The Indonesian equity market, despite being huge in capitalization, is still largely untapped as an alternative source of investment, economists said at a seminar on the weekend.
Mohammad Ikhsan, an economist from the University of Indonesia, said the capital market is the ideal financing source for investment at a time when banks are yet to be optimum in extending loans to revive the real sector, but acknowledged that the local capital market was still underdeveloped.
"Most local companies here are reluctant to go public and are notorious for their rough accounting systems, especially the medium-sized ones," he said, adding that the existing taxation system had also discouraged companies from going public.
He said Indonesia would still have to rely on banking credits to boost the real sector, in addition to foreign direct investment.
"The capital market must be reformed immediately and financing schemes must be diversified," Ikhsan said.
Banks have come under fire recently for their reluctance to channel loans to the real sector, with Vice President Jusuf Kalla accusing them of robbing state funds by parking most of their funds in Bank Indonesia short-term bills.
In response to the criticism, bankers argue that sluggish lending growth is also due to low demand from the real sector, as shown by the amount of undisbursed loans, which currently stands at about Rp 170 trillion (approximately US$18.8 billion), or 20 percent of outstanding credit.
Wimboh Santoso, Bank Indonesia's head of financial system stability, said that by nature commercial banks always consider it risky to finance long-term projects because they mostly collect funds through short-term investment tools such as time deposits.
"That's the weakness of our banking system," he said.
Wimboh and Ikhsan called for banks to diversify their funding sources, with Wimboh revealing plans from Bank Indonesia to provide incentives to banks willing to place funds in long-term investment instruments such as bonds.
Nurhaida, the bureau chief for sector real's financial assessment at the Capital Market Supervisory Agency (Bapepam), said the public, and even many companies, were still unfamiliar with the capital market, stressing the need for an extensive campaign about it.
"We have to admit that we need to do more to create a public campaign about the capital market," she said.
The Jakarta Stock Exchange was established in 1992, while the Surabaya Stock Exchange, which focuses on trading bonds, started operating in 1995 after merging with the Indonesian Parallel Stock Exchange (IPSX).
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