JAKARTA (TheInsiderStories) – Indonesia has set up Government Regulation Number 42 Year 2019 concerning Procedures for Examination in the Capital Market Sector. The new regulation is determined to carry out the functions, duties, and authority of regulating and supervising financial service activities, especially in the capital market sector.
This new rule shall come into force since June 25, 2019 and will revoke the Government Regulation Number 46 Year 1995. The regulation is expected to lift the performance of the Indonesian financial market, which is currently still shallow, compared to peer countries.
One of the facts that show the shallowness of the Indonesian capital market is the ratio of credit to gross domestic products (GDP), which is still low. The ratio only 37 percent of GDP, lower than Thailand which reaches 85 percent and Malaysia 115 percent.
Likewise, the stock market capitalization of GDP is only 46 percent, compared to Thailand and Malaysia reaching 96 percent and 110 percent. The outstanding of bond ratio to Indonesia’ GDP is also only 19 percent, while in Thailand and Malaysia it reaches around 80 percent and 100 percent.
The deepening of the financial sector is very important. Not only to support the occurrence of economic stability but also to support the financing of economic development.
With limited sources of government and domestic funding, the use of financial resources from the private sector and abroad is very important.
Since 2017, Indonesian President Joko Widodo hoped that Indonesia’ stock market capitalization will be parallel to the Southeast Asian bourse. Currently, the market capitalization worth of Rp7,200 trillion (US$507.04 billion) or around 58 percent of Indonesian GDP (approximately Rp12,400 trillion).
Inarno Djayadi, the CEO of, Indonesia Stock Exchange (IDX), said the bourse were targeting 25-30 new company listings by 2019 and would aim to increase market cap by 15-20 percent each year. He also wanted the exchange to reach 40 new company listings by 2020.
While, IDX’ director Laksono Widodo added, the new management team would target a market cap of Rp10,000 trillion in 2020. The Indonesia’ Financial Service Authority (FSA) noted foreign capital out from the country reached US$953.47 million (Rp13.73 trillion) since the beginning of 2019 until May 17, due to the uncertainty in global financial markets.
In detail, foreign investors booked a net sell of Rp7.83 trillion on May 17, 2019, which affected the Jakarta Composite Index‘ declined of 9.7 percent month to date (MTD). While in the government bond market, foreign investors posted a net sell of Rp5.9 trillion which caused government bond yields to increase by 24.2 bps MTD.
The agency rated that the escalation of trade wars between the United States and China has pressured financial markets since early May 2019. However, the financial services sector is in stable condition with a positive performance in intermediation and risk profile, said FSA.
It’s proven by positive growth of Indonesia economic in the first quarter of this year which giving positive sentiment for financial markets in April 2019. Also, foreign investors still recorded a net buy of Rp65.24 trillion in all markets from January to April. In the same period, the JCI recorded an increase of 4.21 percent.
Strengthening also occurred in the government bond market, reflected in the net buy on the government market by foreign investors of Rp67.1 trillion and a decline in the government bond yield by 26.54 basis points.
Furthermore, Financial System Stability Committee which consists of Finance Ministry, Bank Indonesia, and FSA affirmed that the government will maintain the economy in good condition, following the election results rally chaos that killed 7 people, according to the national police report.
“Responding to the domestic conditions after the election announcement that lead to various domestic conditions that we need to handle,” said Finance Minister Sri Mulyani Indrawati.
Indrawati regrets the mass chaos following election results. But she saying that the two-day riot didn’t disrupt the financial market and banking industry. According to her, investors have anticipated condition after the General Election Commission announces the election results.
She explained that the government will pay more attention to fiscal, then focus on economic growth in terms of consumption, investment, and export. The Committee assured that it will do what it could do to maintain financial as a strategic sector and important to the economy.
She mentioned about “no compromise” in maintaining financial stability, also from external factor threats, such as the trade war that will impact slowdown export and global economic, also Middle East conflict that gives pressure on oil commodity price.
Bank Indonesia Governor Perry Warjiyo added that external factors have more weight on the Indonesian sluggish market. According to him, it explains more on foreign inflow and outflow portfolio. During the two-day chaos, On May 22, Rp702.92 billion foreign outflows recorded on stocks market. Prior to that day, Rp643.13 billion inflow.
Last week, BI recorded foreign capital inflows to Indonesian market had reached Rp170.1 trillion (US$11.98 billion). The funds entered through the Government bonds Rp98.5 trillion, stock market Rp71.5 trillion and others on Bank Indonesia Certificates.
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