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Indonesia moves closer to establishing $5bn sovereign wealth fund

Jokowi names advisers for fund that will initially focus on infrastructure

Indonesian President Joko Widodo told the advisory group for the country's planned sovereign wealth fund to select members of its board of directors by the end of next week.    © Reuters

JAKARTA -- Indonesia moved closer to establishing a new $5.3 billion sovereign wealth fund on Wednesday, with President Joko Widodo appointing five members for its advisory board.

Finance Minister Sri Mulyani Indrawati was named head of the board that will oversee the Indonesia Investment Authority, or INA. The other members are State Enterprise Minister Erick Thohir and three professionals with experience from cross-border investments to corporate deals. The five were sworn in during a ceremony at the presidential palace.

"I'm confident in the track records of these experienced professionals with good reputations," Widodo said after the ceremony. "We hope the INA will gain trust inside the country and internationally, so we can secure a huge amount of funds as an alternative for our development financing."

Widodo told the advisory group to select members of the sovereign wealth fund's board of directors by the end of next week. "And then after that I want them to start working immediately," he said.

The establishment of the INA is based on the sweeping omnibus law on job creation passed by the parliament in October last year. The government committed 15 trillion rupiah (about $1 billion) from the state budget last year as an initial fund to be managed by the authority, and is inviting foreign partners as it seeks to grow the fund to 75 trillion rupiah this year. Indrawati mentioned on one occasion last year a medium-term target to further expand the fund to 225 trillion rupiah.

Pledges from foreign investors so far have reached $8 billion -- $2 billion from the United States International Development Finance Corporation, $4 billion from the Japan Bank for International Cooperation and $2 billion from Canada pension fund CDPQ.

Indrawati told a hearing with lawmakers on Monday that brownfield infrastructure projects -- mainly toll roads, airports and ports -- will be the top initial uses of the fund. Health, tourism and technology are other sectors identified as potential targets.

Nomura said in a Jan. 11 note that it expected the fund to be onstream by mid-2021.

"We believe this is a win-win solution for Indonesia and investors as SWF will create more sustainable long-term infra funding, whilst investors can enjoy government-backed high-yield investments," Nomura said. "We believe foreign participation will help ensure professionalism for the fund and boost returns, and indirectly will be able to entice other countries to participate in Indonesia's high-yielding investments."

The three professional members of the advisory board are Haryanto Sahari, Darwin Cyril Noerhadi and Yozua Makes.

Sahari is a senior public accountant with over 30 years of experience, who serves as a commissioner at Indonesia's PermataBank. He had previously been a partner at PwC Indonesia, and a commissioner at several local plantation companies.

Noerhadi is the chairman of Creador Indonesia, part of the Creador private equity company that invests in growth capital for the mid-market segment in Southeast Asia and India. He had previously served as chairman at Indonesian brokerage Mandiri Sekuritas and was president of the Jakarta Stock Exchange in the late 1990s.

Makes is the founder of Makes & Partners. The website of the law firm says he has more than 25 years of experience in transnational mergers and acquisitions, corporate finance and foreign investment.

Additional reporting by Ismi Damayanti.

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