limiting the government’s fiscal space, Prabowo must seek alternative funding sources outside the state budget to finance his initiatives, including the costly free meals program.

Can Danantara Get Off to a Strong Start?
Danantara’s delayed launch last November signaled that underlying challenges and skepticism surround its purpose. There are ongoing questions about why the government needs a new agency to manage healthy SOEs and whether Danantara’s creation could undermine the role of the SOE Ministry. Additionally, critics argue that Prabowo could have empowered INA instead of establishing a separate sovereign wealth fund.

Concerns have also been raised over legal loopholes in the newly amended SOE Law, which provides Danantara with certain privileges that could lead to future legal and governance issues. The law grants Danantara immunity from asset seizures by law enforcement agencies, raising concerns about potential corruption risks. It also authorizes Danantara to merge or split SOEs and create new holding companies, giving it significant control over state assets.

Despite these concerns, parliamentary approval has removed the first major hurdle, allowing Danantara to move forward. The next challenge will be securing the minimum startup funding of Rp 1,000 trillion ($61.3 billion) without disrupting existing government programs.