Indonesia urged to form body to protect rights of minority shareholders

JAKARTA (JP): The World Bank urged the Indonesian government on Tuesday to form an independent body to protect the minority shareholders of publicly listed companies.

The World Bank's vice president for the East Asia and Pacific Region, Jean Michel Severino, said that the establishment of an independent agency was needed because almost 90 percent of listed companies in Indonesia were either state-owned or majority owned by their founders.

"This high ownership concentration increases opportunities for insider dealing, management abuse of company assets and related party transactions, which are hurtful to other shareholders," he said.

He said the body should take the task to monitor owners and directors of listed companies and also to detect any violation of rules and ensure other compliance within the capital market, he said in an address at seminar on capital markets.

Besides the task of preventing any abuse against parties, particularly minority shareholders, the monitoring body should also help improve the transparency of listed companies, he said.

The president of the Jakarta Stock Exchange, Mas Achmad Daniri, agreed that minority shareholders had to be protected to maintain the reputation of the capital market.

Daniri said that another way to have protection against abuse by majority investors was for minority shareholders to form an association, such as an investment club.

He said that through such a grouping, minority shareholders would gain easier access to the media in channeling common aspirations.

"We are now preparing an operating module on how to establish investment clubs for these numerous retail investors who are mostly domestic investors," he said, adding that the move was to ensure further protection for minority shareholders.

Severino said the transparency aspect was also important in accelerating the process of the country's corporate debt restructuring program.

"Inaccurate and nontransparent financial information would create suspicion on the part of creditors, thus leading to the unnecessarily prolonged debt restructuring negotiations.

"These delays have contributed to growing corporate distress, which is already widespread, and work against a rapid resolution to the debt overhang and an early robust recovery," he said.

Daniri said the improvement of corporate transparency would make the capital market a more effective venue for indebted companies to ease their debt problems.

"One function of a capital market is to help restructure corporate debts through issuing more shares to the public to repay a debt," he said.

On the impact of a slowed debt restructuring process of the country's indebted companies, Severino said that it complicated the bank restructuring process.

"The lack of progress on restructuring the debt and operations of corporations naturally complicates the process of bank restructuring and an early start to new lending," he said.

On the country's banking problem, Severino said the ownership of the country's banks should also be further restructured and privatized.

The ownership of most of the country's banks has now moved into the government's hands after massive funds were injected last year to survive the economic crisis.

"It is important to restructure these banks and then privatize them," Severino added.

Severino also touched on the urgent need for the country's judicial sector to reform.

He said that the increase of court staff and judges' salaries was one of the most urgent measures to be taken in trying to achieve a higher integrity among them.

The inconsistency of court decisions from time to time have caught the public's attention, who then interpreted them as a lack of justice and integrity on the part of the judges.

Severino felt the country's need to issue reasons for court decisions and publish them to maintain the moral responsibility of the judges involved in the decisions.

Severino also mentioned the country's civil servant salary should be based on employees' performance, instead of personal loyalty to their superior.

"Pay policy must be the primary focus for civil service reform," he said. (udi)