Indonesia is embarking on one of its most ambitious state-sector reforms in decades, aiming to reduce the number of state-owned enterprises (BUMN) from 1,046 to just 228. The move, driven by President Prabowo Subianto’s directive, seeks to eliminate inefficiencies and unlock greater economic value. With over half of BUMN currently operating at a loss, the overhaul could redefine the role of public enterprises in national development.
Key Facts & Background:
- The Indonesian government plans to consolidate its 1,046 state-owned enterprises (BUMN) into 228 entities through mergers, acquisitions, and spin-offs.
- According to Dony Oskaria, COO of Danantara, 97% of BUMN dividends come from just eight companies, while 52% of BUMN operate at a loss.
- Annual losses from inefficiencies are estimated at Rp 50 trillion, combining direct and indirect impacts.
- The restructuring will involve approximately 300 mergers and multiple spin-offs to refocus companies on their core competencies.
- PT Pertamina (Persero) is cited as a key example, with plans to spin off non-core businesses such as hospitals and hotels.
- The reform aims to create scalable, competitive, and transparently managed enterprises, with a national revenue target of US$ 50 billion.
- Financial audits and restatements are underway to eliminate misleading accounting practices and establish a clean foundation for future growth.
Strategic Implications:
1. Reimagining the Role of BUMN in National Development
The planned reduction in the number of BUMN reflects a strategic pivot from quantity to quality. By concentrating resources on fewer, more viable enterprises, the government aims to enhance operational efficiency, reduce fiscal burdens, and foster innovation. This shift aligns with global trends where state-owned entities are expected to deliver public value while maintaining commercial discipline.
2. Governance Reform as a Catalyst for Investor Confidence
The emphasis on transparency, proper revenue streams, and scalable business models signals a commitment to better governance. Eliminating “financial engineering” and restating financial reports are critical steps toward restoring credibility. These reforms could attract private investment, improve credit ratings, and position Indonesia as a more reliable partner in global capital markets.
3. Sectoral Realignment and Core Competency Focus
The restructuring will likely reshape sectoral dynamics, especially in energy, logistics, and infrastructure. Pertamina’s spin-off strategy exemplifies a broader trend of narrowing focus to core operations. Divesting non-essential units like hospitals and hotels allows BUMN to specialize, compete more effectively, and respond faster to market changes.
4. Fiscal Efficiency and Budget Optimization
With over half of BUMN operating at a loss, the reform is expected to reduce fiscal leakage and improve budget allocation. The Rp 50 trillion in annual inefficiencies represents a significant opportunity cost. Streamlining operations could free up resources for strategic investments in education, health, and digital infrastructure.
5. Political Will and Execution Risk
While the reform enjoys strong political backing from President Prabowo, execution will be complex. Mergers and spin-offs require legal clarity, stakeholder buy-in, and robust change management. Resistance from entrenched interests and legacy systems could slow progress unless mitigated by clear communication and institutional support.
6. Long-Term Vision: Building National Champions
The ultimate goal is to transform Indonesia’s BUMN landscape into a portfolio of high-performing, globally competitive enterprises. If successful, the reform could produce national champions capable of driving exports, creating jobs, and contributing meaningfully to GDP. The US$ 50 billion revenue target is ambitious but achievable if reforms are sustained and scaled.