JSX wants govt to rejuvenate stock market

Rendi A. Witular and Zakki P. Hakim, The Jakarta Post, Jakarta

The Jakarta Stock Exchange (JSX) hopes that the new government will promote the further development of the country's stock markets by offering incentives and clear cut policies to attract more companies and domestic retail investors to the local bourses.

JSX president director Erry Firmansyah told The Jakarta Post recently that increases in market capitalization and the participation of more retail investors were crucial to boosting the role of the stock market in the country's economy.

"The local bourses still need the support of the government so that they can serve as effective funding sources for the business community, investment alternatives for the public, and tools for creating good corporate governance in local companies," said Erry.

Despite the astounding increase in transaction volume, the contribution of the local stock markets to pushing economic growth remains low compared to others markets in the Southeast Asia region.

According to the JSX report, market capitalization (the rupiah value of all shares listed) of the local bourses only accounts for 26 percent of gross domestic product (GDP), far lower than the 68 percent in the Philippines, 81 percent in Thailand, 156 percent in Malaysia and 241 percent in Singapore.

Erry expected that market capitalization would increase to 39 percent of GDP over the next couple of years if there was a commitment from the new government to providing incentives and to adopting the necessary policies for encouraging more firms to list their shares on the bourses.

"Our proposal for developing the market has been included in the business roadmap drawn up by the Indonesian Chamber of Commerce and Industry (Kadin). The roadmap is scheduled to be submitted to the new government for consideration," he said.

Included in the proposal is the need for the government to privatize more state-owned companies by selling their shares to the public via the stock market.

At present, only 13 state firms are listed on the stock market out of around 150 firms. These state firms account for some 34.1 percent of market capitalization.

Another proposal, which has been proposed on a number of occasions to the government, is the provision of tax exemptions for stock transactions, and a reduction in income tax for listed companies to attract non-listed ones to take out listings.

At present, the treatment of both listed and unlisted firms is more or less the same, despite efforts by listed firms to apply good corporate governance as evidenced by increased transparency in publishing financial reports for the investing public.

According to the proposal, the transparency of listed companies would eventually help reduce tax fraud as around half of tax reports issued by non-listed companies are fictitious and do not reflect the true amount of their tax obligations.

The proposal also urges the new government to protect listed firms from being easily declared bankrupt. The proposal will include the sort of protection that is contained in the bankruptcy bill currently being deliberated by the House of Representatives.

Another change that is necessary to help boost the participation of retail investors is a revision of the existing Banking Law to allow the banking sector play a key role in the stock market. The involvement of the sector would help depositors to easily switch their investment portfolios to stocks using the facilities provided by banks.

The proposal projects that with the various measures it suggests, the number of retail investors would increase to at least 1 percent of the country's total population over the next couple of years, as against 0.03 percent at present.