JFX craves more commodities

JFX craves more commodities

By Berni K. Moestafa

JAKARTA (JP): One month since its debut, the Jakarta Futures
Exchange (JFX) has already voiced concern over its immediate
prospects, as trading on just a few commodities is not enough to
cover the bourse's expenses.

JFX director Rico Menayang said that the JFX needed to
introduce new commodities to replenish its depleting start-up
capital.

"Make no mistake, trading on coffee (robusta) and olein is not
enough to save the bourse," Rico told The Jakarta Post on
Saturday.

Indonesia's first futures exchange introduced robusta coffee
and olein as its initial commodities.

The JFX just opened last month after a series of failed start-
ups caused first by technical and then administrative problems.

Rico said the bourse lost more than Rp 1 billion (about
US$105,000) because of the delays, with monthly fixed costs
amounting to Rp 350 million.

"We started with a capital of around Rp 11 billion, what's
left now is about Rp 6 billion," he said.

He said that even if trading volume for robusta coffee and
olein reached their targeted level, the JFX would still suffer
losses.

Although trading on coffee robusta and olein was lucrative, he
said the bourse needed additional commodities to stimulate the
futures market and prevent an early shutdown.

"The market wants financial commodities; there is a huge
demand out there," Rico said.

According to him, trading on foreign currencies tops the list
of interested financial commodities here.

He said the market needed alternative hedging facilities, in
particular for the U.S dollar. "Just ask treasury bankers, they
know what's missing in the market," he added.

The rupiah's steep fall during the economic crisis was among
the triggers that deflated the country's banking sector.

Now erratic politics and a shaky economic recovery make it
difficult to stabilize the rupiah.

JFX, Rico went on, would profit formidably from banks wanting
to contain foreign exchange risks.

He said that JFX must offer the most favorable foreign
currencies, namely those from countries with which Indonesia has
close trade relations.

But Rico expressed disappointment over the slow process
through which the government was handling the bourse's appeal for
trading financial commodities.

The Commodities Futures Exchange Supervisory Board (Bappebti),
he said, lacked aggressiveness to promote the trading of
financial commodities.

Rico said that Bappebti must first gain the approval of the
finance ministry and Bank Indonesia before the government issued
a trading permit on financial commodities.

"They (Bappebti) are reluctant to approach the finance
ministry and the central bank, on fears that it might create
conflict," he said.

There is too much politicking between these government
institutions, he said.

He added that the government had recently replaced the head of
Bappebti.

Bappebti's former head, Arifin Lumban Gaol, gave up his
position to Ridwan Kurnaen, who had been the board's secretary,
he said.

Rico also questioned the need for a presidential decree for
each different commodity to be traded on the futures market.

"Why must a president involve himself in such detailed
matters? Isn't it enough to have one decree covering all general
trading commodities?" he said.

To date, the government has issued a presidential decree on
four additional commodities, namely plywood, chocolates, pepper
and rubber.

JFX president Hasan Zain Mahmud has said he expects the bourse
to trade the new commodities by mid-2001.

But in the first month since JFX opened, trading on olein and
robusta coffee remained dormant, with this year's successive
festive seasons allowing the bourse only two weeks of trading.

Rico is nevertheless upbeat that trading will pick up next
week, as traders and investors will return to work after the
holidays.

He expected average trading volume for both coffee and olein
to soon climb back to its preholiday level of 20 to 30 lots.

JFX's coffee futures contract sets one lot at five metric
tons, with a price of about $600 per ton, depending on the
market.

Whereas under the olein futures contract, each lot weighs 20
tons and carries a price of some Rp 2,500 per kilogram, depending
on the market.

Despite some worries about the JFX's immediate future, Rico is
optimistic about the bourse's long-term prospects.

"Indonesia has huge potential for a futures market, because it
is both a commodity producing country and a consuming country,"
he explained.

He said that in a country that produces commodities that have
potential for the futures market and that consumes a vast amount
of the commodities, the bourse was likely to be strong since
sellers and buyers actively participated.

"This is unlike Singapore, which is just a trading country,"
he said.

According to him, Singapore's commodity exchange has not been
doing so well, because being a trading country it relies more on
investors whose activities have been low lately.

"Despite all its high tech and its international links,
Singapore cannot attract investors to trade," he said.

The Singapore Commodity Exchange (Sicom) is one of the oldest
exchanges for the commodity futures market in this region.

JFX was established in August 1999. It was scheduled to begin
trading in March, but computer installation problems and
incomplete operational requirements forced the exchange to
postpone trading several times.

The bourse started trading with 12 brokerage companies and 10
traders, all of whom just recently received their operation
permits from Bappebti.

The JFX also has many weaknesses, Rico went on to say.

Among them, he said, was the country's political uncertainties
that made investors uneasy.

Another problem was the lack of publicity to lure more
investors, he said.

The JFX will soon hold a road-show to tap domestic investors
in major cities like Surabaya, Bandung, Medan.