Prabowo’s State Capitalism

PRESIDENT Prabowo Subianto is taking a significant risk with the establishment of the Daya Anagata Nusantara Investment Management Agency, or Danantara. More than merely a privatization of state-owned enterprises (SOEs), this new body is a realization of the guided economy concept with the president’s militaristic style. Unfortunately, instead of strengthening the confidence of global markets to Indonesia, Danantara is weakening it.

Revision to the SOEs Law, which was passed on February 4, states that Danantara will have a 99 percent shareholding in state-owned companies. The remainder will be held by the SOEs Ministry. Danantara, which is planned to be launched on February 24, will manage all SOE assets, including the dividends that previously were included as non-tax state revenues in the State Budget.

Last year, the total dividend paid by 65 SOEs to the state was Rp85.8 trillion from the Rp10,402 trillion worth of assets that they manage. This year, that sum will be paid to Danantara, and will be managed as an investment. The Prabowo administration claims that the dividend from state-owned companies will be managed in a way that ensures its total increases. The status of Danantara means that the companies it manages will no longer be a separate component of state assets.

The directors and commissioners will no longer be state officials subject to the Anti-Corruption Law. Nor will they have to report their wealth before and after working at management level under Danantara. The drafters of the law argued that this rule was made to protect directors and commissioners from criminalization of business decisions that they take. Therefore, they will be free from any criminal case if they make wrong decisions. Company bosses will no longer need to communicate all their business decisions with the House of Representatives (DPR), as they do at present.

Danantara will also make state companies no longer subject to audits by the Supreme Audit Agency (BPK). Instead, like private companies, they will be audited by public accountants. BPK auditors will only be allowed to carry out investigative audits of these companies as part of a special investigation with the authorization of the DPR. This design eliminates checks and balances as a prerequisite of good corporate governance. The investment agency will manage vast assets owned by the state without proper transparency.

By placing Danantara directly under his control, President Prabowo will easily be able to make use of state-owned companies for his own interests. Rather than using them as an investment, the funds controlled by Danantara could be used to fund government ‘priority programs,’ such as the free food project and the establishment of new military units in various regions.

Unsurprisingly, even before its establishment was announced, market confidence in SOEs fell sharply. The prices of banks' stock on the market fell in unison. BRI dropped by 4.75 percent, Bank Mandiri slumped 16.07 percent, and BNI declined by 8.59 percent. Meanwhile, the shares of non-bank SOEs also fell, with Semen Indonesia plummeting by 22.49 percent. Prabowo is playing games with investor confidence.

Looking back into the past, Danantara is actually a project by Prabowo to realize the dream that his father, Sumitro Djojohadikusumo, had in the 1980s. As a Finance Minister during both the Old Order and the New Order, Sumitro had the idea of establishing an investment agency to manage between one and five percent of SOE profits. But his susccesor, J.B. Sumarlin, Finance Minister from 1988 to 1993, rejected this plan. Sumitro then passed on the proposal to the government of Malaysia, which resulted in the establishment of Khazanah Nasional Berhad in 1993.

Prabowo confirmed his backing for his father’s proposal in his 2022 pamphlet book The Indonesia Paradox and Its Solutions, in which he claimed that Indonesia’s wealth was fleeing overseas because natural resources were not managed by state companies. Prabowo based his thoughts on the way Deng Xiaoping led reforms in China from 1978 to 1989 by establishing 150,000 SOEs to manage the nation’s natural resources.

Therefore, according to Prabowo, the solution for Indonesia to catch up with the Chinese economy is to implement state capitalism through SOEs. The next step is through guided democracy, which does away with direct elections. Prabowo has begun his project by establishing Danantara and practically eliminating basic practice of good governance.