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Japan to commit in Indonesia's Sovereign Wealth Fund

Japan has pledged a commitment to invest $4 billion in Indonesia's inaugural sovereign wealth fund, marking a speedy development that may hold the key for the Southeast Asian country's infrastructure ambitions.

Japan was the second country to pledge a concrete amount to the fund after the US International Development Finance Corporation (DFC), the United States's financing arm, did so last month. 

Indonesia set to establish the fund to raise an alternative funding source for its ambitious infrastructure projects in the next few years. The 2020 Law on Job Creation mandated the government to establish the fund, and it has been working toward a goal to set the fund up and running next year.  

Indonesia has run twin deficits in the past few decades, so it can not afford to fund the sovereign wealth fund from the foreign exchange reserves or the government's budget surpluses, like Norway or Singapore, and invest in real or financial assets worldwide.

So, the country opted to follow Russia's model instead. The Nusantara Investment Authority would pool funds from investors worldwide and channel it to strategic projects in Indonesia. Indonesia's state-owned construction companies have maxed out their leverage in the past five years to take on President Joko "Jokowi" Widodo's infrastructure ambition. Now, with Nusantara Investment Authority assuming the financing responsibility, the companies could get the breathing space they needed for taking on new projects.

(source: The Jakarta Globe)