indonesia financial market
DESCRIPTION
This Presentation gives the information about the financial industry of Indonesia and detail about BAPEPAM and Bank IndonesiaTRANSCRIPT
INDONESIAN FINANCIAL MARKET
By
S Madhu
Dinesh Kumar
S Arun Sathiya
Overview
1. S Arun Sathiya
Capital Market Supervisory Agency (BAPEPAM)
2. S Madhu
Bank Indonesia
REPUBLIC OF INDONESIA
• National name : Republik Indonesia• Capital : Jakarta• Monetary unit : Rupiah• GDP(2005 est.) : $901.7 billion• Exchange Rate : 9188 Rp / USD • Industries : petroleum and natural
gas, textiles, footwear, mining, cement, chemical fertilizers, plywood, rubber, tourism ,etc
INTRODUCTION
• The existence of a capital market in Indonesia dates at least from 1912
when the Dutch Colonial government established a stock exchange
• The real development of the capital market in Indonesia started in
1977 when the Jakarta stock exchange was reopened under the newly
created Capital Market Operation Board (BAPEPAM) of the Ministry of
Finance.
• Corporate bonds began to play a role as capital market instruments in
1983. JASAMARGA (The state owned highway construction and
maintenance corporation) issued the first bonds, using the proceeds to
finance construction of toll highways, among other things.
Contd…
• During the 1980’s the government started to reform
regulations that had obstructed investor interest in the
bourse in order to create the climate conducive to business.
• Pakdes package of 1987 relaxed government regulation of
the market and licensing and had a major effect on the
market’s development.
• The Pakdes package adopted in December 1990 reformed
the institutional structure of the capital market.
The Existing Regulatory StructuresMinistry of Finance
Directorate General of Financial Institution
Capital Market Supervisory Agency
Insurance
Pension Funds
Finance
Venture Capital
Others Financial Services
Stock Exchanges
Issuers / Public Companies
Securities Firms
Investment Funds
Others Capital Market Supporting Institutions
1987 to 1992 Reforms
• Allowing foreign investors to own 49% maximum of listed
shares, removing fluctuation trading limit, and introducing
Parallel Bourse to allow medium-scale companies (Dec. 87)
• Moving towards a disclosured-based regime with the
establishment of SURABAYA STOCK EXCHANGE (SSX) in
1989 and privatization of the JAKARTA STOCK EXCHANGE
(JSX) in 1992
• Market infrastructure was simultaneously modernized
As a result…
25
67
132145
162181
231248
9
50464334
242322
0
50
100
150
200
250
300
88 89 90 91 92 93 94 95
Nu
mb
ers
of
Issu
ers
Stock Issuers Bond Issuers
The Effectiveness of Capital Market Law in January 1996 brought significant changes in
the Indonesian securities industry
• BAPEPAM (Badan Pengawas Pasar Modal) becomes more
independent in regulating and supervising the market
• BAPEPAM has more enforcement powers
• More stringent sanctions for serious violations such as
market manipulation and insider trading
• Open-end Investment Fund is introduced and allow to
operate
But the growth of the issuers remained slow as 1997 monetary crisis gave its disastrous impacts to the
market and to the Indonesian economy as a whole
267
306 309 321347
379401
55
1009491
767070
0
50
100
150
200
250
300
350
400
450
96 97 98 99 2000 2001 2002
Nu
mb
ers
of
Issu
ers
Stock Issuers Bond Issuers
Where they are …
The JSX Market Cap accounted only 0.13% of the Global Market Cap
The JSX trading value accounted only 0.04% of the global trading value
Numbers of Investors in 2002
Total Population
Singapore
Malaysia
Indonesia
1 m
3 m
70,000
3,5 m
18 m
220 m
Switzerland 1,3 m7,3 m
Domestic Investors
THE CAPITAL MARKET SUPERVISORY AGENCY
• When the capital market was activated in 1976,
Capital Market Executive Agency (BAPEPAM)
was established
• The Capital Market Supervisory Agency,
hereinafter referred to as BAPEPAM, shall
provide guidance, regulation, and day-to-day
supervision of the Capital Market.
Vision and Mission
• The vision of the BAPEPAM is “to develop strong and
globally competitive capital markets, as the activator of the
national economy”.
• First, to develop strong Indonesian capital markets as the
activator of the national economy.
• Second, the Indonesian capital market should be
competitive in the global environment.
Contd…
• Enhancing commitment to develop a more robust capital market;
• Providing more access to medium-sized enterprises and credit union (cooperatives) to use capital market as their alternative source of financing;
• Supporting regional/local government to raise fund through the capital market;
• Strengthening domestic-based investors and encouraging them to participate actively in the capital market;
• Improving the quality of market infrastructure that meet international standards and to cope with global challenges
Objective of BAPEPAM
• The major functions of the Agency are,
– Evaluate whether the companies that are to sell their
shares through capital market have complied with the
requirements and are sound and fit.
– Organize an effective and efficient capital market.
– Extensively supervise the development of Issuers.
• In order to carry out its objectives BAPEPAM
shall have authority to do the following:
Contd…
• grant:
– business licenses to Securities Exchanges, Clearing
Guarantee Institutions, a Central Securities Depository,
Investment Funds, Securities Companies, Investment
Advisors, and Securities Administration Agencies;
– individual licenses to Underwriter’s Representatives, Broker-
Dealer’s Representatives, and Investment Manager’s
Representatives; and
– approvals to Custodian banks;
Contd…
• inspect:
– Issuers and Public Companies that have submitted or that
are required to submit a Registration Statement to
BAPEPAM; or
– Persons that, under this Law, are required to have a business
or individual license, or to be approved, or to be registered
as a professional;
• publish findings of inspections
• suspend all trading on a Securities Exchange in times of
emergency,
Contd…
• require the registration of Capital Market Supporting
Professionals and Trust-Agents
• take steps necessary to avert loss to the public arising
from violation of Capital Market regulations;
• do any other act required by this Law
Person to submit report Things to be reported to BAPEPAM
Stock Exchange
Daily Report on the Exchange TransactionMonthly Activity Report
Semi/Annual ReportOther Report when required
Clearing Guarantee Corporation and Central Securities Depositary
Daily Report on Clearing and DepositaryDaily Report on Mutation of Depositary and Settlement
of the Exchange transactionMonthly Report
Semi/Annual Financial Report
Other Reports when required
Investment Fund Monthly Report
Securities CompanyAnnual Financial Report
on Net Adjusted Working Capital Investment Manager Monthly Activity Report
Credit Rating AgencySemi Annual Activity Report
Annual Activity Report
Securities Administration AgencyMonthly Activity ReportAnnual Activity Report
Annual Report
Organization• Chairman
• Executive Secretary
• Director of the Regulation and Legal Counsel Bureau
• Director of the Enforcement Bureau
• Director of the Investment Management and Research Bureau
• Director of the Market Institutions and Trading Bureau
• Director of the Corporate Finance I Bureau
• Director of the Corporate Finance II Bureau
• Director of the Accounting Standards Bureau
Procedure for Issuing or rejecting a license.
• The approval or rejection of an application by BAPEPAM
with respect to a license, approval, or registration, must be
done within forty-five days from the date the complete
application is received by BAPEPAM.
• Within the period referred to in paragraph (1), BAPEPAM
may request amendments and or additional information to
complete the application for licensing, approval, or
registration.
Contd…
• When BAPEPAM requests an amendment and/or additional
information as specified in paragraph (2), the period for
approval or denial shall be counted from the date such
amendment and/or additional information is received by
BAPEPAM.
CAPITAL MARKET DEVELOPMENT STRATEGY
• Regulatory alignment & harmonization
Accounting standards
Listing requirements
Investor protection regime
Regulation of cross-border trades and investment
Standardize investor protection rules across jurisdictions
to ensure credibility of the region
Harmonize regulatory requirements and standards
Contd…
• Integrated market infrastructure
Market intermediation
Trading systems
Clearance and settlement
Efficient and effective market linkages
Cross-border trading
Common clearing and settlement
Conclusion
• The purpose of the Capital Market is to support national
development by enhancing public welfare through economic
growth and societal stability, while fostering a more suitable
distribution of wealth.
• To reach this objective, the Capital Market plays a strategic
role by financing businesses, both large and small and
provides the public with investment opportunities.
Contd…
• Necessary legislation for economic development includes
regulation of the Capital Market which it is expected that the
Capital Market will have a greater role in development, so that
national economic objectives may be achieved.
History
• Bank Indonesia was founded on July 1, 1953, in the
Sukarno era - from the nationalization of De Javasche
Bank, a Dutch bank dating from colonial times.
• For the next 15 years, Bank Indonesia carried on
commercial activities as well as acting as the nation’s
bank.
Contd…
• This came to an end with the Act No. 13 Year 1968 on
Central Bank, which was subsequently replaced by the
Act No. 23 Year 1999, finally freeing the bank from
government interference.
• Thereafter, the bank reported to the House of
Representatives instead of the president, and the bank’s
governor was no longer a member of the cabinet.
Organization
• The bank is led by the board of governors, comprising the governor, a senior deputy governor and at between four and seven deputy governors.
• The governor and deputy governors serve for a term five years, and
are eligible for re-election for a maximum of two terms.
• The governor and senior deputy governor are nominated and
appointed by the president, with approval from the House of
Representatives. Deputy governors are nominated by the governor
and appointed by the president, with approval of the House of
Representatives.
Contd…
• The president has no power to dismiss a member of the board,
except when a board member voluntarily resigns, is permanently
handicapped, or is proven guilty of criminal offence.
• The Board of Governors Meeting is the bank’s highest decision-
making forum. It is held at least once a month to decide on general
policy on monetary affairs, and at least once a week to evaluate
policy implementation or to decide on other strategic and principle
policy.
AFTER ASIAN CRISIS
• After the Asian currency crisis of 1997
• Indonesia suffered the most economic damage during which it
experienced a sharper drop of the currency than any other country
involved in the crisis.
• Political and economic shocks, including the sharp drop in the
currency, bank runs, and the collapse of the Suharto regime
inspired by the political instability, deteriorated the balance sheets of
leading banks.
Banking Restructuring in Indonesia
• As part of efforts to restore people's confidence in Indonesia's
financial and economic system, Bank Indonesia has embarked on a
comprehensive restructuring of the banking system.
• The restructuring is absolutely imperative, in order to reactivate
banking intermediary role in encouraging economic growth and
optimizing effective implementation of monetary policy.
• The restructuring involves restoring people's confidence in the
system, banking recapitalizing, credit restructuring, improving
banking regulation and supervising function.
Indonesian Banking Architecture
1. Creation of a robust structure for the domestic banking system
capable of meeting the needs of the public and promoting sustainable
economic development.
2. Creation of an effective system for bank regulation and supervision
based on international standards.
3. Creation of a strong, highly competitive banking industry, resilient in
the face of risks.
Contd…
4. Building of good corporate governance for internal
strengthening of the national banking system.
5. Provision of a complete range of infrastructure to support
the creation of a healthy banking industry.
6. Empowerment and protection for consumers of banking
services.
Indonesian Bank Restructuring Agency
• The IBRA, which was established on 27 January 1998, set out to
build a bank restructuring mechanism.
• The IBRA, which was established as an integrated agency to tackle
the bank restructuring, could not be empowered for legal authority
and not endowed with enough budget.
• Under IMF guidance ,the IBRA created a bank restructuring
mechanism independent of the government and Bank Indonesia.
• But it failed to get full cooperation from the government and resulted
in undermining its authority. It was dissolved in the year 2004.
Public Fund Injection
• The banking sector restructuring policy published in 1998 revealed
a public fund injection program to the banking sector.
• Capital injections were conducted in 1999 by the mechanism of the
issuance of government bonds by the Indonesian government to
inject funds into banks.
• Banks employed a set of capital adequacy ratio criteria; 4% or
higher for healthy banks, 25% to 4% for banks that required capital
injections and 25% or lower for banks that were to be immediately
shut down. The banking sector had deteriorated that far.
Mission and Vission
• To achieve and maintain rupiah stability by maintaining monetary
stability and by promoting financial system stability for Indonesia’s
long term sustainable development.
• To be recognized, domestically and internationally, as a credible
central bank through the strength of our values and achievement of
low, stable rates of inflation
STRATEGIC VALUES
• Competency
• Integrity
• Transparency
• Accountability
• Cohesiveness
STRATEGIC OBJECTIVES
• To realize its Mission, Vision and Strategic Values, Bank Indonesia
has stipulated the following medium-long term strategic objectives :
• Maintain monetary stability
• Maintain the financial sustainability of Bank Indonesia
• Strengthen the effectiveness of monetary management
• Create a sound and effective banking system and financial system
stability
Contd…
• Maintain the security and effectiveness of the payment system
• Increase the effectiveness of Good Governance implementation
• Strengthen the organization and build highly competent human
resources with the support of a knowledge-based work culture
• Integrate Bank Indonesia's transformation in line with Bank
Indonesia's destination statement of 2008
REGULATING AND SUPERVISING BANKING SYSTEM
• Bank Indonesia issues regulation, grants and revokes bank's
license or certain banking activities permit, conducts banking
supervisory and imposes sanction to bank in accordance to the law
of the land. In conducting these tasks, Bank Indonesia, with utmost
prudence, is authorized to enact banking regulations.
• In the context of the Bank's authority in bank licensing, asides from
granting and revoking business license of the banking institutions,
Bank Indonesia may grant permit in opening, closing and moving of
bank's branch office, grant approval of bank's ownership and
management, also grant permit to bank concerning particular
business activities.
Contd…
• The Bank's supervisory authority takes the form of direct
and indirect monitoring. Direct supervision is conducted
through on-site examination regularly or randomly as
needed. Indirect supervision is conducted through
research, analysis and evaluation of submitted banks
report
Bank Indonesia Issues New Regulation on Foreign Loans
• The regulation signed by Governor (2004) of the central bank Burganuddin Abdullah, said short and long term borrowers must adopt risk management including market, credit and liquidity risks.
• Long term borrowers must have certain rating from national or international rating agency and they are required to submit full report to the central bank including about the rating, financial ratio, financial report, report about foreign loan in a year and results of analysis of company management.
• Short term borrowers are required to submit only financial ratio and financial reports.
• Foreign loans have positive and negative effects on the balance of payments and monetary stability, therefore, the principle of prudence must be observed the central bank said.
IMF and Bank Indonesia
• In 2003, the Indonesian government made a political decision to
terminate policy management based on loans and advice from the
IMF.
• Exit from the IMF program meant receiving no further loans from the
fund. Thereafter, the government became responsible for
implementing economic policy without any input from the IMF. While
the IMFs guidance is still partly effective under Article IV,
consultation with the IMF (surveillance) and post program
monitoring, the government restored its autonomy in establishing
economic policy.
Independent Banking Supervisory Agency
• With the dissolution of the IBRA in February 2004, the
Indonesian banking sector was back to normal. Since
the dissolution of the IBRA, Bank Indonesia has
supervised banks. Although the new Central Banking
Law (2004) stipulates detachment of banking supervision
authority from Bank Indonesia and the setting up of an
independent banking supervising agency, opposition
from the central bank has prevented its implementation
CONCLUSION
• The Indonesian banking sector has been recovering slowly but
steadily in real terms and that privatization of state banks (sales of
government-owned shares to the private sector) has not always
brought improved business performances and market valuations.
• The Indonesian banking sector is proven to be on a recovery trend.
However, issues still remain; the bank supervision structure is still
weak due to the continuing absence of the Financial Supervising
Agency
Contd…
• And inflation rates remain relatively high compared with those of
other Asian countries. Sales of state banks to private investors are
another outstanding issue.
• In order to maintain and further enhance the health of the banking
sector, macro economic issues and institutional issues such as that
of the banking supervising structure require early solution.
SOURCE
• http:.//www.bapepam.go.id
• http://www.indoexchange.com/
• http://www.idx.co.id/MainMenu/Peraturan/Listing/
tabid/98/lang/en-US/language/en-US/Default.aspx
Thank You