The Indonesian Investment Agency (known as INA) is Indonesia’s state-owned investment fund and has been established for about three years. When INA was first proposed, it was not clear what it would do or how it would be structured. However, after several years of operation, the role of the fund in Indonesia’s economy has become clearer.
In 2021, INA was seeded with $5 billion in state capital. This included about $1.7 billion in cash, most of which was placed in interest-bearing bank deposits and government bonds. It also included $3.3 billion worth of shares in two state-owned banks, Bank Mandiri and Bank Rakyat Indonesia. In 2023, the fund’s total assets increased to approximately $7.3 billion, with net income of $269 million.
Currently, INA’s main sources of income and operating cash flow are not from its investment portfolio, but from interest income from bonds and bank deposits, and dividends paid by Bank Mandiri and Bank Rakyat Indonesia. Indonesia’s banking sector is experiencing strong growth, and the value of INA’s stake in these banks has increased from $3.3 billion to $4.8 billion over the past two years.
This was actually a very smart way to structure the fund, as it minimized the direct cash outlay required by the government. As long as the banking sector continues to perform well, INA’s Bank Mandiri and Bank Rakyat Indonesia shares will generate cash flow while the fund continues to build its portfolio.
And that brings us to the next big question. What exactly does that portfolio contain? INA’s mission is to invest in priority sectors such as transport, logistics, healthcare, green energy and the digital economy. Over the past few years, INA has set up a quasi-holding company that invests in telecom tower operator Mitratel and state-run pharmaceutical company Kimia Pharma. They continue to hold these investments.
However, most of INA’s important activities to date have been in the toll road sector. The fund has acquired ownership of several toll roads in Java and Sumatra through a quasi-holding company, and its efforts are very interesting. Take the Pejagan-Pemarang toll road as an example. This is a highway in Java operated by the state-run construction company Waskita Kariya. Waskita is currently in financial trouble, largely due to the large amount of short-term debt it has taken on to build these toll roads.
INA stepped in and acquired 100 percent of the Pejagan-Pemaran toll road from Waskita. This will help relieve some of the financial pressure on state-owned construction companies. I think more of this is likely to happen, as Indonesia’s toll roads have significant long-term economic value and operators like Waskita can inject fresh capital. In the case of Pejagan-Pemaran, INA later reversed course and sold 53 percent of the toll road to two foreign investors from the UAE and the Netherlands.
These types of co-investment partnerships are beginning to develop in other areas as well. In 2023, INA established a quasi-holding company called PT INA DP World, which owned 51 percent of the company’s shares. The remaining 49% is held by Dubai-based logistics giant DP World. Although the joint venture is currently small in terms of book value, it is clear that it plans to become a major conduit for Middle East investment in Indonesia’s port infrastructure. A co-investment agreement similar to China’s GDS is underway for data center development, and there are large plans for green energy in the near future.
And it is becoming clear that this is likely to be INA’s primary function. It is neither funded nor actually managed like a traditional sovereign wealth fund like Singapore’s Temasek. Temasek primarily reinvests reserves accumulated by buying and selling assets, often overseas, to maximize returns to the country. Rather, INA is more like a co-investment fund aimed at attracting foreign capital to key parts of Indonesia’s economy.
Historically, a major barrier to foreign investment in Indonesia has been investor uncertainty. Regulatory hurdles are very high and entering a market heavily dominated by state-owned enterprises can be difficult. Throughout 2023, it became clear that one of INA’s main functions will be to help alleviate these concerns by partnering with foreign investors in priority areas, including toll roads, logistics, green energy, and We should expect to see more of this activity in the environmental field. The digital economy moves forward.
