Pros and cons linger over govt plan on foreign ownership limit
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.