Pension funds and insurance firms told to buy stocks

NUSA DUA, Bali (JP): A senior official urged pension funds and insurance companies yesterday to invest more in the capital market, rebutting institutional investors' view that time deposits are more profitable than equity investments.

"Many public accountants make mistakes in their reports on pension funds which discourage institutional investors from buying stocks," said Bambang Subianto, the Ministry of Finance's director general of financial institutions.

Addressing a two-day seminar here on local investors' roles to increase capital market investments -- organized by the Association of Indonesian Issuers -- he said pension funds and insurance companies considered banks' time deposits were more profitable than equity investments.

"But in fact they are not. And we have found that this erroneous view is apparently caused by mistakes made by public accountants," he said.

He said his evidence came after studying 100 financial reports on pension funds by accountants.

Many public accountants assess capital market income according to share purchase prices, not according to market prices, he said.

"The accountants may be careless or not know accounting standards. Worse still is that pension fund managers and boards of directors do not know the impact of the mistakes," he said.

He said pension funds calculated their capital market income by deducting share purchase prices from share sale prices -- when sold -- plus dividends.

"They (the accountants) only calculated the profit when the shares were sold," he said.

He said accountants should value share portfolios according to market prices: "This way of calculation will be more realistic."

Many institutional investors are discouraged because many pension funds are forced to buy their affiliated companies' shares in their initial public offerings. But then the share prices drop, causing losses, he said.

He said domestic pension funds and insurance companies had US$13.4 billion to invest: "But only about 10 percent of the total is invested on the capital market."

He said 8 percent was invested in bonds, about 70 percent in deposits and the remainder in other investments.

The chairman of the Capital Market Supervisory Agency, I Putu Gede Arisuta, said few locals invested in domestic stock markets.

"Only 500,000 of our total population of 180 million invest in the capital market... in Malaysia seven million of 30 million people invest in stocks," he said.

"We aim to have five million local investors in the capital market in the year 2000," he said.

"We should encourage pension funds and insurance companies to invest more in the capital market," he said. (bnt)