Makarim & Taira S.
  February 10, 2021 - Indonesia

Indonesia’s Newly Established Sovereign Wealth Fund: A New Chapter in Indonesia’s Economy

As a developing country, Indonesia is still considered to have limited Government fiscal capacity and limited state-owned enterprise (Badan Usaha Milik Negara – “BUMN”) and financial sector funding capacity indicating that domestic capacity is not sufficient to meet what is needed to finance development and support economic growth and opportunities. Therefore, to meet its national development goals, Indonesia needs foreign investment and an institution that can be a strategic investment partner, with a strong legal and institutional basis, which applies international practices, professional standards and can act as the “middleman” for those interested to invest in Indonesia.

To address these challenges, and as mandated by Law No. 11 of 2020 on Job Creation which came into effect on 2 November 2020 (known as the “Omnibus Law”), the Government of Indonesia (“GOI”) has officially established a sovereign wealth fund, known as the Indonesian Sovereign Wealth Fund or the Indonesia Investment Authority (Lembaga Pengelola Investasi – “LPI”). Some also refer to the LPI as the Nusantara Investment Authority. The LPI is an agency of a sui generis nature with special authority over the management of the Central Government’s investments.

Sovereign wealth funds are not a new phenomenon. Some of the world’s biggest include among others the Norway Government Pension Fund, the China Investment Cooperation, and Singapore’s Temasek Holdings. In Indonesia’s case, the LPI is expected to be able to increase and optimize long-term investments to support sustainable development, as well as to make investment in Indonesia easier. Foreign investors and certain countries, such as, the United Arab Emirates (UAE), Canada, Japan andthe United States have expressed their interest in investing in the LPI. The UAE is reported to invest around USD22.8 billion; Japan is reported to invest around USD4 billion through the Japan Bank for International Cooperation; while Canada and the United States are reported to consider investing around USD2 billion.In an effort to accelerate the LPI’s operational activities, the GOI has issued three implementing regulations that serve as the statutory basis of the LPI, (collectively, the “LPI Implementing Regulations”):

  1. Government Regulation No. 73 of 2020 on the Initial Capital of the LPI;
  2. Government Regulation No. 74 of 2020 on the LPI (“GR 74/2020”); and
  3. Presidential Decree No. 128/P of 2020 on the Establishment of a Selection Committee for the Selection of Candidates for the LPI Supervisory Board from Professional Elements.

Further explanation on this topic is available in the full article which can be accessed in the link provided.

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