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