Indonesia's capital market: A commitment to progress
Indonesia's capital market: A commitment to progress
It seems only yesterday when President Soeharto, accompanied
by then minister of finance Ali Wardhana, inaugurated on August
10, 1977, the Capital Market Supervisory Agency (Bapepam). The
President gave his full attention by visiting the trading in the
old Jakarta Stock Exchange building on Jl. Merdeka Selatan No.
14, in Central Jakarta. At that time, the President looked happy
and satisfied. He believed and expected that the day would come
when the agency would be one of Indonesia's economic powers.
Since the reactivation of our national stock markets, trading
began to be excellent. In the 1980s, the price was up to Rp
150,000 for each stock. Analysts said that this was the booming
of Indonesia's capital market. Stock prices increased by more
than 10 times the Initial Public Offering price.
Not satisfied with having an excellent era, our capital market
had also passed the difficult testing period; a period when stock
trading activity slows down. And like a wave, our market rose up
again, especially in the 1990s. It has become stronger, modern,
stable and credible.
The government's support for the development of the market is
consistent and extensive. This can be seen from its resolutions,
including making the Jakarta Stock Exchange (JSX) a private
company on July 13, 1992, and, on June 16, 1989, the
establishment of the Surabaya Stock Exchange (SSX), in Surabaya,
East Java.
These two Indonesian stock markets, both the Jakarta Stock
Exchange and the Surabaya Stock Exchange became the facilitators
of the nation's stock trading.
In celebrating the 20th anniversary of Indonesia's capital
market, the success story has become firm. The spectacular
results, such as the increase of the composite index, market
capitalization and trading volume, are starting to clarify. Our
capital market has taken a prestigious position among other
capital markets in Asia.
In a mid-July hearing with members of the House of
Representatives APBN commission, I Putu Gede Ary Suta, the Chief
Executive of Bapepam, reported that in the past three years, the
capital market had gone through excellent experiences. The
composite index in December, 1995, was 513.84 and increased to
637.43 in December, 1996. In July, 1997, it increased to 736.59.
Meanwhile, market capitalization on the JSX in December, 1995,
reached Rp 152.25 trillion. In December, 1996, it reached Rp
215.03 trillion, and up to July, 1997, it reached Rp 266.59
trillion. The numbers of companies listed on the JSX up to July,
1997, was 272.
According to Bapepam's chief, the trading value during 1996
increased about 130 percent compared to 1995; from Rp 32.36
trillion up to Rp 75.73 trillion. On July 4, 1997, the trading
value amounted to Rp 61.2 trillion. In forecasting the value to
the end of 1997, it has been stated this will surpass Rp 100
trillion.
Another good result is the increase in the trading activities
of Reksa Dana (mutual funds) which was introduced to the public
in mid-1996. In a short time, the Reksa Dana companies increased
to a total of 60 companies.
According to I Putu Gede Ary Suta, the increase in the number
of Reksa Dana companies means an increase of investors who have
share units in Reksa Dana. According to Bapepam data, up to June,
1997, the number of share units holders in Reksa Dana reached
approximately 9,500 parties.
Even though the data shows good results, Bapepam is still
responsible for the existence of Indonesia's capital market to
continue making efforts to improve. There are several obstacles
which hinder the development of the Indonesian capital market.
One of them is how to improve the role of domestic investors,
while at the same time, maintaining the role of foreign
investors. To maintain the existence of a national capital market
is to make it reliable, credible, modern and efficient.
To strengthen the national capital market and enable it to
compete internationally, the government issued a regulation
through the Ministry of Finance -- Regulation No.
1548/KMK.013/1990. The purpose of this regulation was to protect
investors from conflict of interest to prevent investors from the
influence of delusion.
To take the matter further, the government issued Law No. 8,
1995 re the Capital Market. The law was issued to strengthen the
power of Bapepam in regulating the capital market. The law also
introduced new products, such as remote access trading and
custodian services by stock exchange companies.
"The law was meant to improve professionalism, create a safe,
efficient and liquid trading system, and also to open
opportunities to small investors to take part in the capital
market," said Minister of Finance Mar'ie Muhammad.
Beside the laws and regulations issued by the government,
Bapepam and the Capital Market Society have compiled and
published Blueprint of Indonesian Capital Market/Five-Year
Development Plan (1996-2000).
The book is an agreement among the capital market society,
covering the Jakarta Stock Exchange, Surabaya Stock Exchange,
Indonesia Securities Central Depository, brokerage firms,
underwriter companies, etc.
The book covers the five-year plan (1996/2000) of Indonesia's
capital market with five development strategies:
The first strategy: Improving the existence of the economy of
the stock exchange industry. It is well-known that the capital
market will develop along with the development of the stock
exchange. To improve itself, the stock exchange industry has to
provide good quality products and services and must be
competitive compared to other investments.
It is expected that the stock exchange will open nationwide
outlets to balance the national banking network. Bapepam will
cooperate with Bank Indonesia to enable the Bank Custodian and
stock exchange companies to work efficiently.
The cooperation will accelerate the marketing development of
the stock exchange industry. The stock exchange industry is also
expected to cooperate with the Bank Custodian in administering
Reksa Dana and to form groups in marketing Reksa Dana.
The second strategy: Determining a high standard in the
security and quality of services. As part of the international
capital market, Indonesia's capital market has to provide high-
quality services as well as high standards in operational
efficiency and security. A lot of investment is needed to develop
a system that is congruent with the international system.
The third strategy: Keeping costs low in transactions and
services. The average costs in transactions and services will
support the development of the market. A centralized system
pioneered by the Stock Exchange will directly reduce the
investment cost.
Bapepam will consider the cost effect to the development of
the capital market by evaluating the costs from the Stock
Exchange, LKP, and LPP. Bapepam will ask the stock exchange
companies to report sales fees, transaction fees, and other costs
in marketing their services to customers.
The fourth strategy: Claiming full loyalty to the open
principal. A full report on the risk potential and the result of
investments is important in gaining the confidence of the people.
The open principal has been conducted to new stock issues.
According to Law No. 8/1995 re Capital Market, Bapepam will
increase the supervision of the activities report in the
secondary market and will demand a larger report on the operation
of the Stock Exchange.
The Stock Exchange company will be asked to give information
on the financial and operational qualifications to their
customers. The issue will be asked to report the expected stock
distribution and their liquidity potential on the secondary
market in their prospectus.
The fifth strategy: Keeping the market normal and in order.
Small and medium domestic investors have to be treated properly,
with their rights protected. The Stock Exchange has the
obligation to develop an internal control system (market
surveillance), especially in supervising effective trading.
Bapepam will do the market supervising independently and
perform law enforcement if there is any law violation of Law No.
8/1995 re Capital Market. Those who violate the Law will be
charged with 10 years imprisonment or a maximum fine of Rp 15
billion. Since the Stock Exchange is a Self-Regularity
Organization, the Stock Exchange is demanded to have tight market
surveillance and personnel of high integrity.
Support
Serious support from the government provides a healthy
atmosphere for the capital market society to develop the
Indonesian capital market.
I Putu Gede Ary Suta said the capital market is expected to be
the biggest in Southeast Asia before 2020. The prediction of
Bapepam's chief is rational since the foundations of the national
capital market and the national economy condition have been
prepared to support the achievement of that target.
Indonesia's economy has gone through tremendous
transformations since the early 1970s. The economy deregulation
issued by the government in the early 1980s has succeeded in
releasing dependency on the oil and gas sector and has improved
investments and non-oil and gas export growth.
In the 1980s, the national economic condition was stable and
this was reflected in the growth of the Gross Domestic Product,
which reached 6.7 percent annually, while inflation was kept at 8
percent. The average growth of exports and investments during the
1980s to 1995 was 5.5 percent and 12 percent annually.
The national income per capita was also on the increase. Data
at the end of 1996 showed that the income per capita reached
US$1,040. The manufacture industry sector and the agriculture
sector are the main sources of Indonesia's economy.
Since 1990, average economic growth reached 7.6 percent. A
number of economists have predicted that the growth will reach 8
percent in a couple of years. The prediction is supported by the
fact that the flow of foreign investment is getting stronger.
A better economic condition will influence the development of
the national capital market. On the other hand, a healthy capital
market will influence economic development.
According to I Putu Gede Ary Suta, the capital market provides
employment. The development of investment provided by the issuing
companies has opened the opportunity of employment in those
companies. At present, Bapepam has agreed to give permission to
around 3,000 institutions and people.
This also provides the opportunity to work in the institutions
which perform activities in the capital market. According to the
data from Bapepam, the number of job opportunities has reached
25,000 people.
Another important aspect to make Indonesia's capital market
the biggest in the Southeast Asia is the improvement of human
resources in modern capital market activities, both locally and
globally. Locally, this is done to be able to anticipate the
development of new trading, such as scripless trading, remote
trading or other modern facilities.
In Bapepam in 1996, there were only 12 employees with master's
degrees. In 1997, the number increased to 22. Recently, Bapepam
sent 13 of its personnel to study for their master's degrees, and
it will send another 12 in the near future.
"The capital market will become more complex in the future, so
we have to prepare our human resources to enable them to
anticipate the new challenges," said I Putu Gede Ary Suta.
After the 20th anniversary of the national capital market, we
put our expectations and hopes on the capital market society.
Will they be able to maintain the good results that have been
obtained in the past three years? Or, taking the results further,
will they be able to make the national capital market the best
and biggest in Southeast Asia?