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)