Will the Transformation of BUMN Lead to a Better Indonesia?

Will the Transformation of BUMN Lead to a Better Indonesia?

Mohammad Nur Rianto Al Arif
Professor at Syarif Hidayatullah State Islamic University Jakarta
Secretary General of the Indonesian Lecturers Association (DPP)
Assistant to the Presidential Special Envoy for Food Security

February 2025 is a pivotal moment in Indonesia's economic framework and the control of state-owned enterprises (SOEs) since President Prabowo Subianto launched Danantara, the Anagata Nusantara Power Investment Management Agency, a new organization designated as the primary center for the management and investment of state assets. Subsequently, discussions for the elevation of the Ministry of State-Owned Enterprises (BUMN) to a ministerial-level entity commenced.

However, on September 25, 2025, the administration and Commission VI of the Indonesian House of Representatives reached an agreement on the amendment of the State-Owned Enterprises Law. One of the agreements stipulated the dissolution of the Ministry of State-Owned Enterprises, which would subsequently be reconstituted as an institution. Additional enhancements pertain to the BPK's jurisdiction to audit SOEs, as the amended legislation also classifies SOE personnel as state administrators.

This shift is not simply a change in terminology; it fundamentally impacts the governance of state-owned enterprises, addressing the state's position as the owner, overseer, and manager of the state-owned corporations that have historically formed the foundation of the national economy. While aspirations for efficiency and professionalism exist, apprehensions surrounding accountability, transparency, and possible politicization also emerge.

This article will thoroughly analyze the implications of the Ministry of SOEs' transition to an agency and the difficulties of managing SOEs with professionalism and accountability in this new context.

The Ministry of SOEs was founded in 1998, in reaction to the economic crisis and the necessity for reform of SOEs. Since then, this ministry has acted as the government's representation in the ownership of state-owned firms, in addition to serving as a policy director and performance supervisor.

State-owned firms serve as a vital connection to the livelihoods of numerous individuals in Indonesia, while SOEs function as foundational elements linking commercial rationale with societal obligations, encompassing sectors such as energy, petroleum commodities, fertilizers, food, transportation, telecommunications, and significant banking institutions that provide economic liquidity.

Thus, the function of BUMN is still pivotal: its assets amount to thousands of billions of rupiah, the dividends allocated to the state budget annually constitute a source of state revenue, and numerous critical projects depend on BUMN's leverage.

Nonetheless, behind that contribution, state-owned firms are characterized by difficulties such as inefficiency, protracted bureaucracy, substantial social burdens, and political interference that frequently constrains managerial flexibility.

Over the past two decades, the Ministry of SOEs has experienced numerous transitions, encompassing restructuring, privatization, and the establishment of strategic holdings. The simultaneous roles of owner and regulator frequently result in conflicts of interest. The ministry is anticipated to enhance efficiency and profitability apart from mere political instruments and populist strategies, particularly prior to elections or during crises.

Danantara, officially inaugurated in February 2025, is an investment management entity designed to enhance public assets and bolster Indonesia's economic competitiveness. The inaugural CEO, Rosan Roeslani, declared that Danantara will predominantly house state-owned firms, having a 99 percent shareholding.

Danantara's framework is analogous to sovereign wealth funds such as Temasek (Singapore) or Khazanah Nasional (Malaysia). It functions as a corporate entity, governed by a professional board of directors and commissioners, and is not directly accountable to the ministerial bureaucracy.

This strategy aims to render the administration of state-owned firms more adaptable, market-responsive, and insulated from political interference. The amended BUMN Law, which has received consensus, establishes the legal foundation for reclassifying the Ministry of BUMN as the implementing agency.

This alteration transforms the ministry's role from practical executor to regulator and symbolic stakeholder, separated from part of the cabinet system while staying autonomous at the ministerial level. 

The side effect, however, comes in the form of a lack of executive authority over state-owned firms, possessing merely a supervisory role, and the establishment of basic policies. The ramifications are substantial, including that public personnel in the Ministry of SOEs will be reassigned, bureaucratic tasks will be diminished, and decision-making will increasingly be managed by Danantara as a corporate entity.

The elevation of the Ministry of SOEs to a status comparable to that of a ministry has considerable ramifications for the governance framework of SOEs. This signifies a transition from a bureaucratic framework to a corporatist model. Several significant effects can be discerned.

With Danantara as the principal stakeholder, strategic choices regarding investments, restructuring, and director appointments will be predominantly dictated by the board of directors and professional commissioners. This diminishes reliance on the ministry's bureaucratic procedures.

Secondly, the distinction between ownership and regulatory roles. The Ministry of SOEs has conventionally assumed a dual function as both proprietor and regulator. The ownership function is then assigned to Danantara, although the regulatory and general policy functions are retained by new institutions.

Third, the potential for fragmentation and redundancy. Despite the objective of efficiency, there exists a risk that coordination between the new agency and Danantara may become misaligned. In the absence of explicit communication and control mechanisms, ambiguity may emerge in policy execution.

Fourth, transformation of organizational culture. Civil officials formerly employed in the Ministry of SOEs will encounter the task of acclimating to a more dynamic and results-driven corporate culture. This necessitates retraining, a shift in thinking, and reorganization of human resources.

The thing is that institutional restructuring does not inherently ensure professionalism and accountability. A multitude of issues requires resolution, with numerous arguments advocating for this alteration in institutional status.

The initial issue pertains to the professionalism in the administration of SOEs. The entity's status is thought to enable SOEs to be administered with a strictly commercial focus. Strategic decisions may be executed swiftly without obstruction from bureaucratic processes.

I suggest that these institutional modifications are anticipated to diminish political interference. SOEs exhibit greater stability and are not influenced by cabinet reshuffles, with business decisions having ceased to function as a pragmatic political domain.

In addition, large-scale initiatives such as energy or transportation infrastructure necessitate decades of stability, facilitating the persistence of strategy throughout governmental transitions. A more streamlined structure facilitates coordination among SOEs, particularly in the establishment of substantial holdings.

Nonetheless, there are also critiques regarding this alteration in institutional standing.

Primarily, public accountability. The Ministry of SOEs is unequivocally accountable to the president and the House of Representatives. Should it evolve into an agency, the accountability framework must be explicitly delineated to prevent any ambiguity.

Secondly, the peril of commercialization. Concerns exist that state-owned firms prioritize profit at the expense of social functions, such as subsidized fuel, rural electricity, and low-interest loans.

Third, the government must promptly amend the SOEs Law. Altering the status necessitates a comprehensive amendment of the SOEs Law, the State Finance Law, and several associated laws.

The fourth risk is to the centralization of power. Superholding SOEs may evolve into an excessively powerful institution, challenging to regulate, and perhaps used for the advantage of the elite.

To guarantee the success of this transformation and prevent dysfunction, numerous policy recommendations should be addressed. Initially, the establishment of an autonomous supervisory board. This new entity and Danantara must be supervised by an autonomous board of scholars, experts, and community representatives.

It must be accompanied by transparency in the director appointment process. The selection process must be based on merit, transparent, and supervised by an impartial entity. The public ought to have access to information regarding the directors' backgrounds and performance.

Furthermore, regular performance evaluations and reports must be collected annually, and all SOEs, including Danantara, are required to produce independently audited financial and performance reports accessible to the public.

We cannot also cut off civil servants instantly; they must receive training and opportunities to acclimate to the new culture. We must guarantee that this transformation does not result in mass termination of employment.

The participation of the House of Representatives in strategic policies must align with the transfer of operations to Danantara. Strategic measures like privatization and significant restructuring must continue to engage the House of Representatives as the actual representation of the people.

The elevation of the Ministry of SOEs to a ministry-level entity, alongside the foundation of Danantara, signifies a new phase in the administration of state-owned businesses. This is not merely a structural alteration but a paradigm shift: transitioning from bureaucracy to corporatism, from political oversight to professionalism, and from opacity to transparency.

Nonetheless, institutional modifications represent merely the initial phase. The genuine difficulty resides in execution. In the absence of a commitment to effective governance, integrity, and accountability, this transformation may be superficial.

Conversely, if executed diligently, Indonesia has the potential to establish SOEs that are not only efficient and competitive but also serve as a cornerstone of inclusive and sustainable national development.

Danantara, as a nascent entity, bears significant expectations. It must demonstrate that the state asset management model can operate independently of political interference, yielding concrete benefits for the populace.

Concurrently, the newly established entity succeeding the Ministry of SOEs must uphold public principles, guaranteeing that national interests serve as the principal guide.

In the context of global dynamics and domestic requirements, Indonesia necessitates state-owned firms that are robust, flexible, and transparent.

This transformation presents a valuable opportunity; if handled judiciously, institutional changes can evolve into a commendable legacy. Otherwise, it will merely constitute a footnote in the annals of unsuccessful changes.

This article was originally published in Kompas on Friday (26/9/2025)