Efforts needed to boost local investor base<\/p>\n
JAKARTA (JP): Bank Indonesia sees the need to develop a
\ndomestic investor base in the country's capital market to
\nminimize the negative impact of foreign short-term investment.<\/p>\n
Managing director of the central bank, Paul Soetopo, said here
\nyesterday that foreign investors, who presently control about 70
\npercent of transactions on the local stock exchanges, were too
\ndominant.<\/p>\n
\"While this (foreign presence) is welcome, I think it is
\nimportant we use every means to greatly develop a domestic
\ninvestor base to deepen security markets,\" he said at a seminar
\non financial and securities markets.<\/p>\n
Soetopo said it was not surprising to see the leading role of
\nforeign investors in the capital market because Indonesia's
\ncapital market was still young compared with other markets in the
\nSoutheast Asian region.<\/p>\n
\"Foreign investors are at the forefront and understand market
\nand trading. Indonesian investors, in many cases, still have a
\nlot to learn,\" he said in his paper.<\/p>\n
Soetopo suggested the base of domestic institutional investors
\nbe developed well, especially pension and mutual funds.<\/p>\n
\"If nothing else, this will provide companies with a more
\nviable alternative to banking financing,\" he said.<\/p>\n
Soetopo also stressed the importance of law enforcement in the
\ncapital market to avoid manipulation of the market.<\/p>\n
He acknowledged that several years ago Indonesia had
\nintroduced a capital market law and a set of implementing
\nregulations to protect the investing public. \"But they still lack
\nstrong legal enforcement which has hampered capital market
\ndevelopment,\" he said.<\/p>\n
Legal enforcement, he added, was important in the area of
\ntransparency to avoid insider trading and ensure fair transaction
\npractices in the market.<\/p>\n
Paul said the Indonesian securities and money market had
\nexperienced tremendous growth over the past few years due to
\nmarket liberalization.<\/p>\n
He said Indonesia's banking liberalization, which started in
\n1983, had resulted in the growing number of banks operating in
\nIndonesia. There are about 239 commercial banks operating in
\nIndonesia today.<\/p>\n
The foreign exchange market has also developed steadily over
\nthe years, he added.<\/p>\n
\"The money market, especially the foreign exchange market, has
\ndeveloped rapidly since 1993,\" he said.<\/p>\n
The daily average volume of transactions in the domestic money
\nmarket has risen to Rp 2.6 trillion (US$896.55 million) today
\ncompared with Rp 0.3 trillion in 1993.<\/p>\n
\"During the same period, the volume of foreign exchange
\ntransactions also increased to more than US$10 billion per day
\ntoday from $3 billion per day in 1993,\" he said.<\/p>\n
He said the same was true for the capital market.<\/p>\n
\"The number of listed companies, volume of trading, funds
\nmobilized and market capitalization has increased steadily since
\nthen,\" he said.<\/p>\n
There are about 286 listed companies on the Jakarta and
\nSurabaya Stock Exchanges now with a market capitalization of Rp
\n260 trillion.<\/p>\n
But he said liberalization had also made the country more
\nsensitive to external shocks and pressures.<\/p>\n
\"This hit home in July when the regional crises sparked by
\nproblems in Thailand led to a classic case of contagion effect.
\nVirtually all of Southeast Asia felt the waves of the Thai baht
\nproblem and we are still feeling it to this day,\" he said.<\/p>\n
The rupiah has plunged 20 percent against the American dollar
\nover the past two months or more than 25 percent since January
\nthis year.<\/p>\n
The rupiah was the hardest hit by the domino effect of the
\nThai baht devaluation since early July. (aly)<\/p>",
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