The Governance Challenge Behind Indonesia’s Resource Ambitions

The launch of an official investigation by the Indonesian Attorney General’s Office into suspected high-level corruption in Pertamina, Indonesia’s state-owned oil and gas company, has reignited public concern over how the country governs its natural resources. Investigations into inflated procurement contracts, abuse of power and political interference have underscored a sobering reality: after years of unfulfilled promises of reform, entrenched corruption continues to thrive in key strategic sectors.

This case highlights the systemic nature of corruption within the state-owned enterprise (SOE), echoing a long history of governance failures. These dynamics are neither new nor unique to Indonesia. Around the world, extractive SOEs are often hot spots for corrupt practices and undue influence. Scandals involving companies such as Petrobras (Brazil), Sonangol (Angola) and NNPC (Nigeria National Petroleum Corporation) have made media headlines. In Indonesia’s case, the scandal is a stark reminder that natural resource wealth, without adequate strong institutional safeguards, can deprive the Indonesian national budget of very substantial revenues—the Attorney General Office’s spokesperson stated that they found indications of systemic corruption, with potential state losses of US$12.5 billion.

These developments come at a critical juncture for Indonesia. Building on President Jokowi’s legacy and Prabowo-Gibran’s 17 priority programs, Indonesia is doubling down on its ambitions to become a global hub for critical minerals—especially nickel, which is vital for electric vehicle (EV) batteries and the broader green energy transition. At the same time, the government has launched Daya Anagata Nusantara (Danantara), a sovereign wealth fund designed to channel revenues from SOEs into long-term, strategic investments.

These initiatives are central to Indonesia’s future growth model. But without strong governance and integrity, they risk enabling corruption and mismanagement, undermining green industrialization efforts.

Mining Boom, Fragile Governance

The governance challenges facing Indonesia’s rapidly expanding nickel sector are already visible. Regions like Halmahera and Sulawesi have become epicenters of industrial development, with massive investments flowing into industrial zones such as the Indonesia Weda Bay Industrial Park (IWIP) and Indonesia Morowali Industrial Park (IMIP), leading to impressive macro-level growth rates. These investments, often linked to Chinese capital and domestic political elites, are central to Indonesia’s strategy to build an integrated EV supply chain.

But without effective governance mechanisms, the country risks replicating a dangerous pattern seen elsewhere: mineral extraction that benefits a politically connected few, while failing to deliver meaningful benefits for the broader population or mitigate socio-environmental harms.

Global experience points to several critical questions for Indonesian stakeholders:

• Is the regulatory framework sufficient to allow strong governance rules?
• Do local governments have the capacity—and the political will—to monitor mining permits, ensure revenue collection, enforce socio-environmental standards, or enable public accountability?
• Are oversight mechanisms enough to monitor operations and extraction outputs while identifying and penalizing those who violate the rules? 

Danantara: High Hopes, Real Risks

Danantara, Indonesia’s newly established sovereign wealth fund (SWF) for development, could be a turning point. The fund aims to consolidate all revenues from SOEs—including banks, natural resources, telecommunications, energy—and invest them in long-term national priorities ranging from infrastructure to human capital and value addition of minerals (commonly referred to as “downstreaming” in Indonesia).

In theory, this is a bold and strategic move. If designed well, Danantara could protect resource wealth from short-term political pressures and turn it into a tool for intergenerational equity.

In order to deliver though, and based on the experiences of SWF in other countries—too often tainted by corruption scandals of huge magnitude such as 1MDB in Malaysia—Danantara must build the strongest governance structures. Lessons from other countries show the need for governments to be clear about:

• Who controls the fund?
• How are investment decisions made?
• What accountability mechanisms will prevent political capture?

Indonesia does not have a strong track record when it comes to public fund governance. Past scandals involving institutions such as Jiwasraya (a state-owned insurance company) and the Hajj Fund (Dana Haji) have shown how large pools of money can be siphoned off for private or political gain. If Danantara lacks transparency, public scrutiny or robust internal controls, it may fall into the same trap—failing to serve the people it is meant to benefit.

To avoid this, civil society must be empowered to monitor the fund. Watchdogs, academics, journalists, and local communities have a role to play. This means full transparency of the fund’s governance structures and rules (like its boards, which is a good starting point), revenues, disbursements and investments—and genuine participation in governance oversight.

Drivers of Reform

Amid broader challenges facing the country’s resource governance, international experience points to three broad steps that can help set the path forward, even if politically difficult.

1. Restore KPK’s resources and independence.

The Indonesian government and Parliament should reverse the weakening of its Corruption Eradication Commission (KPK). Over the past few years, the KPK’s powers have been eroded, undermining one institution that—despite its challenges—had one of the strongest track records of prosecuting corrupt actors, especially in the extractive sector.

Restoring the KPK’s independence and ensuring it is adequately resourced is essential. At the same time safeguards must be put in place to protect the institution from political interference. KPK should return to the blueprint of its formative years: independence and strong ties with civil society. These values were also central to the organization that inspired KPK—Hong Kong’s Independent Commission for Anti-Corruption (ICAC).

2. Improve transparency and traceability in the extractive sector. This includes requiring open contracting for all SOE transactions, implementing real-time disclosure tools, and mandating independent audits of procurement and revenues. The government should continue to strengthen the disclosure and verification of beneficial ownership data for companies operating in the mining sector, to ensure the public knows who controls the country’s mineral wealth and avoid favoritism and conflicts of interest. The adoption of Ministry of Law Regulation No.2/2025 on the verification of beneficial ownership data is a positive step, though challenges remain. Indonesia should also reinforce its commitment to the Extractive Industries Transparency Initiative (EITI), which provides a global standard for openness in resource governance and requires most of the disclosures suggested here. Regarding traceability, the government should continue to strengthen and expand its SIMBARA-initiated framework.

3. Ensure Danantara meets global best practices. The fund should align with the Santiago Principles for sovereign wealth funds, which emphasize accountability, transparency and prudent investment management. Independent oversight of fund investment and financial management is critical. Experience shows that multistakeholder oversight bodies—with seats for civil society, local communities, academia and the private sector—can play a crucial role in ensuring public accountability and legitimacy.

The Stakes Couldn’t Be Higher

The Pertamina case is not an isolated event—it is a warning. As Indonesia ushers in a new era of resource-led development, urgent action is needed to strengthen its governance systems. Without bold reforms, the country risks repeating past mistakes: corruption scandals, misused revenues, deepening inequality and irreversible environmental damage.

Critical minerals like nickel offer Indonesia an opportunity to boost national development and strengthen the country’s position in the global economy. But if governance fails, the benefits will be captured by a narrow elite while costs are borne by communities and ecosystems.

Danantara and Indonesia’s green economy have transformative potential. But only if they are built on a foundation of integrity, transparency and public accountability. Otherwise, they risk becoming yet another project rich in promise, yet poor in justice.