Indonesia’s ‘state-loss trap’ and why SOE giants may be too scared to sell

[JAKARTA] Indonesia’s “state-loss” doctrine has long blurred the lines between a bad commercial bet and a loss to the state, exposing executives at state-owned enterprises (SOEs) to risk when investments turn sour.

Jakarta updated the law last year to plug some of these concerns, but old fears still linger.

The issue has drawn renewed attention after being cited as a key obstacle to the proposed merger between Grab and GoTo, based on a Bloomberg report.

It said that one of the main hurdles comes from Telkom Indonesia, a state-owned shareholder whose stake in GoTo – held through its subsidiary Telkomsel – has fallen sharply since the initial investment.

The telco has voiced concerns over losses involving state capital, a matter that, under Indonesian law, can carry legal consequences. Last December, the Attorney General’s Office reportedly began questioning witnesses in the case involving Telkom’s investment in GoTo.

The Business Times spoke with analysts on how the law fuels uncertainty over legal predictability, and how the treatment of SOEs’ investment losses can complicate corporate transactions.

Rules of the game

At the centre of the debate is a doctrine that, for years, has made it hard to tell where normal business risk ends and a “state loss” begins.

Previously, investment losses incurred by SOEs could be legally classified as losses to the state. This grew out of the country’s post-crisis push to safeguard public finances and strengthen anti-corruption enforcement.

Abdul Fickar Hadjar, a criminal law expert from Trisakti University, noted that Indonesia’s prevailing corruption eradication law allowed prosecutions when actions benefited others or corporations and resulted in losses to the state.

Originally intended to safeguard public assets, the rules became increasingly viewed as a source of legal uncertainty – particularly when applied to commercial decisions made under normal business risk.

Acknowledging the concern, Indonesia revised its SOE law in 2025 to clarify that not all losses constitute state losses, particularly when decisions are made in good faith and follow proper governance.

The line between protecting state assets and allowing business decisions is now clearly drawn under the business judgment rule, which has been integrated into the updated SOE law.

The revisions to the framework also provide the legal foundation for the establishment of sovereign wealth fund Danantara, which is mandated to manage SOE assets and make billion-dollar investment decisions on the state’s behalf.

The law stipulates that profits or losses from investments made by Danantara are considered corporate risks, not state losses.

Reform on paper, uncertainty in practice

On paper, the changes to Indonesia’s SOE law mark a shift towards international norms, where commercial risk is clearly distinguished from misconduct.

Legal ambiguity, however, persists. Law enforcement agencies can still probe business decisions if they suspect criminal wrongdoing or malicious intent, leaving executives and investors uncertain about where the line is drawn.

Bert Hofman, a former World Bank country director who has been advising governments around Asia, said the uncertainty surrounding the concept of state losses “biases SOE management and oversight agencies – such as Danantara – against privatisation, partial sales or collaboration with private entities, as they risk triggering investigations”.

R Bayu Perdana, a partner at law firm RBP Asia focusing on white-collar crime, said that although constitutional rulings hold that state losses must be tangible, law enforcement practices sometimes diverge in reality.

“The risk of post-factum scrutiny by law enforcement remains a challenge, one that must be mitigated through robust corporate governance and thorough documentation.”

Ronny Sasmita, senior analyst at the Indonesia Strategic and Economics Action Institution (ISEAI), said the issue lies not just in the law, but also in its enforcement.

He explained that SOEs are still often treated as extensions of the state budget, with normal business losses recast as state losses when outcomes go poorly.

“Interpretation of ‘state losses’ has been inconsistent,” he noted. “In politically sensitive cases, interpretations can take on a populist tone, driven more by public sentiment than legal reasoning.”

How others draw the line

In many jurisdictions, SOE losses are not automatically deemed state losses, as long as decisions follow sound corporate governance.

In Singapore, Temasek-linked firms operate under private-sector company law, with boards assessed on fiduciary duties rather than investment outcomes; losses are not criminalised, absent fraud or corruption.

Malaysia similarly applies company law standards, focusing enforcement on process and disclosure. Meanwhile, China has introduced “fault-tolerant” mechanisms to protect SOE executives who take reasonable risks.

When business decisions turn criminal

In recent years, Indonesia has witnessed a growing number of criminal cases brought against executives of SOEs over business decisions that were later deemed to have caused losses to the state.

One of the most high-profile cases involved former Pertamina chief executive Karen Agustiawan, who led Indonesia’s state oil producer from 2009 to 2014.

In 2024, she was charged over a liquefied natural gas procurement deal during her tenure that prosecutors said caused losses to the state and was sentenced to up to 13 years in prison.

Last year, state-owned ferry operator ASDP’s former head Ira Puspadewi and three other directors were convicted of corruption over the acquisition of used vessels from a private ferry operator.

This was despite the absence of evidence that the individuals involved personally benefited financially.

The ruling sparked public debate, with critics arguing that it unfairly penalised executives for decisions made in good faith and warning that it could stifle risk-taking and innovation within SOEs.

In response to the outcry, President Prabowo Subianto granted rehabilitation to Puspadewi and three other directors, marking a rare executive intervention in high-profile corporate governance cases.

Jitters over legislation

Indonesia has sought to attract foreign investors but faces concerns over legal predictability in the archipelago of 280 million – often ranked among the world’s most corrupt by Transparency International.

The US State Department’s latest assessment cites legal uncertainty, corruption and entrenched interests as key obstacles to business in the country.

From an investor’s standpoint, analysts say the legal risk is difficult to ignore and likely to face close scrutiny. For foreign partners, Indonesian SOEs may be perceived as entities perpetually exposed to the ex post criminalisation of commercial decisions.

ISEAI’s Ronny said this legal overhang inevitably complicates negotiations, making them slower, costlier and more cautious.

Foreign investors, he noted, may seek additional protective clauses, layered investment structures or valuation discounts to compensate for uncertainty over future legal exposure.

The issue is compounded by foreign partners’ limited visibility on the domestic legal constraints faced by SOE executives.

This gap in understanding, Ronny added, can lead to mismatched expectations and, over time, strain long-term strategic partnerships.