Indonesia is restructuring its state-owned enterprise (SOE) sector by consolidating companies under the sovereign wealth fund Danantara while simultaneously winding down hundreds of loss-making companies. The government plans to close around 250 inefficient SOEs by the end of July, with the total expected to reach 800 by the end of 2026. This move marks a shift toward state-directed capitalism, raising questions about whether the strategy will improve economic efficiency or discourage private investment.
Consolidation and the Path to Efficiency
The current restructuring effort builds on reforms previously initiated by former SOEs Minister Erick Thohir, which sought to streamline fragmented state businesses. According to Adib Miftahul, Executive Director of Kajian Politik Nasional (KPN), the previous structure often saw subsidiaries operating outside their core business areas with limited returns. By narrowing the focus of these entities, the government aims to generate greater value for the state and, eventually, more resources for national development projects.
Adib argues that a stronger state role in managing these assets is not inherently negative, provided the focus remains on professional management. If successful, the consolidation could reduce overlapping functions and lower operating costs, according to Yusuf Rendy Manilet, an economist at the Center of Reform on Economics (CORE) Indonesia.
Did You Know? The Indonesian government has set a specific timeline for its SOE reduction strategy, targeting the closure of 250 inefficient companies by the end of July, with a long-term goal of shuttering 800 by the end of 2026.
Risks of State-Directed Capitalism
While the consolidation could improve financing for large-scale projects, economists warn of significant risks if governance fails to keep pace with the state’s expanding power. Yusuf Rendy Manilet notes that when the government acts as both a regulator and a major investor, it creates a potential for conflict of interest and moral hazard.
There is also the concern of “crowding out,” where state-led projects absorb liquidity that might otherwise flow into the private sector. Yusuf cautions that allowing a single institution to pursue commercial returns while managing public service obligations could blur accountability and weaken market discipline.
Expert Insight: The success of this transition hinges on governance. Without sound corporate governance, the restructuring could repeat past problems, including politically driven appointments, inefficient subsidiaries and recurring government bailouts.
Investor Outlook and Market Confidence
Foreign investors are reportedly less concerned with the size of state ownership than with the quality of the investment climate. Both Adib and Yusuf agree that regulatory certainty and bureaucratic efficiency remain the primary drivers for international capital. The success of Danantara in attracting international funding suggests that investors remain interested, provided there is transparency regarding investment decisions and institutional accountability.
Ultimately, the long-term success of the restructuring depends on whether the government can ensure professional management and transparency. Without sound corporate governance, analysts warn that the consolidation may fail to prevent the return of past issues, such as politically driven appointments and recurring reliance on state bailouts.
Frequently Asked Questions
Why is the government closing 800 SOEs?
President Prabowo Subianto identified these companies as inefficient and a major source of corruption, aiming to streamline the state’s economic footprint by 2026.
What is the role of Danantara in this process?
Danantara is serving as a sovereign wealth fund that acts as a major investor, consolidating state assets to direct capital toward strategic sectors.
Are foreign investors worried about the state-directed model?
Not necessarily. According to experts, investors are more focused on regulatory certainty, licensing, and professional management than on the size of the state’s economic presence.
How will the government ensure these reforms do not result in further corruption?
Worth a look