Indonesia eyes sovereign wealth fund to help finance infrastructure spending

21 Oct 20

Indonesia is to launch a sovereign wealth fund in January as part of government efforts to finance its huge infrastructure needs, including a new capital city.

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Jakarta, Indonesia

Jakarta, Indonesia's current capital city

The fund will differ from typical sovereign wealth funds, which are normally used by governments to collect a proportion of revenues from the export of commodities such as oil, because the Indonesian government plans to seek foreign investment into it as well.

An initial 75trn rupiah (£4bn) will be injected into the fund by the government, comprising cash and public assets, such as shares in state-owned enterprises.

The government hopes to attract a further 225trn rupiah (£11.8bn) of investment, having previously said Australia, the UAE and Japanese firm Softbank are interested.

The fund’s establishment was signed into law earlier this month, as part of a raft of measures intended to create jobs in the country, to help speed up its economic recovery from Covid-19.

“The establishment of the sovereign wealth fund is aimed at optimising asset value in the long-term as part of the efforts to support sustainable development,” the law reads.

Infrastructure spending, while not referred to in the law itself, has been repeatedly mentioned by officials as the purpose of the fund.

This includes the government’s plans to move its capital city away from Jakarta, which is threatened by rising sea levels.

Almost half of the city sits below sea level, and because it sits on a former swamp it is sinking at one of the fastest rates in the world.

The new city, which will be around 1,000km away on the island of Borneo, is being built with the intention of moving people and money away from the richer island of Java, thereby reducing geographic inequality in the country.

Last year, the government announced hundreds of infrastructure projects worth a total of around $400bn for the period 2020-2024.

These included groundwork for the new capital, power plants, airports, energy facilities and mass transport projects.

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