Baginda Muda Bangsa and Reyhan Noor – The Danantara Anagata Nusantara Investment Management Agency, commonly known as Danantara – Indonesia's new sovereign wealth fund – has always faced public scrutiny and scepticism. Following its inauguration, the Jakarta Composite Index dropped 7.1 per cent, driven by continuous foreign capital outflows amounting to approximately US$622.7 million.
Among the main concerns is Danantara's lack of transparency and accountability. It is unclear whether it will be a new engine for development or a victim of political manipulation and corruption. The Indonesian government will need to tread carefully to gain investor and public trust.
To evaluate Danantara's governance, the Santiago Principles – best-practice guidelines for sovereign wealth funds – are a useful benchmark. Sovereign wealth funds, such as Norway's Norges Bank and Singapore's Temasek, are often recognised as examples of global best practices, complying with the Santiago Principles' critical indicators like independent governance, transparent investment strategies and strong risk management frameworks. Indonesia still lacks these vital elements, making Danantara's current governance style more comparable to Malaysia's 1Malaysia Development Board (1MDB) scandal.
Danantara's structural design increases the risk of political influence due to regulatory loopholes and cronyism. Figures with close political affiliations to Indonesian President Prabowo Subianto dominate its board. For example, Danantara CEO Rosan Perkasa Roeslani is Prabowo's former lead campaigner and is now the Indonesian Minister of Investment and Downstream Industry. Roeslani's overlapping roles as an investment regulator and manager pose significant risks related to conflicts of interest and regulatory capture, which could lead to corruption and loss of public trust.
Danantara's Chief Investment Officer Pandu Patria Sjahrir also remains closely linked to National Economic Council Chairman and former minister Luhut Binsar Pandjaitan. Luhut resigned from one of the biggest energy companies in Indonesia but still owns shares in the energy industry. This connection raises concerns about vested interests and favouring politically connected firms during project tenders.
It is difficult to imagine a checks-and-balances mechanism for Danantara's future investment strategy. Malaysia's 1MDB scandal is a warning of government investment decisions having unchecked power. Former Malaysian prime minister Najib Razak, in power during the scandal, appointed himself finance minister. He consolidated control by becoming 1MBD's sole signatory and shareholder and granting himself veto power over appointments and expenditures. He also strategically placed figures with connections to Jho Low – Najib Razak's collaborator in the 1MDB scandal – in key management positions.
Danantara's lack of transparency in its investment framework and risk management policies creates more uncertainties. It needs sound risk policies that reflect not just the business process but also the job level corresponding to the investment position.
The Santiago Principles specify the need for a disclosed investment and risk management framework – including objectives, risk tolerance and investment strategy. It is also essential to maintain fair competition and not to seek or take advantage of privileged information or inappropriate influence from the government.
Danantara could learn valuable lessons on governance from Indonesia's first sovereign wealth fund, the Indonesia Investment Authority (INA). Sharing the same mandate to attract investment, both entities act differently than other sovereign wealth funds as Indonesia does not have a surplus economy. But INA has set a positive example by aligning with the Santiago Principles. For instance, INA's governance structure and institutional accountability are clearly defined in its governance regulations.
Meanwhile, Danantara's regulations provide limited details on governance and its institutional framework. Around 80 per cent of Danantara's governance regulations mirror the text from Law No. 1 of 2025, raising concerns about the lack of substantive regulatory elaboration.
In terms of governance, INA strictly adheres to having five directors with professional backgrounds, as per government regulations. Danantara is also required to have at least three directors with professional backgrounds, but in practice two of its directors simultaneously hold government positions, causing a potential conflict of interest.
In its risk policies, INA adopts the three lines of defence risk management model and has also implemented environmental, social and governance principles. In contrast, Danantara's approach remains unclear, which is concerning since it faces added risks due to its dual role as an investment and operational holding. State-owned banks under Danantara are vulnerable to any finance-related activities from the investment holdings. At the operational level, they still need to comply with risk management regulations from financial authorities to mitigate credit risks within entities.
Prabowo is keen to increase political stability and certainty. But this means convincing the public that Danantara creates value for the people, not just a few oligarchs. To regain public trust, Danantara must publish clear guidelines on their operations, and investment and risk management principles. The key element is transparency. Without strong, independent and transparent risk management, Danantara is likely to be seen as a business that is too risky to succeed.
[Baginda Muda Bangsa is Political Economy Analyst at Laboratorium Indonesia 2045. Reyhan Noor is Chief Analyst at Laboratorium Indonesia 2045.]
Source: https://eastasiaforum.org/2025/04/08/governance-risks-plague-indonesias-new-sovereign-wealth-fund