"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)