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.