Indonesia’s Danantara and the Governance Challenge of State Capitalism

Governments want private capital to finance growth. Increasingly, they also want to decide where that capital goes and which industries it serves. The tension is obvious: governments want markets to invest, but they are also expanding their own role in directing economic activity.

Indonesia’s Danantara offers a case study in what can go wrong when those ambitions outpace the rules governing them.

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Launched in 2025, Danantara was designed to manage state assets and finance national development. The rationale is straightforward. Indonesia has abundant natural resources, but exporting commodities alone will not deliver the industrial transformation the country seeks. The challenge is to turn that wealth into productive investment.

Danantara’s role, however, now extends beyond investment. In May 2026, the government announced a centralised export arrangement covering coal, palm oil, and ferroalloys through Danantara Sumberdaya Indonesia (DSI). The stated aim is to curb under-invoicing, improve oversight, and protect export revenues. In 2025, these three commodities generated about $66.1 billion in exports, equivalent to 23.4 per cent of Indonesia’s total exports, according to the government.

The sums involved make better oversight worthwhile. But the choice of instrument matters.

Under the new rules, the state-owned entity is set to become the sole channel for these exports after the transition period. Danantara has said DSI will act as an intermediary and overseer, rather than take over producers’ existing contracts or customer relationships. That distinction may reassure exporters, but it does not eliminate questions about how the system will work in practice.

Commodity trading depends on reliable contracts, competitive pricing, trade finance, and timely payments. A new intermediary can improve monitoring, but it can also add friction. Fitch warned that centralising exports could reduce pricing flexibility, lengthen receivables cycles, and increase credit risks.

The issue is bigger than one export policy. When the state invests in businesses, sets the rules they must follow and controls access to a market, commercial, and political responsibilities can become difficult to separate. Without clear boundaries, investors may struggle to judge how decisions are made, who bears the risks and whether the rules will remain predictable.

Norway’s Government Pension Fund Global offers a useful, though imperfect, comparison. The fund returned 15.1 per cent in 2025, according to Norges Bank Investment Management. That figure alone says little about governance: the return was actually 0.28 percentage points below its benchmark. What matters is that performance can be assessed against a published standard, supported by detailed reporting. Danantara has a broader development mandate, so it cannot be judged by the same financial yardstick. But its public objectives and financial risks should be just as open to scrutiny.

Indonesia’s Audit Board began auditing Danantara’s consolidated financial statements for 2025 in September. The audit is not evidence of wrongdoing. It is an opportunity to establish a clearer picture of the institution’s financial position and the risks attached to its activities. Its value will depend on whether findings and necessary corrective measures are disclosed transparently.

None of this means Indonesia should abandon state investment. Private markets do not always fund infrastructure or industrial projects whose benefits extend beyond immediate commercial returns. Public capital can help close that gap. But governments should be able to explain why an intervention is needed, what it is expected to achieve and how its results will be measured.

For Danantara, that means distinguishing commercial investments from policy-driven projects, disclosing financial risks and making clear why state-linked companies need powers that private competitors do not have. It also means giving exporters and investors rules they can plan around.

Indonesia wants to capture more value from its resources while attracting the capital needed to develop its economy. Those goals are compatible, but they are not automatically aligned. The larger the state’s economic role becomes, the more important it is to show how decisions are made and who answers when they fail.

The test of state capitalism is not how much wealth governments bring under their control. It is whether they can use that wealth without making accountability and commercial certainty harder to secure.