Indonesia Unveils Trust Framework to Spur Capital Inflows, Bolster Financial Hub Ambitions

Indonesia is set to roll out a new legal framework for trusts and trustee institutions in 2026, marking a key step to attract more investment and develop its financial markets. The initiative, driven by the Finance Ministry, will introduce concepts like legal separation of ownership and bankruptcy remoteness, aligning with common-law jurisdictions. This move is part of broader reforms to deepen capital markets and create a more favorable environment for both local and foreign investors.

The reforms are expected to benefit the newly established Danantara sovereign wealth fund, which plans to set up a trust fund with $1 billion in assets to support national development goals.

The fund has also expressed interest in collaborating with international partners, including the Bill and Melinda Gates Foundation. Meanwhile, the Indonesian government is working to finalize regulations under the 2023 financial sector law to formalize these structures.

The legal system in Indonesia, based on civil law, previously lacked a framework to support trust structures. This has been a barrier to attracting institutional capital, particularly from overseas investors who often prefer jurisdictions with well-established trust laws, such as Singapore. The new rules will help close this gap and position Indonesia as a more competitive financial hub.

A Boost for Domestic Investment and Financial Stability

The introduction of trust structures is part of Indonesia's broader strategy to mobilize domestic capital and reduce reliance on offshore investments. Masyita Crystallin, director general of financial sector stability, emphasized that the framework is something investors have long sought. It is also in line with President Prabowo Subianto's economic agenda, which prioritizes attracting investment and improving the domestic business environment.

The government aims to use the new legal tools to support economic growth by encouraging private and institutional investors to channel more capital into the country. This includes bringing back funds that have been parked offshore, often in Singapore, where investors benefit from stronger legal protections and established trust frameworks. The trust framework will help close this gap.

The trust framework will also support Indonesia's plans to develop a regional financial hub in Bali. The island, known for its tourism and cultural appeal, could serve as a new center for global fund managers and international financial institutions if the legal and regulatory environment is robust enough to support such activity. This will position Indonesia as a more competitive financial hub.

A Regional and Global Investment Shift

The development of trust structures in Indonesia is not the only move to attract investment. The country's largest social security fund, BPJS Ketenagakerjaan, or BPJS TK, has also announced plans to invest up to 5% of its $52 billion portfolio in overseas assets. This shift is driven by the need to diversify holdings. This is driven by the need to diversify its holdings and better navigate the growing size of its assets in a domestic market that has become increasingly challenging for large-scale capital deployment.

At the same time, Danantara has announced a $1 billion credit line with major international banks, including DBS Group, HSBC, Standard Chartered, and UOB. This financing will support the fund's broader investment plans. This financing will support the fund's broader investment plans, including potential acquisitions and new development projects. The credit facility, which can be expanded up to $10 billion, is an important test for the newly established sovereign wealth fund.

The Indonesian government and its financial institutions are clearly focusing on strengthening the country's capital markets and investment appeal. The trust framework, offshore investment plans, and credit facility all reflect a coordinated effort to attract more capital into the economy and support long-term growth.