(Bloomberg) -- A sweeping overhaul of how Indonesia runs its powerful state companies will create a multibillion-dollar investment vehicle that could give President Prabowo Subianto a major cache of funds to deploy in his effort to supercharge growth.
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Prabowo will launch the new body, Danantara, at 10 a.m. local time on Monday. It will be both an investment vehicle and a holding company for the state-owned enterprises that dominate swathes of the economy from banking to energy. A recently revised law shows that it will report to the president, giving him greater control of the entities and their billions of dollars in annual dividends.
Still, the move is raising concern over governance and how the new structure would improve on existing systems in a nation long besieged by red tape and corruption. Also, while the government is subject to legal constraints on the fiscal deficit and debt, Danantara could provide a way to help fund projects outside of those limits.
“Danantara, with its full control over SOEs, will report directly to the president,” said Brian Tan, an economist at Barclays. A key question is whether it will allow the government to more directly influence how SOE capital is deployed, “and whether this leads to more active off-balance-sheet spending.”
Prabowo is trying to return Indonesia to the 8% economic growth not seen since the mid-1990s during the era of authoritarian ruler Suharto, while also expanding social programs that have given him high approval ratings. Working against him is flagging consumption in the world’s fourth most populous nation and relatively meager foreign investment. His plan to reallocate billions of dollars from the state budget to fund his signature programs last week led to the first sizable protests of his tenure.
Details of how Danantara will operate have been scant, with hints emerging in recent weeks from parliamentary talks, legislative drafts and the president’s passing comments at events. Its website shows an “under construction” notice.
The 73-year-old president has said it will receive $20 billion in initial investment cash to spend on 15-20 projects this year, indicating the sum could be collated from a mix of budget cuts and what could be unprecedented levels of dividends paid out by state companies. The entity aims to finance projects in renewable energy, food production and downstream industries, among others.