RI capital market mired with weak law enforcement

RI capital market mired with weak law enforcement

Rendi A. Witular, Jakarta

The Indonesian capital market celebrated its 27th anniversary
on Tuesday as the market authorities struggled to enforce capital
market laws to help increase confidence.

Critics said the Capital Market Supervisory Agency (Bapepam),
which should have been at the forefront of policing capital
markets, had ignored capital market rules and the principles of
good governance.

Economist Faisal Basri said the weak law enforcement could be
seen by the absence of capital market violations brought to the
court, and the fact that the watchdog had often taken the side of
badly behaved companies when it dealt with controversial cases.

"Bapepam officials have often tried to protect perpetrators
from being charged with heavier punishments for their
violations," said Faisal. Faisal is rumored to have been proposed
as the next minister of finance by leading presidential candidate
Susilo Bambang Yudhoyono.

"Tough punishment should become the framework on which market
discipline rests. This (lack of enforcement) has become the main
deterrent for big companies to list their shares (in the stock
exchange), or for prominent global investors to pour more
investments in the bourse," he said.

Last year, Bapepam hastily stopped criminal investigations
into the former management of Lippo Bank for allegedly
disseminating misleading financial information. Instead it fined
the bank's board of directors Rp 2.5 billion (US$280,000).

Bapepam, a unit under the Ministry of Finance, was also
criticized for stopping criminal probes against former officials
of telecommunications firm PT Indosat last year in a case of
alleged insider trading before the sale of government shares in
the company in 2002.

Other analysts blamed the lack of capital market knowledge of
the police and prosecutors for the failure in bringing capital
market crimes to court.

Bapepam and the management of the Jakarta Stock Exchange (JSX)
have also been criticized for being impotent in dealing with
certain big companies such as telecommunications firm PT Telkom,
cement producer PT Semen Gresik, and companies under the Texmaco
Group.

While Telkom and Semen Gresik have faced small penalties for
not submitting their financial reports on time, the authority has
threatened to remove smaller firms from the exchange for failing
to meet the deadline.

The JSX is also undecided over the fate of several of
Texmaco's companies, which have been suspended from trading for
more than two years.

JSX management often said they would prevent delisting of any
public companies, claiming such action would only bring losses to
investors but benefit the troubled companies.

Faisal also highlighted the lack of good governance within
Bapepam and JSX, as Bapepam officials often asked the management
of JSX to provide funds and transportations when investigating
capital market violations.

"The 'close' relationship between Bapepam and JSX may lead to
a conflict of interest. Bapepam should become an independent body
that strictly supervises the JSX, not stand side-by-side with
it," he said.

The government under the leadership of former dictator
president Soeharto revived the capital market on Aug. 10, 1977,
after it shut down during the earlier Soekarno regime.

The year 2004 is an important period for the Jakarta stock
market as the composite index for the first time surpassed the
800-point level closing at 818.159. The improving profitability
of listed companies amid increasing macroeconomic stability has
lured investors into stocks. But negative factors such as
soaring oil prices, rising U.S. interest rate, and the general
election have also increased volatility.

The Jakarta Composite Index ended higher by 0.32 percent, or
2.403 points, to 752.443 on Tuesday as late bargain hunting in
selected bluechips offset earlier losses during the day.

Penalties handed down by Bapepam (January-August 2004)

Financial fines

Total Amount of fines Unpaid

Companies 169 Rp 4.66 billion Rp 1.07 billion
Securities 28 Rp 1.03 billion Rp 17,500,000
Custodian 6 Rp 600,000
banks
Administration 11 Rp 2,300,000
firms
Assesor 2 Rp 14,000,000

Total 216 Rp 5.71 billion Rp 1.09 billion

Administrative fines

Total Sanction
Public accountant 1 Warning letter
Investment manager 20 Warning letter
Investment manager 3 License revoked
Securities 23 Warning letter
Securities 14 License suspended
Securities 12 License revoked