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Indonesia needs more time to prepare for integrated capital market

Publication Date : 16-06-2014

 

Indonesia's Financial Services Authority (OJK) said the country would need time to improve its capital market infrastructure before joining the integrated capital market to be developed as part of the 2015 Asean Economic Community (AEC).

The agency’s deputy commissioner, Sardjito, said Indonesia would only agree to open its capital market when all its infrastructure and companies were ready.

According to him, the country has not set any target or time frame for joining the integrated capital market, known as the Asean Trading Link.

So far, only three countries — Thailand, Singapore and Malaysia — have joined the Asean Trading Link.

“It wouldn’t be a beneficial agreement if it only enriched others. We need time to improve our infrastructure and our companies, because we are a very big market,” Sardjito told The Jakarta Post recently.

Under the single integrated capital market system, investors and companies in Asean countries will be able to freely trade securities in any market at competitive prices.

Despite pressure from some Asean countries with more “advanced” market infrastructure, namely Malaysia, Singapore and Thailand, Indonesia still doubts the market-integration plan.

One of the reasons is that the depth of Indonesia’s capital markets and the regulatory framework are not at par with the rest of the region. Therefore, Indonesia is not yet ready to fully embrace the AEC framework.

“[We will be] ready when our brokers are at the same level, for competition. We need to be sure that we will have reciprocal situations,” Sardjito said.

Separately, Djisman Simandjuntak, an economist with the Centre for Strategic and International Studies (CSIS), said the stock markets in Indonesia and the rest of Asean countries are already very open.

“Second, linkages exert greater pressure on improving good governance, [an area] in which Indonesia has a lot to catch up on.

Despite progress, no Indonesian company is found on the list of the best-governed companies in Asean. Linkages are good for Indonesia. As for securities other than stocks, we have to be cautious. The higher the volatility, the more cautious we should be,” Djisman told the Post.

Data from the OJK shows that 60 per cent of the country’s capital market is dominated by foreign investors, while domestic players account for a much smaller portion.

The number of publicly listed companies on the country’s stock market was far below that of other countries in the region, according to the data. Indonesia has only 489 listed companies, compared to Malaysia with 906 companies, Singapore with 767 and Thailand with 587.

CIMB Niaga president director Arwin Rasyid responded by saying that Indonesia was still focusing on capacity building before it decided to comply with the single capital market initiative, though added that it would be important for all countries to adhere to the time frame.

Separately, Bank Central Asia (BCA) treasury head Branko Windoe said that the integrated single capital market was not yet feasible as the country has a different regulatory system.

Previously, CIMB Group chief executive Dato Sri Nazir Razak said that Indonesia should not hesitate in embracing the Asean single capital market initiative as the country, with a population of over 240 million, would benefit by the time it opens up the capital markets and the financial sector.

“Indonesia thinks that the Asean single market will result in foreigners tapping into its market. Actually, it’s the opposite. The winners will be the companies with the biggest markets, on the biggest scale at home, and that is Indonesia. Actually, if Indonesia could do it properly, it would be the big winner. So, I don’t understand the hesitation,” Razak said recently.

 

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