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Jakarta. Japan has pledged to invest $ 4 billion in Indonesia’s inaugural sovereign wealth fund, marking rapid development that may be the key to the Southeast Asian country’s infrastructure ambitions.
Japan was the second country to commit a specified amount to the fund after the United States ‘International Development Finance Corporation (DFC), the United States’ financial arm, did so last month.
“JBIC is ready to support SWF Indonesia’s funding of $ 4 billion, double what DFC promised,” Maritime Affairs and Investment Coordinating Minister Luhut Binsar Pandjaitan said in a statement after a meeting with Maeda Tadashi. , the governor of the Bank of Japan. for International Cooperation (JBIC) in Tokyo on Friday.
Luhut led an Indonesian delegation that includes the Minister of State-Owned Enterprises, Erick Thohir, and the Indonesian Ambassador to Japan, Heri Akhmadi, and held a marathon meeting with Maeda and no less than 20 other potential Japanese investors in the sector. of finance and energy.
“JBIC will be one of the financial institutions that will participate in the Indonesian master fund called Nusantara Investment Authority (NIA),” Heri said in the statement.
“The support of JBIC and the government of Japan will certainly strengthen the strategic cooperation ties between Indonesia and Japan, and will attract more Japanese private sectors to invest in Indonesia,” Heri said.
Indonesia set out to establish the fund to obtain an alternative source of financing for its ambitious infrastructure projects in the coming years. The Job Creation Act of 2020 directed the government to establish the fund, and it has been working towards the goal of putting it up and running next year.
“The government regulation (PP) that regulates the Indonesian sovereign wealth fund will be completed in mid-December. The regulation will certainly accelerate the establishment of the fund,” Erick said.
The Ministry for the Coordination of Maritime Affairs and Investments said a team would work closely together to follow up on JBIC’s commitment. The ministry expects to see JBIC’s investment in the fund in the first quarter of next year.
Luhut and Erick are scheduled to fly to Abu Dhabi and Saudi Arabia on Saturday to secure further investment commitments for the Nusantara Investment Authority.
Indonesia has run twin deficits in recent decades, so it cannot afford to fund the sovereign wealth fund from foreign exchange reserves or government budget surpluses, such as Norway or Singapore, and invest in real or financial assets around the world. .
So the country chose to follow the model of Russia. The Nusantara Investment Authority would raise funds from investors around the world and channel them to strategic projects in Indonesia.
Erindra Kristawan, chief investment officer at Star Asset Management, a Jakarta-based fund manager, said Indonesia’s new sovereign wealth fund could bridge the mismatch between short-term funds and long-term financing needs in the sectors of construction and infrastructure of the country.
Indonesian state construction companies have made the most of their influence over the past five years to take on the infrastructure ambition of President Joko “Jokowi” Widodo. Now, with the Nusantara Investment Authority taking financial responsibility, companies could get the breathing space they needed to undertake new projects, he said.
“Companies can get new contracts and grow back in the future,” Erindra said.
