How to make Indonesia's sovereign wealth fund work

Indonesia’s new sovereign wealth fund, the Indonesia Investment Authority (INA) offers international investors an opportunity to make long-term investments in the country’s vibrant economy while contributing to sustainable development and restructuring of the country’s state-owned enterprises. In a new Analysis paper for the Lowy Institute, Kyunghoon Kim argues that while the fund’s corporate governance arrangements are reasonable on paper, much will depend on how the rules are implemented.

“The government has prepared regulations to ensure healthy corporate governance of the INA,” he writes. “These regulations seem adequate, but the real test will be whether and how they play out in practice.”

Unlike many other sovereign wealth funds that manage large national savings pools, INA will seek to attract foreign co-investors to help fund Indonesia’s economic development.

“Since domestic financial resources are limited, foreign investment could contribute to accelerating the implementation of economic projects,” he says. “While benefiting from co-investors’ large capital pool and know-how, INA, in turn, could help co-investors manage financial, political, and geostrategic risks.”

Lowy Institute lead economist Roland Rajah welcomed the new research. “Indonesia’s new sovereign wealth fund is still not well understood but could play an important role in financing much needed investment in infrastructure. This new research provides a timely and illuminating assessment of the INA and how it can be made a success.”

ABOUT THE AUTHOR

Kyunghoon Kim is an Associate Research Fellow at the Korea Institute for International Economic Policy (KIEP) where he is analysing the political economy and industrial policies of Asia’s developing countries. He holds a PhD in Development Studies — Political Economy from King’s College London and his thesis focused on the role of state-owned entities in economic development. Prior to his PhD, he received a master’s degree from London School of Economics and Political Science (LSE) and worked at the Samsung Economic Research Institute (SERI) covering the Association of Southeast Asian Nations (ASEAN) and the European Union (EU) for six years. His recent publications include journal articles in Structural Change & Economic Dynamics, Competition & Change, Journal of  Contemporary Asia, and the Pacific Review.

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