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?