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29 March, 2021Euromoney, March 23 2021
The Indonesian Investment Authority is the world’s newest sovereign wealth fund. Its chief executive and the chair of its supervisory board, who is also the minister of finance, explain why the fund will do more than just raise money – and why the ghost of 1MDB is never far away.
Indonesia has joined the party. For many years something of a local outlier in lacking a sovereign wealth fund, while neighbours Singapore and Malaysia built their own with great success, the 270 million-strong country has finally launched one: the Indonesian Investment Authority.
It’s a surprise that commodity-rich Indonesia, which is no longer an oil and gas exporter but has plenty of other natural bounties from its forests to its seas, has gone so long without this most prudent and fashionable of tools. And it’s striking that when you ask why Indonesia needs a sovereign wealth fund, the people closest to the subject tend to say: ‘Well, it’s about time.’
“It is long overdue,” says Sri Mulyani Indrawati, Indonesia’s minister of finance, who is also chair of the supervisory committee for the new fund.
“In the 1970s when Indonesia had a very big surplus in oil and gas, we didn’t establish a sovereign wealth fund.
“That doesn’t mean we didn’t use the proceeds from oil and gas responsibly.” Oil revenue played a vital role in education, infrastructure and agriculture, bringing the country towards self-sufficiency.
“But the mechanism we had was very straightforward, from the proceeds directly to the investment,” she says. “There was no sophistication in the way that we were able to manage it, especially on the inter-generational issue.”
Similarly, when Ridha Wirakusumah, the former Bank Permata chief executive, who is the chief executive of the new fund, is asked the same question, he answers: “Well, there’s an argument we are actually way, way, way too late to have one.
“Indonesia has had its independence for 76 years. Many countries much younger than us have a sovereign wealth fund, hopefully not only to help with development but with permanent wealth creation for generations to come.
“I think Indonesia is at the cusp of progress and the government feels that it is better late than never.”
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