Dion Bisara – The Indonesian Chamber of Commerce and Industry, a strong private business lobby group, called on the government on Tuesday to establish an investment fund to be used to purchase overseas assets.
The fund, should it be established, would act like Singapore's Temasek Holdings and Malaysia's Khazanah Nasional.
Suryo Bambang Sulisto, chairman of the lobby group, which is also known as Kadin, said now is the right time for the Indonesian government to buy assets abroad, as they are relatively cheap amid the sluggish global economy and debt crisis.
Suryo suggested that the government should eliminate the ballooning fuel subsidy and "use the proceeds [from the fuel subsidy] to set up the fund."
"We don't mean that the fund would crowd out domestic investments, but rather it would be able to grab overseas investment opportunities that are strategic, relatively cheap and beneficial for the country," Suryo said when opening the Kadin 2012 National Leaders Meeting in Jakarta on Tuesday. The Kadin meeting will run until Thursday and will continue in Yogyakarta.
The investment fund, Suryo noted, would be able to help state-owned companies to venture abroad. He said he would like to see the state procurement body, Bulog, acquire soybean and sugar plantations in Brazil, or the state energy company, Pertamina, buy oil refineries. The state-controlled gold and nickel miner, Aneka Tambang, could take over smelters abroad to process their domestically mined metals, he added.
Bulog has received a mandate to stabilize domestic soybean and sugar prices after a soybean price increase in July forced tempeh and tofu producers to halt production.
Pertamina has said that it plans to buy a stake in an oil firm in Venezuela, its first overseas foray in almost a year after a failed attempt last year to buy oil assets in Angola.
Pertamina will pay Houston-based Harvest Natural Resources $725 million in cash for a 32 percent stake in Petrodelta, a joint venture between Harvest and Petroleos de Venezuela. Petrodelta holds concessions from the Venezuela government until 2027 over six oil fields with proved reserves of 195 million barrels of oil and 235 billion cubic feet of gas, according to Harvest's website.
Currently, the Indonesian government has two investment arms: the Indonesia Infrastructure Fund (IIF) and the Government Investment Center (PIP), both of which focus mainly on domestic infrastructure investments. PIP's move to purchase a 7 percent stake in gold miner Newmont Nusa Tenggara for $246.8 million was blocked by the country's legislators in early April.
Kadin's Suryo said that the government should use some of the money allocated for fuel subsidies to finance the establishment of the intended sovereign investment fund.
The government has earmarked Rp 193.8 trillion ($20 billion) for subsidized fuel in the 2013 proposed budget for next year. That would be lower than the projected Rp 207 trillion in fuel subsidy expenditures this year.
Suryo hoped that once the fund was in operation, it would be able to operate on par with the Malaysian government's investment arm Khazanah or Singapore's Temasek. "Compared to them, we are way behind," Suryo told reporters on the sidelines of the event.
He said that Indonesia has missed opportunities to acquire strategic investments abroad, while other countries acquired Indonesia's best assets including companies in banking, telecommunications, mining, plantations and the airline sector.
Temasek, the city-state's investment fund that manages around $161 billion in funds, owns a stake in Bank Danamon Indonesia. Temasek, through its subsidiary Singapore Telecommunications, or SingTel, also owns a 35 percent stake in Telkomsel, Indonesia's biggest mobile-phone operator. Meanwhile, Khazanah, with a total of $35 billion in funds, controls XL Axiata, Indonesia's No. 3 mobile-phone operator. Khazanah is also a controlling shareholder in Axiata Group.
Together, the Temasek and Khazanah funds total $196 billion, an amount larger than Indonesia's total state budget for 2013, which is $173 billion.
Reaction to the roposed fund was mixed among Indonesian economists and fund managers.
Fauzi Ichsan, economist at Standard Chartered Bank, was skeptical about the fund proposal, doubting whether the move would benefit the Indonesian public.
"If the government is to reallocate funds for fuel subsidies, it should go to those targeted by the subsidy program and to infrastructure [development], to stimulate the domestic economy," Fauzi said.
"For setting up a sovereign fund, it is better that government uses money from the undisbursed budget," he said
However, Omar S. Anwar, president of Trimegah Securities, welcomed the idea as he believed it would help the country's efforts to secure strategic assets abroad, which would otherwise take Indonesia a long time to develop, such as oil refineries or oil wells. "Acquiring energy resources overseas is the strategy long used by the Chinese to secure supplies for increasing domestic demands."
Omar, however, did raise some critical notes on the idea. "If Pertamina can lose in bidding on an Iranian oil well, how we can ensure these funds will fare better?" The other issue, he said, is governance and the wealth fund's legal standing. "It has to be accountable, but at the same time nimble enough to maneuver in often-short windows of opportunity."
Kadin's Suryo said that the trend of foreign interests acquiring domestic assets was unavoidable in a globalized era, but Indonesia can reap similar benefits as well. "We should not be spectators.... In the current weak global economy, many strategic assets in Europe, even in Asia, are very attractive for acquisition," he said.
Responding to Suryo, President Susilo Bambang Yudhoyono said that the idea was "relevant and positive," and asked his minister to follow it up.