Pros and cons linger over govt plan on foreign ownership limit

By Hendarsyah Tarmizi

JAKARTA (JP): The government's plan to ease restrictions on foreign share ownership of companies listed on the capital market has raised questions about the pros and cons.

Those for easing the limit imposed on foreign investors from the present 49 percent say it will play an important part in helping revitalize the sluggish market.

On the other hand, those against the easement place a number of reasons for opposing the government's plan.

Easing the foreign limit could destabilize the monetary system as the massive outflow of foreign investments from the capital market could significantly affect the country's foreign exchange reserves, some said.

Others argue that foreign investors, who are now dominating trading activities, could take control of the country's major companies.

Achmad Sofjan, an executive of a local securities company, said that raising the 49 percent foreign ownership ceiling is not only a matter of making the business climate more conducive to foreign investors, but it could also become an important step in entering the phase of the globalization era in capital market activities.

"In the globalization era there will be no more domestic companies and foreign companies, or foreign and local investors... all are global firms or global investors," he said.

He said that Indonesia should be ready to face the swift change in the trend, in both the direct or indirect sectors in the world.

Consistency

Sjahril, a noted economist, is one of those for the easement. His argument on the need of easing the foreign ownership restriction on the capital market is based on the question of how to create consistency in investment rulings.

The rulings in the direct investment sector, which is directly overseen by the Investment Coordinating Board (BKPM), has undergone several changes in the last two years, especially those relating to foreign ownership restrictions. The most recent ruling in direct investment has allowed foreign investors to have equity holdings of up to 100 percent.

The reasons behind the introduction of the new investment ruling is not only to give more leeway to foreign investors but also as the initial step in adjusting the country's investment policies to the principles of the General Agreement on Tariffs and Trade (GATT).

The ruling on foreign ownership in the portfolio investment, which is overseen by the ministry of finance, however, remains unchanged. Foreign investors are still not allowed to hold more than 49 percent of listed shares on the stock exchange.

"If foreigners are allowed to own up to 100 percent in non- listed companies, why are they not in the listed ones?" Sjahril told a seminar held here recently.

Minister of Finance Mar'ie Muhammad is also of the same view on the need of creating more consistent investment regulations. He said the government is seriously studying the possible increase in the 49 percent ownership limit imposed on foreign investors in a bid to narrow the gap between the portfolio investments and the direct investments.

The government's plan to raise the foreign portion is, in fact, not the first. Mid last year the government also announced the same move but it was never realized.

Certainty

This time, it looks more certain that the government may issue the ruling in the next couple of months. The optimistic view was expressed by Bacelius Ruru, the chairman of the Capital Market Supervisory Agency (Bapepam), last week.

Ruru said he had received an instruction from the minister of finance to make a concrete proposal on the possible change in the foreign ownership limit.

"But I could not tell you amount of increase in the foreign portion to be proposed," he told Japanese and Indonesian journalists following a one-day seminar on the Indonesian capital market in Tokyo last week.

Sofjan, also the chairman of the Jakarta Securities Brokers Club, estimated that the planned increase in the foreign portion will significantly stimulate trading activities.

"The increase in the foreign presence will create more active trading and this will, in turn, attract local investors to enter the trading floor," he told The Jakarta Post.

He shared the view that the unexpected rush of foreign investments from the capital market could destabilize the country's monetary system as feared by the skeptics.

"The possibility is minimal and I am sure the government will have an affective measure to curb the feared rush," he said.

Sofjan said the massive withdrawal will not occur as long as the capital market authorities continue to improve their credibility and to maintain the trust of the investing public.

Small impact

Diana H. Rukmono of PT Redialindo Mandiri, a local brokerage firm, has a different reason why she is against the government's plan to allow foreign investors to buy more than 49 percent of listed shares.

"The increase in the foreign portion will bring no significant impact on our business as foreign investors mostly deal only with foreign joint securities ventures," she said.

Diana preferred the government issue incentives to local investors rather than to foreign ones.

Foreign investors dominate trading activities both on the Jakarta and Surabaya stock exchanges. Transactions made by foreign investors account for more than 80 percent of total trading volume.

On the JSX, the foreign ownership was around 29.53 percent of the total shares in June.

In reality, foreign investors have no more room to increase orders despite there still being about 19.44 percent of the listed shares available for them, as more than 70 percent of shares of listed companies are still mostly controlled by their founders.

Another executive of a securities company said raising the foreign portion would not immediately increase foreign trading if founders still maintain the control in listed companies.

"The question is not to raise the foreign portion but how to encourage founders to reduce their controlling stake," he said.