Establishment of Indonesia’s Sovereign Wealth Fund


Earlier this week, President Joko Widodo announced one of the critical factors in financing the needs of the country. He states, "Once the element is discharged, we will have an inflow of at least 20 billion. Not in rupiah, but in US dollars," during his speech at the Financial Services Industry Annual Meeting 2020. Questions arise, for instance, what Jokowi implied by such statement? Why is it really “influential” that it has the capacity to attract that many funds? The element that the President meant is the Sovereign Wealth Fund (SWF). A sovereign wealth fund is a state-owned investment fund containing money generated by the government; SWFs benefit a country's economy and its citizens. The funding for an SWF can come from a variety of sources. Popular sources are surplus reserves from state-owned natural resource revenues, trade surpluses, and government transfer payments. The minister of state-owned enterprise staff, Arya Sinulingga, stated that the sovereign wealth fund (SWF) would start operating in April 2021. With the beginning of this massive investment, Sinulingga noted that this would also positively lead “BUMN Karya.” "As we know, this Investment will be done in April, and if there are no difficulties and such Then, it will surely affect infrastructure stocks in our state-owned enterprise section," added Sinulingga on TV One broadcast, Creative Money, Tuesday (19/1).


With the establishment of the Indonesia Sovereign Wealth Fund, the government assumes that it can expand our nation's investment, leading to a positive impact on domestic economic growth. Indonesia's SWF's initial arrangement will center on infrastructure development, especially projects that are already operating and generates revenue, such as toll roads, ports, and airports. Indonesia's Finance Minister, Sri Mulyani Indrawati, affirmed that the concept of SWF is an instrument to boost government investment in equity financing, not debt securities like bonds issued by state-owned enterprises. Sri Mulyani said that with the SWF concept that benefits all parties, Indonesia's investment projects would be more disciplined and effective. The SWF structure is two-tier, consisted of people from the government and professionals. The supervisory board consists of the minister of finance, minister of state-owned enterprises, and three professionals that will provide an accountability report to the President. Concurrently, the Board of Directors consists of five people from the professional sectors that will give the Annual Report and Accountability Report to the supervisory board. On Wednesday (1/22), Coordinating Minister for Maritime Affairs and Investment Luhut B. Pandjaitan disclose the candidate for CEO of the SWF. Reportedly, this position will be announced by Jokowi himself this week. Luhut then mentioned that the SWF CEO candidates are most likely to be in their forties. Meanwhile, the SWF supervisory board will be filled by senior officials.


From the capital market perspective, the sovereign wealth fund’s announcement had impacted several sectors positively. Listed construction sector issuers on the Indonesia Stock Exchange (IDX) moved to green this Friday (15/1), corrected by 0.84%. However, the IHSG suddenly reversed the direction and was corrected to drop below 6,400 due to profit-taking after the IHSG was unstable for the past week. Although the IHSG was corrected, construction issuers continued to ratchet up since the first session after completing the SWF. It was noted, all construction issuers managed to go green.The increase was led by the state-owned company (BUMN) Karya, namely PT Waskita Karya Tbk (WSKT), which managed to increase 5.34%. The same thing also happened to PT Wijaya Karya Tbk (WIKA) which has appreciated 5.16%. Additionally, PT PP Tbk (PTPP), also rose 2.93%. Head of Research for MNC Sekuritas, Thendra Crisnanda, noted that the investment commitment through SWF has been promising. "The investment commitment that has entered through the SWF has reached US $ 8 billion. The total is around US $ 20 billion, or the equivalent of Rp300-400 trillion. Of course this is something that is eagerly awaited from the investor side," he continued. Along with, the presence of the SWF is considered to improve the structure of the APBN and ultimately reduce the deficit and increase the rupiah exchange rate and affect stock prices. All in all, the establishment of Indonesia’s Sovereign Wealth Fund is bringing us to a new light on how our country’s investment would turn out.


Sources:

CNBC INDONESIA

CNN INDONESIA

Detik Finance

Kompas TV


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