Indonesia Launches PFII, Set to Rattle Singapore
The presence of the Indonesian International Financial Centre (PFII) has the potential to be a game changer in enhancing the nation’s investment competitiveness, particularly within the ASEAN region, according to an economist.
Myrdal Gunarto, an economist at state-owned Bank BTN, stated that the PFII could compete with Singapore by offering a different value proposition. “In the regional competitive landscape, the PFII can still appear highly competitive if it focuses on structural advantages that Singapore does not possess,” he said on Wednesday.
He suggested that the PFII could compete by acting as a complementary financial centre that dominates specific sectors. “The most rational strategy for Indonesia is to make the PFII a complementary financial centre that masters the niche of real sector financing, green economy, and Islamic finance in Southeast Asia,” Myrdal explained. “If this differentiation is successfully executed with strong legal certainty, the PFII will have a very unique and attractive competitiveness for regional and global investors.”
However, if the PFII adopts the same model and niche as Singapore and other countries, its chances of competing will not be maximised. “The probability of the Indonesian International Financial Centre being able to rival Singapore head-to-head in the short to medium term is less than 60%. This is because Singapore has built its financial ecosystem over decades with a very solid foundation.”
Myrdal noted that Singapore is already very robust as a traditional global financial hub, while Malaysia has a strong presence in offshore and Islamic finance through Labuan. “For the PFII to be attractive, its competitiveness depends on how Indonesia positions itself and what incentives it offers,”
Fakhrul Fulvian, Chief Economist at Trimegah Sekuritas Indonesia, said the PFII has a great opportunity to increase Indonesia’s competitiveness in the ASEAN region, provided the country can build a credible international financial ecosystem. The PFII must become a place for exporters, institutional investors, pension funds, sovereign wealth funds, and global investors to store funds, conduct financing, hedging transactions, and trade Indonesian financial instruments.
“So far, we have been too focused on attracting capital inflows, but we have paid less attention to how that capital can continue to circulate domestically,” Fakhrul said. “If investment comes in but financial activities are still carried out from Singapore, Hong Kong, London, or New York, the benefits for deepening the domestic financial market are limited.”
From a development financing perspective, Fakhrul assessed that the PFII could become an alternative source of funding for national strategic projects, including long-term investment projects related to Danantara and the private sector. With a deeper financial market, the cost of development funding can become more efficient and sustainable.
“The PFII can help broaden the development financing base. But the key is transparency, governance, and credible market mechanisms. The PFII must not become just an administrative financing channel. It must become a trusted market,” he stressed.
Fakhrul further stated that the success of the PFII will not be determined solely by tax incentives. Global investors will pay more attention to legal certainty, protection of investor rights, ease of capital flows, regulatory quality, transaction settlement efficiency, and financial market depth.
“A financial centre is built on trust. Tax incentives are important, but they are never sufficient. What is more decisive is whether investors feel safe placing and rotating their long-term funds in Indonesia,” he said.
He therefore urged the government to prioritise strengthening regulations, tax certainty, ease of doing business, credible dispute resolution, and the development of foreign currency financial instruments. The government also needs to deepen the bond market, foreign exchange money market, hedging instruments, and financial market infrastructure.
“The PFII should be part of a grand strategy to build a domestic dollar ecosystem. When export proceeds, resident savings, and investment funds can continuously circulate within Indonesia, exchange rate stability will be stronger, funding costs more efficient, and national economic resilience will increase,” Fakhrul concluded.