Govt plans to revitalize capital market

Govt plans to revitalize capital market

Rendi A. Witular and Leony Aurora, The Jakarta Post/Jakarta

The government is aiming to revitalize the country's capital
market industry by trying to streamline bureaucracy and improve
legal certainty, and make the industry one of the key drivers in
the country's economic growth.

Speaking during the opening ceremony of the Indonesian Capital
Market Seminar and Expo on Friday, President Susilo Bambang
Yudhoyono said a vigorous capital market was needed to ensure
strong and sustainable economic growth and as a parameter to
gauge confidence in the whole economy.

"The country will not only depend on the natural resource-
based industry for supporting its economic growth, but also on
the financial services industry, which is still lagging behind
compared to other countries," Susilo explained to market players.

While pledging to create a better business climate to attract
investors, he urged the local and foreign business communities to
boost their investment in the capital market here, since there
was already an improvement in the country's ratings and risk
perceptions.

"International rating agencies have raised our ratings due to
confidence in our economy and we have recently been removed from
the money laundering blacklist. I am sure that all these factors
will help improve the inflow of capital into our market," he
said.

In recent weeks, Fitch Ratings has raised the country's long-
term foreign and local currency ratings to BB- from B+, with the
outlook remaining positive, while Moody's Investors Service has
increased its outlook for the country's sovereign ratings to
"positive" from "stable".

In addition, the Financial Action Task Force -- a Paris-based
money laundering watchdog -- has just removed Indonesia from its
list of Non Cooperative Countries and Territories.

The positive factors have made the Jakarta stock market one of
the top performers in Asia this year, with its latest record high
posted on Wednesday when it closed at 1,102.92.

Market capitalization has also surged by 46 percent to about
Rp 750 trillion (US$81 billion) last year from Rp 492 trillion at
the end of 2003.

However, Susilo's speech during the event has failed to fuel
market confidence, as the Jakarta Composite Index was down by
1.69 percent to close at 1,083.38. Analysts blamed the decline on
Susilo's remarks over a possibility that the government would cut
fuel subsidies and hike domestic fuel prices in the near future.

The significant progress at the stock market has not, however,
seemed to encourage the foreign business community to invest more
in the country's real sector, primarily due to various unresolved
problems surrounding the sector -- ranging from ever-problematic
corruption to the legal morass in the courts.

While assuring the gathering that the government would create
a business climate conducive to investment, State Minister of
National Development Planning Sri Mulyani Indrawati urged
investors to not merely invest in the capital market instruments,
but also to start investing in the real sector.

"Businessmen are often attracted to invest in the central
bank's one-month promissory notes or state bonds, because such
instruments contain little risk," she said.

She admitted that avoiding risks was understandable when the
country was in a financial crisis and business confidence was
low, but the situation has now improved so they should start
investing in the real sector.