SOEs Financial Crisis

FOUR state-owned enterprises (SOEs) tasked by President Joko Widodo to build infrastructure without the proper business calculations being done in advance have led to them being on the brink of bankruptcy. The debts of Waskita Karya, Wijaya Karya (WIKA), Adhi Karya, and Pembangunan Perumahan are between two and eight times their assets. The maximum safe ratio of corporate debt to assets is one.

Five to six years ago, the names of these construction SOEs were written on the boards at construction sites of major projects, constructing toll roads, railroads, airports, ports, dams and the Nusantara Capital City megaproject. Now, these companies are unable to repay their obligations to subcontractors and bondholders, let alone pay dividends to the state.

These SOEs relied on bond issues to cover the costs of the projects that were Jokowi’s ambition. These bonds have now matured. The managements of these state companies are experiencing serious difficulties repaying these debts because they are unable to take out new loans as financial institutions are unwilling to provide further credit. In February 2025, Pemeringkat Efek Indonesia announced that WIKA would be unable to repay its obligations because of a lack of liquidity.

Matters are now made worse because the administration of President Prabowo Subianto is no longer prioritizing infrastructure, and as a result, these SOEs have lost potential new income. Spending on infrastructure in the 2025 State Budget has been reduced from Rp110.95 trillion to Rp81.38 trillion. Consequentially, the government is not funding most of the huge projects from the Jokowi era.

The desire to leave a fantastic infrastructure legacy may have led Jokowi of using his authority to assign undercapitalized SOEs to construct it. The cooperation with Chinese state-owned companies resulted in a mountain of debt because the agreements did not bring benefits. The financial burden of these SOEs was passed on to the State Budget.

And these infrastructure projects did not produce business profits. The Jakarta-Bandung fast rail has needed continuous injections of subsidies because of the high operational costs. Moreover, operations at ports and airports have halted because businesses do not want to use them. Even the greater Jakarta light rail system faces shutdown because the contractor, Adhi Karya, has not been paid.

The shutdown of four construction SOEs will have systemic impacts. The subcontractors who supported these huge projects will also go bankrupt. This will result in mass redundancies of workers. This devastation has the potential to trigger a crisis on a wider scale in the construction sector and its derivative industries.

Eventually, investor confidence will be harmed. Investors who previously saw SOEs as a safe investment destination have withdrawn their funding. The failure of these SOEs to repay their debts not only damages the reputation of share issuers but also threatens the stability of the financial markets. The domino effect could spread to the banking sector, which provided loans to these companies.

The government is unable to provide bailouts to save these construction SOEs because that would increase their fiscal burden. At a time of spending cuts, lower tax revenues, and uncertain global economic conditions, bailouts will only worsen public trust in the credibility of Indonesia’s financial management.

President Prabowo has no choice but to realize the critical nature of this situation. His slogan of ‘continuation’ and his alliance with Jokowi apparently has limited his freedom of movement. Prabowo should think again about going ahead with priority programs that require substantial funding without clear business strategy. It is time for him to make some changes as a result of the damage done by his role model: Joko Widodo.