Luhut Between Hope and Discourse

JAKARTA - For some people, managing personal finances can be a challenge. This is especially true for families with immense wealth, often referred to as the "crazy rich." Perhaps this is why Luhut Binsar Pandjaitan proposed establishing a family office (FO) in Bali last year.

As reported by the global business management consultancy PricewaterhouseCoopers, a family office is an organization created to oversee and manage the financial needs of a specific family, including the effective transfer of wealth between generations. It also states that a family office typically operates like a company, has employees, and can be organized as a separate entity or embedded within the family's operating company.

A family office plays a role in protecting family wealth, managing investment risks, enhancing family cohesion and generational transition, and clarifying the management of wealth and the personal affairs of family members.

In a video posted on his Instagram account in early July 2024, Luhut Binsar Pandjaitan proposed that Indonesia establish family offices. His proposal was based on data reported by The Wealth Report, which stated that the population of ultra-wealthy individuals in Asia is expected to grow by 38.3 percent between 2023 and 2028.

He believes that based on this trend, Indonesia has the opportunity to attract funds from global family offices, which are currently estimated to manage around $11.7 trillion. Luhut stated that Hong Kong has 1,400 single-family offices, although Invest Hong Kong reported last March that there are more than 2,700 offices exclusively serving ultra-wealthy families in the city, citing Deloitte's Market Study on the Single-Family Office Landscape in Hong Kong.

Luhut explained that family offices are one way to attract wealth from other countries for national economic growth. Having a family office will increase domestic capital circulation and also create the potential for increased GDP and employment through local investment and consumption.

"Based on this trend, I see an opportunity for Indonesia to attract funds from global family offices," Luhut said in an Instagram post on Monday, July 1, 2024.

Finance Minister Purbaya Yudhi Sadewa spoke out regarding the National Economic Council (DEN) Chairman Luhut Binsar Pandjaitan's plan to establish a family office in Indonesia. According to Purbaya, he has no objections as long as the establishment does not use funds from the State Budget (APBN) and emphasized that the state budget will not be diverted to fund the establishment of a family office.

"I've heard about that issue for a long time, but let it be. If DEN can build it itself, then build it itself. I won't divert the budget there," he told the media on Monday, October 13.

He added that his main principle in managing the state budget is ensuring that the budget is allocated to clear programs, on target, on time, and free from leakage. "My focus is that if the budget is allocated appropriately, implementation will be on time, on target, and there will be no leakage, that's all," he said.

DEN Admits Family Offices Are Still a Plan

The National Economic Council (DEN) has spoken out regarding Finance Minister Purbaya Yudhi Sadewa's statement regarding the plan to reject the use of the State Budget (APBN) to fund the establishment of Wealth Management Consulting (WMC) or family offices in Bali.

DEN Deputy Chair Mari Elka Pangestu explained that the plan to establish family offices in Indonesia is currently in the early stages of discussion and planning, so no final decision has been made, including regarding the funding source.

"This is currently under discussion. So it hasn't reached a final decision yet; it's just in the discussion, planning, and proposal stages, and it has nothing to do with the budget," she said after the Prabowo-Gibran Administration's 1st Anniversary event on Thursday, October 16.

She emphasized that at this stage of the planning process, there is no concrete budget requirement. Regarding DEN Chairman Luhut Binsar Pandjaitan's target of realizing family offices this year, Mari Elka said that this depends heavily on the drafting of regulations currently being discussed by various parties.

"That depends on the regulations. This is something that will require regulation. It will require new regulations, which are currently being discussed and planned, and there are legal aspects that need to be improved specifically for the family office to operate. So, let's just wait and see; this is still under discussion," he continued.

Potentially Harms Taxpayers' Fairness

The Prakarsa Executive Director, Ah Maftuchan, believes the formation of this agency will harm taxpayers' sense of fairness, with lower-middle-class taxpayers being pursued and tightened, while taxpayers from super-rich families are given leniency and exemptions.

The establishment of a Family Office is considered to undermine the government's credibility in the eyes of ordinary people. Furthermore, the government could be perceived as too subservient to super-rich families and clearly has the potential to harm taxpayers' sense of fairness, especially among the middle class. This is despite the fact that the state revenue from these middle-class individual taxpayers has historically been the largest source of state revenue.

"The formation of this body also has the potential to become a vehicle for the super-rich to engage in illegal activities. For example, transnational money laundering, whether originating from legal or illegal activities such as drugs, gambling, human trafficking, and merchandise smuggling," Maftuchan said in a written statement.

Maftuchan also stated that family offices do not necessarily increase foreign direct investment (FDI) in Indonesia, as various existing practices indicate that family offices in a country do not always invest in that country.

Take the example of a family office in Dubai, United Arab Emirates (UAE). He cited the example of 1-Digi Investment, which operates in fintech and other sectors, with its investment location in India. Similarly, Anglian Omega, which operates in media and entertainment, and other sectors, has its investment location in India.

Family offices do not necessarily improve the national economy. This is because family offices do not automatically invest directly in the real sector in Indonesia. Simply put, family offices do not automatically build factories, processing plants, or stores in Indonesia.

"A family office is in Bali, Indonesia, but its investment activities could be in India, South Africa, the United States, Vietnam, or other countries," he explained.

This means that family offices will not increase job creation, and the Indonesian government cannot tax their investment activities because they are not conducted in Indonesia.

Segara Research Institute Executive Director Piter Abdullah stated that family office investment schemes are trust-based businesses. Therefore, he wants the government to focus on capacity building to increase investment interest in family-based fund management schemes, by demonstrating a proven track record of financial management with total budgets reaching hundreds of trillions.

"First, prove that Indonesians can be as professional as fund managers abroad," he said.

On the other hand, economist and capital market observer Yanuar Rizky said he encourages the issuance of other financial instruments to boost the country's economy through investment interest, rather than using family office business schemes. "SOEs could also issue asset securitization called EBA (asset-backed securities), for example, for the New Capital Market (IKN) project, where the EBA would be purchased by them (investors)," he said.