AEI And Danantara Discuss Seven Economic Emergency Pressures

JAKARTA - The Indonesian Economist Alliance (AEI) met with the Investment Management Agency (BPI) Daya Anagata Nusantara (Danantara Indonesia) to discuss the Seven Economic Emergency Pressures that had previously been signed by 458 Indonesian economists and academics, both from within and outside the country.

At this meeting, the Indonesian Economist Alliance was represented by eight economists, including Jahen F. Rezki, Lili Yan Ing, Mervin Goklas Hamonangan, Milda Irhamni, Rizki Nauli Siregar, Talitha Chairuru Kisma, Teuku Riefky, Yose Rizal D. Present received representatives of AEI from Danantara Indonesia including Muliaman Hadad, Pandu Sjahrir, Rohan Hafas, Reza Yamora Siregar, Heikalal Ruslan, Krizia Darius Liauw, and Michael Reza Say.

AEI emphasized that the formation of Danantara Indonesia does not have a clear urgency and actually raises various institutional problems, especially related to governance, transparency, and potential conflicts of interest according to the points listed in the Seven Economic Emergency Pressures.

Lili Yan Ing said that there were four main issues that AEI was in the spotlight on Danantara.

"These four issues are 1) overlapping the role of Danantara, 2) Danantara financing, 3) Danantara governance problems, as well as 4) relations between SOEs and the business world with the risk of state domination and implications for domestic business health including small and medium enterprises," he said in his statement, Tuesday, November 18.

Yose Rizal D. added that the existence of Danantara in its current form has not been able to answer development challenges and has the potential to pose new risks.

He highlighted the misallocation of resources due to the dominance of SOEs that can suppress competition, as well as the weakness of institutional foundations due to the decision-making process that is not based on measurable economic indicators.

"First, related to resource misallocation, the amount of dominance of state business entities can reduce the level of competition in the market and reduce local business competitiveness. Second, related to institutions, we see problems in determining corporate actions that are not based on transparent and measurable economic indicators and the order of the Danantara institution which has not yet become a solution to the coordination problems that are rampant in the management of state business entities," he said.

Economists also highlight the unclear role of Danantara that ranges from sovereign wealth funds to development financing institutions, profit-oriented entities, to government project providers.

AEI considers that without priority clarity, the potential for conflict in roles is getting bigger and more dangerous for the management of state assets, as well as the determination of measurable performance indicators for each Danantara function as urgent needs.

Jahen F. Rezki emphasized that Danantara should not turn into a multi-state institution that confuses the direction of state policy.

"Will you play an investor in strategic technology, for example? How will Danantara play the role of managing state assets in the market? Mandates that overlap without priority are clearly at risk of creating conflicts of interest and weakening governance," he said.

In discussions on financing, economists emphasized that the uncertainty of funding sources is a crucial problem, considering that Indonesia has faced a fiscal deficit for two decades and a current account deficit in most of the last 15 years.

This condition is different from countries that form surplus-based sovereign wealth funds, and Danantara's dependence on debt also raises concerns about its impact on national debt management, which is now approaching 40 percent of GDP.

Teuku Riefky highlighted the risk of crowding-out on the private sector which could boost capital costs and narrow domestic investment space.

"There is a concern that the expansion of Danantara financing will actually cause crowding-outs to the private sector, increase capital costs, and reduce space for domestic investment movement," he said.

Economists also assess the loss of potential BUMN dividends transferred to Danantara as an important issue that demands high accountability.

In terms of governance, economists also highlight major challenges related to transparency, concurrent positions, conflicts of interest, and the meritocracy mechanism in the appointment of officials in the Danantara and BUMN.

Mervin G. Hamonangan emphasized that political pressure on Danantara is difficult to avoid given the scale of interests involved.

"In addition, political pressure on the Danantara is almost unavoidable given the magnitude of the interests involved," he said.

Concerns have also raised regarding the unclear strategy of Danantara, including the policy direction towards Pertamina and PLN.

Milda Irhamni highlighted that the uncertainty of the institutional and priority framework could increase the risk of resource misallocation.

"With the institutional framework and unclear and transparent role priorities, there are not only risks from resource misallocation, but also how the efforts made by state business entities can be in line with the country's priorities in environmental conservation and taking sides with the community and local businesses," he said.

In discussing BUMN's business strategy, economists considered that the dominance of countries in many sectors had created market distortions. They questioned how the distortion could be reduced if certain privileges were maintained, such as in the recent issuance of Patriot Bond.

Discussions also discussed how SOEs can be directed to become globally competitive players without relying on country civiles.

Talitha Chairuissa emphasized the importance of commitment to good governance and increasing real competitiveness.

"We certainly support the aspiration to encourage SOEs to become globally competitive companies without relying on the country's civiles. How is this goal achieved? Of course, commitment to good governance and increased real competitiveness is needed," he explained.

Rizki Nauli Siregar emphasized that AEI has conveyed Seven Economic Emergency Pressures along with concerns regarding governance, institutional priorities, and Danantara's investment strategy.

"We convey various questions and concerns and problems related to governance, institutional priorities, to Danantara's investment strategy which are reflected in various pressures that we put forward. The results of today's discussion have not answered many of these concerns," he said.

Seven Economic Emergency Pressures

Urge 1: thoroughly improve the budget misallocation that occurs and place the budget on policies and programs fairly and proportionally.

Urge 2: Restore independence, transparency, and ensure that there is no intervention based on the interests of certain parties in various state administrator institutions (Bank Indonesia, Central Statistics Agency, House of Representatives, Supreme Court, Constitutional Court, Corruption Eradication Commission, Supreme Audit Agency, Attorney General's Office), and return state administrators to their dignity and functions as they should be.

Urges 3: Stop the dominance of the state which risks weakening local economic activity, including the involvement of Danantara, BUMN, TNI, and Polri as the dominant organizers so as to make the market uncompetitive and can get rid of local jobs, the MSME ecosystem, the private sector, and social capital of the community.

Pressure 4: Deregulation of policies, licensing, licensing and simplification of the bureaucracy that hinders the creation of a conducive business climate and investment.

Urge 5: Prioritize policies that handle inequality in various dimensions.

Urge 6: Restore the proof-based policies and technocratic processes in policymaking and eradicating populist programs that disturb the stability and prevalence of fiscals (such as Free Nutritious Eating, Red and White Village Cooperatives, people's schools, downstreaming, subsidies and energy compensation, and Danantara).

Urges 7: Improve the quality of institutions, build public trust, and restore governance of state and democracy administrators, including eradicating conflicts of interest and rent-seeking.