Indonesia Turns to Temasek as Model for Sovereign Investment

  • Finance minister wants holding company for state entities
  • Economy needs to diversify away from commodities, consumption

Bambang Brodjonegoro.

Photographer: Dimas Ardian/Bloomberg

Indonesia is turning to Singapore’s Temasek Holdings Pte. as a model to create a sovereign investment company to drive development in Southeast Asia’s biggest economy.

The government is considering starting an investment holding company for four or five state-owned entities, which could then buy shares in Indonesian companies, Finance Minister Bambang Brodjonegoro said in an interview in Jakarta on Monday. If the fund is successful, it may over time invest in assets overseas, as Temasek did, he said.

“A super-holding of our SOEs, that could be a very good sovereign wealth fund for Indonesia,” Brodjonegoro said. “This process has to start.”

President Joko Widodo took office at the end of 2014 with a mandate to spur economic growth through public spending to combat a slowdown in demand from China for the nation’s commodities, such as coal and palm oil. He is seeking to fast-track infrastructure projects and has pledged to cut red tape to attract businesses.

Record Assets

Temasek was founded in 1974 to own and manage shares and assets held by Singapore’s government, such as shipyards previously controlled by its former colonial power, the U.K. It began investing in foreign equities in 2002 and had record assets of S$266 billion ($195 billion) at the end of March last year.

“There are still a lot of big Indonesian companies not really owned by Indonesians, so this could be a good opportunity,” Brodjonegoro said. “They can invest, they have the financing capability, and later, maybe if the thing is already settled, with investing in Indonesia, they can of course go abroad.” 

State banks and energy firms may be possible targets for an investment holding company. Dwi Soetjipto, chief executive officer of PT Pertamina, said this week he wants to combine with gas company PT Perusahaan Gas Negara. State-Owned Enterprises Minister Rini Soemarno said in April that PT Danareksa will be a holding company for government-owned financial firms.

Tax Amnesty

Indonesia is also putting efforts into boosting tax revenue to fund its infrastructure drive, with a planned amnesty for declaring and repatriating hidden offshore funds seen as key to widening the tax base. Brodjonegoro said he expects the planned tax amnesty bill to be passed by parliament this month.

“We need to have the amnesty to bring part of the money back to Indonesia,” he said. “We need to improve our tax base,” he said, describing citizens’ tax returns as “amazingly low, and amazingly wrong”.

The economy will probably expand more than 5 percent in the second quarter as public spending picks up and farming output improves, the minister said. In the longer term, the country needs to reduce its reliance on commodities and on domestic consumption, to focus on manufacturing and services, he said.

“In one or two years we need to come out with a real alternative to growth other than commodities,” Brodjonegoro said.

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