Indonesia’s plan for a Singapore rival starts to take shape

Indonesia wants to build a financial centre to rival Singapore, Hong Kong or Dubai, but analysts say the real work of persuading global investors has barely begun. Parliament’s passage of the enabling legislation on Tuesday laid the legal foundation for the hub, marking a milestone in President Prabowo Subianto’s push to attract more foreign capital into Southeast Asia’s largest economy and lift growth towards 8 per cent by the end of his term in 2029. Yet observers caution that the centre, which is projected to attract billions of US dollars in investment, is unlikely to deliver an overnight transformation, as crucial details surrounding tax incentives, investor requirements and regulatory safeguards are still to be finalised. Indonesia’s Investment Minister Rosan Roeslani said the legislation “addressed a clear gap” as despite the country’s “strong economic fundamentals”, it had never had a dedicated centre meeting the governance benchmarks that global financial institutions had come to expect.

The new legal framework will include an arbitration body and a special court to settle disputes arising within the financial centre, alongside a supervisory board and a dedicated governmental body answerable directly to the president and parliament. “It should combine internationally recognised financial standards with Indonesia’s development priorities,” Rosan said of the centre in a written response to questions. “We fundamentally want to earn trust so that Indonesia becomes a serious long-term investment destination in Asia.” The project formed part of Jakarta’s goal to build a “modern and credible financial ecosystem”, he added – one capable of meeting Indonesia’s need for “deeper access to long-term financing for the real economy, including infrastructure, strategic projects, sustainable finance and other priority sectors”. Danantara connection The initial capital will flow from Danantara, the sovereign wealth fund Indonesia launched last year that Rosan also heads, to establish the company set to run the financial centre, which officials project will attract up to 500 trillion rupiah (US$27.8 billion) in investment. “Through Danantara, we can help connect sovereign capital, private capital and strategic investors with Indonesia’s real economy,” Rosan said. The exact location of the centre has yet to be confirmed, though tourist hotspot Bali was previously identified as the front runner. Pandu Sjahrir, Danantara’s investment chief, has said the resort island possesses the “X-factor”, pointing to Miami as proof that a beach destination can reinvent itself into a financial hub. “There is inspiration globally to do this,” Pandu told the Nusa Dua Forum in Bali on July 17. “But some other feedback too is that a sense of safety is very important.” For foreign investors looking for a gateway into Indonesia, analysts say the hub’s logic is clear enough – but work is still needed to overcome governance concerns.

Economist Siwage Dharma Negara, a principal fellow at the ISEAS – Yusof Ishak Institute and co-coordinator of its Indonesia studies programme, said the country’s large domestic market, abundant natural resources and extensive pipeline of both private and state-linked projects were major draws. Not only that but the proposed location of Bali “already has global brand recognition and strong international connectivity, which is an attractive environment for family offices and global financial professionals”. Still, the centre’s rise is likely to “be gradual and selective rather than immediate and transformational”, according to Josua Pardede, chief economist at Bank Permata. Indonesia’s stable growth and resilient banking sector lent it “clear appeal”, he said, but the primary consideration for investors would still be the hub’s legal and regulatory framework. “Investors will look at capital mobility, tax clarity, foreign exchange convertibility, dispute settlement, data protection, licensing speed, anti-money-laundering standards and whether rules will remain stable across political cycles,” he said. Officials are still deliberating the investor criteria for various incentives, anti-money-laundering standards and tax information exchange agreements that will ultimately be implemented. Bali borderline Meanwhile, not everyone is convinced that Bali would be the optimal location for a financial centre. “I’m sceptical. Bali is a tourism spot, not a financial hub,” said Arianto Patunru, an economist and fellow at the Australian National University’s Indonesia Project. “The only investors that might be interested in parking their money in the centre are those planning to develop tourism-related activities further.” He also flagged lingering investor concerns about Danantara’s governance structure. “The government still needs to send the right signal of what Danantara really is,” he said. “As long as this is not dealt with well, any new financial centre tasked to Danantara to manage would not be attractive.”

Rather than attempt to directly compete with Singapore or Dubai, Negara said the country should carve out its own niche, suggesting Islamic finance, carbon markets or Indonesia-focused investment vehicles that played to its strengths. Earlier this year, Moody’s and Fitch Ratings both cut their outlooks on Indonesia’s sovereign credit rating to negative, citing concerns over policy predictability, governance and fiscal reforms. Josua cautioned against seeing the new centre as a “short cut” to growth. “It must be seen as a disciplined institution-building project,” he said. “Investors will welcome incentives, but they will not commit serious long-term capital if the centre is seen mainly as a tax-driven zone without strong legal certainty.”