Bond Market Development in Indonesia Presented at: ADBI Symposium on “Designing a Financial Market...
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Transcript of Bond Market Development in Indonesia Presented at: ADBI Symposium on “Designing a Financial Market...
Bond Market Development in
IndonesiaPresented at:
ADBI Symposium on“Designing a Financial Market Structure in
Post-Crisis Asia”10 May 2001, Halekuni Hotel - Hawaii
Numbers of Stocks & Bonds Issuers 1990 - 2000
132
347
23
91
0
50
100
150
200
250
300
350
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Numbers of Bonds Issuers Numbers of Stocks Issuers
Values of Stocks & Bonds Issued1990 - 2000 (Rp. Trillion)
226
290
50
100
150
200
250
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Values of Bonds Issued Values of Stocks Issued
132
347
23
91
0
50
100
150
200
250
300
350
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Numbers of Bonds Issuers Numbers of Stocks Issuers
226
290
50
100
150
200
250
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Values of Bonds Issued Values of Stocks Issued
What factors caused the slow development
of bond market in Indonesia ..?
Is Bond Market Development a New Topic in Indonesia ?
In 1994, an Indonesian Credit Rating Agency was founded
Following the founding of Indonesian CRA, Securities Commission required that all bond issues be rated by a domestic credit rating agency
In 1995, World Bank conducted a study on Asian Bond Market, including Indonesian Bond Market
In 1997: SSX undertook study regarding bond market
trading systems; Citibank prepared a report on settlement issues
of bond trading for Indonesian Clearing & Guarantee Corporation
HISTORICAL PERSPECTIVE Indonesia financial history was dominated by state
banks and SOEs It created an unfavorable climate for the development
of securities market
63.6
97.7113.6
123.7
148.3
188.9
234.6
293
61.5244.08
33.2221.8215.0211.1910.13.82
0
50
100
150
200
250
300
89 90 91 92 93 94 95 96
Bank Securities Market
SOURCES OF FINANCING OF INDONESIAN CORPORATION(Trillion Rupiah)
HISTORICAL PERSPECTIVE
The 1997 crisis had an effect on the future development of securities market
The economic difficulties have developed awareness of the dangers of over-reliance on short-term bank finance
378.1
89.62
545.4
94.84
277.3229.86
320.4
254.84
0
100
200
300
400
500
600
1997 1998 1999 2000
Bank Securities Market
SOURCES OF FINANCING OF INDONESIAN CORPORATION(Trillion Rupiah)
Numbers of Stocks & Bonds Issuers 1997 - 2000
70
306
70
309
76
321
91
347
0
50
100
150
200
250
300
350
400
450
1997 1998 1999 2000Numbers of Bonds Issuers Numbers of Stocks Issuers
OBSTACLES
Costs & Burdens of Bond Issuance
Legal Rights and Certainty The Link between Banks and
Commerce Demands for bonds
Cost & Burdens of Bond Issuance(Issuers’ Perspective)
Delay and cost of submitting a registration statements
Cost of underwriting and distributing the bonds
Cost of hiring a transfer agent Cost of hiring a trust agent to represent the
interest of bond holders Cost of contracting with a credit rating
agency Cost of listing the bonds on an exchange Incovenience of disclosure of corporate
activities and financial data to the public and competititor
LEGAL RIGHTS & CERTAINTY
Investors’ Perspectives
Bankruptcy Law Since 1905, rarely used by local
business practioners and was firstly amended in 1998
The commercial court was firstly introduced in August 98
The first case was registered in Sept. 1998
The contents of the new Law and early court decisions invite many criticisms
Judicial Independence Negative perception on
integrity of the court system Lack of experienced and well-
trained judges on commercial disputes
Unpredictable outcomes The “dependence” judges
LEGAL RIGHTS & CERTAINTY
Investors’ Perspectives
The Link between Banks and Commerce
No strict prohibition on cross-ownership of banks and commercial enterprises
The widely existence of financial services conglomeration
Risk of non-renewal short-term loan for transaction among affiliated considered as insignificant
DEMAND FOR BONDS: INSTITUTIONAL
INVESTORS The Laws governed institutional investors are
relatively new The link between banks and institutional investors Institutional investors learned unhappy
experience from the securities market during the crisis of 1997-1998
High interest rates and government guarantee on bank deposits created disadvantages for bond market
Relatively weak in marketing and distributing bonds
The impact of bank recapitalization program Lack of tax incentives for issuers and investors
CONCLUSION
Radical measures to change unfavorable climate for bond market development is needed:
adequate political will to confront established economic interests
harmonization in tax and banking policies, insurance, pension fund and securities regulation
promote private sectors initiative issued government guaranteed
corporate bonds
Copyright, 2000 © FRS & Associates, Inc.
HerwidayatmoChairman of the Indonesian Capital Market Supervisory Agency - BAPEPAM