I. Core Problems and Reform Motivations of Indonesia’s State-Owned Enterprises

Indonesia’s ongoing state-owned enterprise (SOE) restructuring is not a short-term policy adjustment, but an in-depth structural reform targeting long-standing institutional drawbacks. As the largest economy in Southeast Asia and a G20 member state, Indonesia is endowed with scarce strategic resources including nickel, bauxite and coal, accompanied by remarkable demographic dividends and a huge domestic demand market. Nevertheless, long-standing flaws in the state-owned economic system have greatly hindered industrial upgrading and high-quality economic development, and restricted the valuation improvement and opening-up progress of the capital market.

The fragmented layout of state-owned assets and severe resource waste stand out as prominent problems. Before the reform, Indonesia had a total of 1,077 state-owned and state-controlled enterprises and their subsidiaries, covering dozens of industries such as energy, power, finance, infrastructure, mineral resources, telecommunications and agriculture. Widespread overlapping businesses and disorderly horizontal competition among SOEs have severely fragmented high-quality state-owned resources, making it impossible to form large-scale industrial synergy and leading market competitiveness. A large number of grassroots subsidiaries lack core operating businesses and effective revenue streams, relying entirely on state fiscal subsidies for survival, which continuously depletes public financial resources and leads to severe inefficient resource allocation.

Meanwhile, SOEs suffer from sluggish operational efficiency and weak profitability. Excessive administrative intervention, the absence of market-oriented performance appraisal and incentive mechanisms, and chaotic corporate governance have long undermined the commercial operation capacity of Indonesian SOEs, lagging far behind regional private enterprises. Public data shows that the average return on assets of Indonesian SOEs is less than 3%, well below the average level in Southeast Asia, and nearly 40% of state-owned subsidiaries sustain long-term losses. Prioritizing policy tasks over market-oriented operation, most SOEs suffer from insufficient capacity utilization and high operating costs. Instead of leading the development of the state-owned economy, they have become a drag on economic growth and a persistent burden on public finance.

Furthermore, ambiguous core businesses, disorderly cross-industry expansion and accumulating debt risks have constrained corporate development. Most SOEs blindly expand into non-core sectors; energy enterprises venture into cultural tourism and real estate, while construction enterprises engage in trading and service businesses, resulting in insufficient R&D investment in core industries and weakened main business competitiveness. Long-term inefficient operation has pushed up corporate debt, with the total debt scale of Indonesian SOEs exceeding 300 billion US dollars, and some inefficient enterprises have debt ratios exceeding safe thresholds. Loss-making SOEs rely heavily on bank credit and fiscal subsidies, squeezing the financing space for the real economy and hiding potential credit risks in the financial system. Against this backdrop, the new Indonesian government has prioritized SOE reform as a core economic strategy, adopting market-oriented means via a professional sovereign wealth fund to eliminate long-standing institutional drawbacks, revitalize stock assets and defuse potential risks.

II. Framework and Core Restructuring Logic of Indonesia’s Sovereign Wealth Fund

In February 2025, Indonesian President Prabowo officially launched Danantara (National Investment Authority), a national sovereign wealth fund modeled after Singapore’s Temasek Holdings, serving as the core implementation vehicle for the country’s SOE reform. Different from Indonesia’s existing sovereign wealth fund INA, which focuses on cross-border investment, Danantara specializes in the overall operation of domestic state-owned assets. As Indonesia’s sole super holding platform for state-owned assets, it is fully responsible for SOE integration, restructuring, capital operation and strategic investment.

With an initial capital of 20 billion US dollars, Danantara integrates more than 60 flagship SOEs across 12 core industries including energy, mineral resources, power, finance and infrastructure through free equity transfer of state-owned assets. Upon completion of full asset integration, its asset under management will exceed 900 billion US dollars, ranking it among the world’s top sovereign wealth funds. In terms of governance, Danantara completely breaks traditional administrative control, adopts market-oriented independent operation with a professional vocational investment management team, and realizes thorough separation of ownership and management, fundamentally solving the long-standing problem of integration of government administration and enterprise management.

Meanwhile, Indonesia downgraded the former Ministry of State-Owned Enterprises to a pure regulatory institution, retaining only policy formulation and industry supervision functions, and transferring all substantive powers including enterprise operation, asset disposal and project investment to the fund, building a new state-owned asset management system featuring "government supervision, fund operation and independent enterprise management".

The reform adopts four core strategies of elimination, divestment, integration and transformation to systematically improve the quality of state-owned assets. First, eliminate inefficient zombie enterprises by liquidating and deregistering insolvent and unprofitable SOEs with no substantial business, aiming to reduce the total number of SOEs from 1,077 to less than 300 and clear invalid state-owned assets. Second, divest non-core businesses, forcing all SOEs to withdraw from sideline sectors, recover idle funds and concentrate resources on core businesses to consolidate industrial foundations. Third, promote horizontal integration of homogeneous SOEs within the industry to eliminate internal disorderly competition, build leading state-owned enterprises in various sectors and form scale advantages and core competitiveness. Fourth, drive strategic industrial transformation, guide state capital to withdraw from low-end raw material export links, and focus on high-value-added tracks such as resource deep processing, new energy, green infrastructure and digital economy to facilitate Indonesia’s industrial upgrading.

III. Implementation Progress of SOE Restructuring

Since the official launch of the reform in 2025, Danantara has steadily advanced integration work with remarkable achievements. In terms of core asset transfer, seven flagship SOEs covering national petroleum, power, state-owned banking, telecommunications, railway, cement and pharmaceutical industries have completed equity transfer and been incorporated into the fund’s unified market-oriented management, covering the pillar sectors of the national economy and serving as benchmarks for SOE reform.

In terms of inefficient asset clearance, a total of 167 zombie and loss-making SOEs have been deregistered and liquidated as of the first half of 2026, effectively reducing internal consumption of state-owned resources and optimizing the structure of state-owned assets. In terms of industrial investment layout, Danantara released its 2026 annual investment plan, with an annual planned investment of 14 billion US dollars focusing on four emerging fields: new energy power generation, data centers, high-end chemical industry and modern agriculture. In addition, 18 major mineral resource deep processing projects with a total investment of over 38 billion US dollars have been launched, focusing on improving the downstream industrial chain of superior resources such as nickel and bauxite, compensating for shortcomings in high-end manufacturing and transforming the traditional raw material primary export-oriented industrial structure.

In terms of risk mitigation, the fund prioritizes the debt restructuring of SOEs, optimizes the debt structure of leading enterprises, reduces high-interest liabilities, terminates fiscal subsidies and credit inclination for inefficient loss-making enterprises, and accurately defuses systemic debt risks. Meanwhile, it empowers high-quality SOEs through market-oriented capital operation, continuously improving the overall profitability and credit qualification of state-owned enterprises.

IV. Structural Investment Opportunities in Financial Markets

The deepening of SOE restructuring has triggered the valuation reshaping of Indonesian state-owned assets, bringing clear structural opportunities for stock markets, bond markets and industrial investment, making Indonesia one of the most promising asset allocation tracks in Southeast Asia.

In the stock market, the SOE sector is witnessing value revaluation. The reform has comprehensively optimized the governance structure and operational efficiency of SOEs. Driven by scale dividends from industrial integration and profit improvement from core business focus, the valuation of core SOEs continues to recover. Five leading sectors including energy, power, mineral resources, finance and infrastructure benefit the most, with leading enterprises enjoying increased industrial barriers and steady profit growth. In addition, small and medium-sized SOEs pending integration have strong M&A expectations with huge valuation recovery potential. Brokerages and investment banks also benefit from incremental businesses including SOE mergers and acquisitions, IPOs and refinancing, driving sustained business expansion. From 2025 to 2026, the Jakarta Composite Index has maintained an upward trend, with weighted SOE stocks serving as the core driving force of market growth.

In the bond market, the overall credit qualification of SOEs has been improved comprehensively. Post-restructuring, high-quality SOEs boast more stable cash flow, optimized debt structure and reduced non-performing risks, leading to upgraded credit ratings and recovering market investment confidence. The supply of low-risk investment-grade SOE bonds has expanded with stable yields, while integrated and transformed industrial SOE bonds deliver high cost performance, providing high-quality underlying assets for fixed-income investment. In addition, Danantara’s special industrial investment bonds with sovereign credit endorsement feature both high safety and profitability, becoming core allocation targets for institutional investors.

In terms of industrial investment, resource deep processing and new energy tracks present prominent opportunities. Leveraging its world-leading nickel resource endowment and capital support from the sovereign fund, Indonesia is rapidly improving downstream industrial chains including lithium batteries, new energy materials and green smelting, greatly enhancing resource added value. Furthermore, policy-supported fields such as geothermal and photovoltaic new energy, digital infrastructure and modern agriculture receive continuous state capital inclination, delivering high industrial growth certainty and becoming core layout directions for cross-border capital.

V. Conclusion

The market-oriented SOE restructuring led by the sovereign wealth fund serves as a key breakthrough for Indonesia’s economic transformation.

The reform fundamentally addresses long-standing problems including rigid institutional mechanisms, low operational efficiency and accumulating risks of SOEs, effectively revitalizing trillion-level state-owned assets and rebuilding the core competitiveness of the state-owned economy. With the continuous implementation of reform measures, Indonesian SOEs will completely break away from administrative operation and transform into market-oriented, high-end and modern enterprises. The capital market will continue to gain valuation dividends brought by governance improvement, asset integration and industrial upgrading, promising sustained structural growth opportunities for Indonesia’s financial market and real economy in the long run.