"We must free ourselves from the shackles of pessimism"

"We must free ourselves from the shackles of pessimism"

The Indonesian capital market, one of business sectors hardest
hit by the economic crisis, is showing signs of recovery. Below
are excerpts taken from an interview with the president of the
Jakarta Stock Exchange (JSX) Mas Achmad Daniri on stock trading
in 2000 and its outlook in 2001.

Question: How did the stock market fare for the year 2000?

Answer: From the companies side, there has been significant
improvement. The implementation of good corporate governance,
especially transparency has been very encouraging. Just look at
it, more companies are now making more public statements. There
is an awareness now on the part of publicly listed companies that
"we can't fool around anymore." Now, people have begun to see
that if you want to enter the stock market, the discipline is
openness and correct management. The stock market has become a
strategic place to seek funds, ever since the banking sector has
been unable to fully resume their lending. Where else is there to
seek funds?

Q: And from the investors side?
A: The number of investors appears to have grown, but the
proportion between the speculative investors and the rational
investors must be balanced. Ours is not so balanced yet. We're
still lacking investors of the rational type, like institutions,
which buy stocks for long-term investment.

Q:How about the stock market performance this year?
A: If we look at the price index, it shows that the market is
bearish. We're in a cycle; it's very normal, otherwise we can't
call it a stock market. Without a heart beat, the market isn't
attractive. However, we don't want to stay bearish for too long.
If we look at the amount and value of transactions, then we do
register a decline in recent days and that is worrisome. It's
only natural though, if there is a more attractive market,
promising higher yields, people will eventually choose to go
there. Let's say several investors eye Indonesia, Thailand and
the Philippines, as each is equally cheap. But due to better
security and legal certainties, people shy away from us.

Q: Do you see that political stability is the key to improving
the stock market's performance?
A: What I see is that the economic and political developments are
starting to go separate ways. In my opinion, the political tumult
has less impact on the economy than security and legal
uncertainties have. You can create as much political noise as you
please, but don't let it cause certainties in security and
enforcement. If politics start to affect security and legal
certainties, then that will affect the market.

Q: What has JSX learned from the economic crisis?
A: After the crisis, people began to think growth on an equity
base. Whereas before, people just sought debt. They took debt -
in dollars - to grow their businesses; but the sharp drop in the
rupiah against the dollar finished them off. So eventually they
begin to realize that the ratio of debt and equity should be
healthy. Otherwise their companies are vulnerable.

Q: Foreign investors continue to avoid our stock market, what can
JSX do to raise the participation of local investors?
A: Without establishing regional securities firms, the
development of local investors will be a slow process. What we
call amateur investors, the local people here, are investors who
need a high degree of personal contact with securities firms so
that they will understand the stock market. Becoming accustomed
to the stock market requires much education. So we cannot leave
them on their own by simply providing them Internet access and
expect them to learn the market by themselves. That's impossible.
Internet access should be accompanied by personal contact.

Also, we have recently introduced clearing agency firms, and
we might have two next year. A clearing agency offers back office
services to securities firms so that these firms do not need to
own back office systems. The securities firms can focus on
providing advice. For their back office needs, they can use the
service of the clearing agencies. And if this is spread to the
regions, combined with remote trading access, that will be just
incredible.

Q: What is the JSX's main weakness?
A: I think the main weakness is that we don't have enough funding
to speed up the entire process. Like I said, infrastructure
should have already been in place. The programs to speed up the
implementation of good corporate governance, transparency and
education for potential local investors all depend on funding. So
we just follow the rhythm of the market for our funding.

Q: How do you see the stock market's prospects for next year?
A: We must free ourselves from the shackles of pessimism. We
should take the whole picture of the economy as the base for our
analyses. Let's say the government wants to privatize some state
firms or companies under the control of IBRA (the Indonesian Bank
Restructuring Agency). We can see it either in the long term or
in that particular term. So if we privatize state firms or sell
assets under IBRA in the stock market, and lose money in the
process, we might still gain in the long run. This is because the
sales could stimulate the market and act as incentives for
investors to enter. If in total, the benefits can be greater, why
not take the risk? But if we take a partial approach, say
delaying the divestment of more state's shares in Bank BCA or
Bank Niaga, their market prices might improve later, however,
interested investors might have already turned away. If the stock
market then becomes no longer an option, can the government rely
on private placements? And we know that seeking a private
placement is difficult.

Q: Any expectations from the government?
A: If we consider the economic condition, the correlation between
political and economic development has diminished somewhat.
Democracy is starting to take place. Let politicians talk, but
don't let them lead to insecurity or the disintegration of the
country. Politics definitely has an impact on the economy, but we
must be optimistic. We're all learning and are trying to improve,
so that some day we can change our paradigm from pessimism to
optimism. (bkm)