Indonesia is concluding appointing an advisory board and is on schedule to soon launch its own sovereign wealth fund of US$20 billion.
The board is aiming to get investment commitments from nearly 50 fund management entities from different countries. However, China is one country that is glaringly absent from the list.
Purpose of the INA
The Indonesian sovereign wealth fund, Indonesia Investment Authority (INA) is being set up to finance massive infrastructure projects. These projects include bridges, ports, airports and tollways. They are all ambitious projects planned out by Indonesian President Joko Widodo’s administration.
The country will put in US$5 billion to start off. This will comprise of US$4 billion coming from transfers of equity and assets of state-owned businesses. The remaining US$1 billion will come from the state budget.
Commitments already secured in advance
The INA advisory board already have firm or soft commitments from 5 foreign fund management entities. The total estimated investment from these entities currently amounts to US$9.8 billion.
Entities from the world’s second largest economy, China, are notably absent. This has raised the eyebrows of foreign economists. They feel Indonesia may be trying to avoid a situation where Beijing could eventually assert control over key infrastructure.
The Sri Lankan Hambantota port
A prime example is the Chinese take-over of the Sri Lankan southern port of Hambantota. In 2017, former Sri Lankan PM R Wickremesinghe decided to lease the port for 99-years to China Merchants Port Holdings Co. The lease amount was US$1.1 billion. Mr Wickremesinghe claimed leasing it eased part of the debt burden to build the port.
The new Sri Lankan government under President Gotabaya Rajapaksa is now trying to undo the lease agreement, citing national interest.
State ownership of critical infrastructure projects vital
Kevin O’Rourke is author of Indonesian newsletter Reformasi. His article mentions the Indonesian government intends to keep critical infrastructure projects under its own state ownership. This is not acknowledged publicly though.
O’Rourke also wrote that private ownership of infrastructure projects face skepticism. This is because most of the financing would come from foreign financing.
So far, a firm commitment to the INA comes from the US International Development Finance Corporation at US$2 billion. The Japan Bank for International Cooperation also has a firm commitment at US$4 billion. These two entities currently top the list of INA foreign investors.
A soft commitment is coming from Canadian Caisse de Depot et Placement du Quebec at US$2 billion for tollway projects. The Australian Macquarie investment bank has made a soft commitment of US$300 million. The Dutch group, Algemene Pension Groep, has also made a soft commitment of US$1.5 billion.
Airlangga Hartarto is Indonesian coordinating minister for economic affairs. Hartarto says they had talks with the Abu Dhabi Investment Authority. No commitment has been received todate.
The INA is expected to be fully operational in the first quarter of this year. Potential investors will have the choice of investing into two types of funds. There is a “master fund” and a “thematic fund” that allows them to invest in a particular project.
2020 Investment statistics
Indonesia’s investment board (BKPM) shows Singapore as the biggest investor at US$9.8 billion.
China comes in second place with investments at US$4.8 billion. BKPM data from 2015 to September 2020 shows a whopping increase of 559 percent of Chinese investment in Indonesia.
Chinese companies already have investments in 10,083 projects in Indonesia, ranging from mining to infrastructure projects. According to Esther Sri Astuti, this is one of the reasons why the INA has not approached China. Astuti is an economist who works for the Indonesian Institute for Development of Economics and Finance.
“Indonesia is also looking to diversify its portfolio to reduce the risk and collect more investments by approaching other countries,” Astuti said. She also said the Indonesian government is looking at other countries because anti-China sentiment remains high.
8th February 2021 23:00
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