Capital markets promising but require much study<\/p>\n
JAKARTA (JP): Noted world economists said here yesterday that
\nthe Indonesian capital market has a bright future, but warned
\nthat the government has much homework to do in order to make the
\ndream a reality.<\/p>\n
President of the Manila-based Asian Development Bank (ADB)
\nMitsuo Sato said the future of the Indonesian capital market is
\nvery promising, given the strength of the country's economy.<\/p>\n
\"There are a number of shortcomings, however, that need to be
\novercome to turn the capital market into an efficient financing
\nalternative,\" he said in a limited press interview.<\/p>\n
Speakers at the interview, held within the framework of the
\ntwo-day PACAP Capital Market Conference which will be officially
\nopened by President Soeharto today, included Merton H. Miller,
\nthe 1990 Nobel Laureate in economics, and Richard W. Roll,
\nAllstate professor of insurance and finance at the Universities
\nof California Los Angeles.<\/p>\n
Sato suggested that the Indonesian government introduce more
\ncapital market instruments to give more facilities to both the
\ninvesting public and companies seeking investment funds.<\/p>\n
Miller and Roll were of the same view on the need to minimize
\ngovernment intervention in trading activities. They suggested
\nthat the government ease restrictions in pricing and foreign
\nshare holding.<\/p>\n
\"The essence is that any restrictions should be abolished,\" he
\nsaid, adding that the government's policy which limits foreign
\nownership in portfolio investments to a maximum of 49 percent of
\nthe total listed shares is one major shortcoming the Indonesian
\ngovernment should deal with.<\/p>\n
Restriction<\/p>\n
Miller said restricting foreign equity holding will limit the
\ngrowth of the capital market itself, while limiting securities
\nprices will bring the market away from the free market mechanism,
\nthe key factor in attracting foreign investors.<\/p>\n
\"If you intend to develop your market, you should certainly
\nabolish such restrictions,\" Miller said.<\/p>\n
The government's policy to limit foreign ownership to a
\nmaximum of 49 percent in the portfolio investment has been widely
\ncriticized because it is seen as inconsistent with the rule on
\nthe direct investment sector, where the ceiling for foreign
\nequity holdings is set far higher at 95 percent.<\/p>\n
The Capital Market Supervisory Agency (Bapepam) limits prices
\nof shares sold on the primary market to a maximum of 13 times the
\nprice earnings ratio.<\/p>\n
\"The government's control over foreign exchange rates should
\nalso be lifted to make securities trading more attractive,\" Roll
\nsaid.<\/p>\n
He said intervention by the central bank in fixing rates of
\nforeign currencies against the rupiah should be also diminished
\nto make trading on the domestic capital market more appealing to
\nforeign investors.<\/p>\n
Both Miller and Roller agree that removing restrictions both
\nin pricing and in foreign equity holding will further revitalize
\nthe ailing stock trading activities on the local markets.<\/p>\n
Trends<\/p>\n
Share prices have been on the downturn over the last two
\nmonths due to a declining foreign presence. The Jakarta Stock
\nExchange (JSX) Composite Index has dropped by around 25 percent
\nsince January when it hit 612.88, its highest level in three
\nyears. The index closed at 453.68 yesterday.<\/p>\n
As many as 220 companies have so far tapped the capital market
\npotential to raise funds for their investment projects, and
\naccording to Bapepam, funds raised by both share and bond issuers
\nhit a spectacular figure of over Rp 25.59 trillion (US$12.18
\nbillion) as of May this year.<\/p>\n
According to reliable sources, at least 100 companies are
\nstill waiting for the green light from Bapepam to \"go public.\"<\/p>\n
The ADB president said that Indonesia has no other choice but
\nto develop its capital market to maintain its high economic
\ngrowth because financing from the banking sector is no longer
\nadequate to meet the demand for fresh investment funds.<\/p>\n
Indonesia needs at least Rp 660 trillion (US$305 billion) in
\nnew investment funds to achieve its projected average economic
\ngrowth of 6.2 percent annually over the next five years. Seventy-
\nthree percent of the total is expected from the private sector.
\n(hen)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/capital-markets-promising-but-require-much-study-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}