Danantara's Growing Risks: Political Interference and State Budget Entanglement

Danantara, Indonesia's investment holding company for state-owned enterprises, is drifting further from its initial vision. Initially promoted as a model akin to Singapore's Temasek, it now bears a closer resemblance to Malaysia's Khazanah, but with even more significant political interference. While Temasek functions as Singapore's state investment management agency across various companies, Khazanah manages government assets and undertakes social development functions.

However, Danantara has now surpassed Khazanah following the issuance of Government Regulation No. 19/2026. This revision to Government Regulation No. 10/2025 places Danantara entirely under state control and expands its authority to manage state-owned enterprise assets. The government asserts that this new regulation will pave the way for more investment holding companies. The core issue, however, is that this change deviates from Danantara's original blueprint, thereby elevating its associated risks.

Article 31A of the new regulation permits Danantara to engage in public service obligation (PSO) projects while simultaneously receiving state capital injections from the State Budget. This provision blurs the line between corporate risk mitigation and state finances, as any financial risks undertaken by state-owned enterprises will automatically become a direct burden on the State Budget. Consequently, flagship projects that are not commercially viable are now mandated for Danantara to undertake.

This state financial guarantee has made investing in Danantara appear safe, evidenced by its inaugural international bond offering last week, which saw subscription orders exceed $4.6 billion against a $1 billion target. Investors feel secure placing their money in Indonesian government securities. Conversely, Danantara is increasingly susceptible to exploitation for political purposes. The substantial funds from the bond sale could be misused to finance wasteful populist projects of the ruling party, projects that offer no real economic benefit. If this occurs, the distinction between investor confidence and poor governance will become dangerously thin, inevitably causing capital owners seeking stability to flee. Indonesia's debt-to-GDP ratio and credit rating will also suffer, as international rating agencies will incorporate all state-owned enterprise liabilities and debt into their country risk calculations. This would cause Indonesia's debt-to-GDP ratio to skyrocket.