Indonesia urged to form body to protect rights of minority shareholders

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)