Macroeconomic stability vital for investment

Macroeconomic stability vital for investment

JAKARTA (JP): Minister of Finance Mar'ie Muhammad said
yesterday that the government would continue to pursue
macroeconomic stability to attract more foreign investment into
the country.

Speaking at the opening of a two-day conference on capital
market, Mar'ie noted that during last month's rioting in the city
the government was able to maintain macroeconomic stability,
which helped to pacify stock and money markets.

"There has been recovery and I might say that now there
technically has been a rebound, both in the rupiah value and the
index of capital market," Mar'ie said.

He played down speculation that the aftermath of the riots
would send Indonesia into a financial crisis similar to Mexico's
in early 1995.

He contended that Indonesia, fundamentally, is better off than
Mexico. "Yes we have accidents. But still, as we understand, our
fundamentals are sound and much better than Mexico's.

"I'm still confident about the future of investment in
Indonesia, in particular foreign direct investment," Mar'ie noted
at the conference organized in light of the 19th anniversary of
the Indonesian Capital Market.

He added that the government is committed to developing
Indonesia's capital market to bring about a more efficient
allocation of financial recourses.

Indonesia's equity market has grown relatively fast, with
daily stock trading volume growing from Rp 4 billion (US$1.7
million) in 1989 to Rp 300 billion today.

"Although our capital market is relatively new, we may expect,
with continued improvements and economic progress, it will
eventually become a major regional market," Mar'ie said.

He added that developing a country's capital market should not
be isolated from the country's overall macroeconomic policy,
noting that macroeconomic stability serves as a prerequisite to
attract foreign investment, including portfolio investment.

Indonesia must maintain extra prudent macroeconomic policy
management, along with continued deregulation, privatization, and
improvements in the regulatory system and the institutional
framework of the economy.

"All of us should commit to foster more improvement of
economic fundamentals," Mar'ie said.

He noted that strong performance of Indonesia's economy in the
past had been supported largely by strong macroeconomic
management, a more open trade and investment regime and stringent
monetary and fiscal policies.

The policy of maintaining a realistic and competitive exchange
rate, a predictable inflation rate, a manageable current account
deficit and debt service ratio will be continued in the future,
he assured.

At the micro-level, corporations are expected to commit
themselves to improved efficiency, which "is the most important
prerequisite for their competitiveness".

"In line with maintaining and improving economic fundamentals,
the improvement of the efficiency of Indonesian corporations
would certainly contribute to our international competitiveness,"
Mar'ie said.

With reference to overall macroeconomic policy and stages of
economic development, Mar'ie set out the government's agenda for
capital market development as follows.

First, Indonesia needs to improve its legal foundation to
provide clarity and certainty for capital market activities and
capital market institutions.

Second, the market system could be strengthened through higher
standards of financial integrity and a secure market
intermediary.

Third, the promotion of greater transparency and
accountability of issuers in meeting international standards of
disclosure and accounting.

Fourth, improving market efficiency so the true value of
issuers is better reflected in securities prices.

Fifth, making transaction and settlements more efficient to
reduce transaction costs and induce more active trading.

Sixth, issuing measures to increase market liquidity and
strengthen the role of both domestic and foreign investors. (rid)