Matchmaking: Establishment of state-owned holding companies in Indonesia

Abstract

Under the government of President Joko Widodo, Indonesia's state-owned enterprises (SOEs) have become the driver of the national development strategy. The current administration is actively using SOEs to conduct development projects based on the belief that SOEs are able to fix market failures and support the fiscally constrained government. In order to strengthen the role of SOEs, the Indonesian government is pursuing a medium-term plan of creating sector-based holding companies. The government expects that these state-owned holding companies (SOHCs) will enable SOEs to expand investment and benefit from synergies. However, considering political hurdles in implementing this policy, the process of establishing SOHCs is expected to advance gradually. The government also continues to face challenges clarifying and communicating the rationale behind creating SOHCs. This paper examines the current political economic context of SOE ownership reorganisation in Indonesia and diverse views on the expected consequences of forming SOHCs.