China’s Silk Road Fund (SRF) has agreed to invest up to 20 billion yuan ($2..99 billion) in Indonesia’s sovereign wealth fund. Some commentators have said that this arrangement may discourage Western investors from investing in the Indonesian fund.
According to a joint statement from the Indonesia Investment Authority (INA) and SRF, the agreement permits investment in all areas of the Indonesian economy that are open to foreigners, particularly in initiatives that would improve economic ties between the two nations.
Yanzhi Wang, president of SRF, stated, “We feel that investment in Indonesia and the area has significant potential, especially when it is conducted in conjunction with INA.”
The INA tries to entice international co-investors to assist fund economic growth, in contrast to many other sovereign wealth funds that handle surplus oil earnings or foreign exchange reserves.
The agreement specifies broad guidelines and rules for how the SRF and INA would assess and choose joint investments.
The INA has established a $3.75 billion toll road fund with Canadian, Dutch, and a division of the Abu Dhabi Investment Authority after its February 2021 opening. With the INA, the United Arab Emirates has promised to invest $10 billion.
According to Indonesia, international organizations including the Japan Bank for International Cooperation and the United States International Development Finance Corporation have also showed interest.
The SRF, established in 2014, is supported by China Investment Corp., the Export-Import Bank of China, the China Development Bank, and China’s foreign exchange reserves.
The SRF, according to Trissia Wijaya, a researcher at the Center for Indonesian Policy Studies, a think tank, was less politically sensitive since it didn’t provide debt, unlike other Belt and Road Initiative (BRI) projects under the control of China.
Geopolitical considerations might make it more difficult for the INA to attract possible co-investors, she said.
Wijaya referred to funding committed at the Group of Seven leaders’ meeting last month when he remarked, “The G7 has recently announced a $600 billion infrastructure plan to confront China.”
The great unknown is whether they would want to share a platform with China, supported through INA.
Due to views that Beijing exerts control over the government and the fact that BRI projects use foreign labor rather than local labor, economic relations with China and BRI projects are frequently a source of friction in Indonesia.
The multi-billion dollar high-speed train in Java, which is Indonesia’s most well-known BRI project, has been beset by delays and cost overruns.
