Huge investment for Indonesia planned

The Indonesian government has turned heads with the announcement that it would be injecting a vast amount of capital into its state-linked industries. This is largely being seen as a positive step for the nation, as it should encourage growth in a number of sectors across the country.

This is not just a one-off cash injection, either; the Indonesian government is committed to overhauling its spending policies in order to better encourage expansion within its business sector. This seems like a grand gesture to start with, but it will be followed by a long-term plan of investment that should benefit a number of companies.

Where has this money come from?

In total, the Indonesian government will be investing 48 trillion rupiah ($3.82 billion) into state-linked businesses. This is a huge amount to be giving out, but the country sees it as an appropriate investment. Furthermore, the method in which it has been raised is another indication of the change in spending priorities.

The money has come from the decision to no longer subsidise gasoline prices. This policy came into effect on January 1st, and the Indonesian government is already set to spend the money it will save on investment into businesses.

The subsidy reform has been planned for a while, but was only made possible recently thanks to the global drop in oil prices. Indonesian president Joko Widodo jumped at the chance to raise funds for business investment, and slashed fuel subsidies.

Where is it going?

All this money is to be invested in Indonesian state-linked businesses. Where exactly it is going tells us a lot about the country's long-term plans for its industry. Primarily, it is being invested in infrastructure and Indonesia's largest bank by assets.

Port operator PT Pelabuhan Indonesia, construction firm PT Wijaya Karya Tbk, railway operator PT Kereta Api Indonesia and airport operator PT Angkasa Pura are all set to receive a portion of the funding. This shows how Mr Widodo intends to boost the country's building sector.

PT Bank Mandiri Tbk is also set to benefit. It will receive a 9 trillion rupiah increase in capital, thanks in part to the funding. Some 3.4 trillion rupiah of this will come from the government, while the remaining 5.6 trillion rupiah will be raised by the bank through a rights issue.

Teguh Putra Hartanto, an analyst with Bahana Securities, told Reuters: "If these rights issue and capital injection do roll out, loan growth should be accelerated. Jokowi will need this loan growth to support his GDP growth target of seven per cent."

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