* Primary dealers must not disrupt financial system –
* Regulation expected to be released next week – official
* Indonesia cut business ties with JPMorgan after downgrade
* Emerging markets are vulnerable to capital outflows
(Adds comment from official)
By Hidayat Setiaji and Gayatri Suroyo
JAKARTA, Jan 6 Indonesia is planning a
regulation to ensure primary bond dealers produce only “factual”
research, two senior finance ministry officials said.
Emerging markets, including Indonesia, are vulnerable to
potentially disruptive capital outflows as expectations of
faster U.S. interest rate hikes and President-elect Donald
Trump’s promise of fiscal stimulus push the dollar higher.
More protectionist trade policies under Trump could
intensify that pressure.
Foreigners hold more than 37 percent of Indonesia’s
government bonds, while the local capital market lacks depth and
liquidity, making the perception of foreign investors
particularly important for the Southeast Asian nation.
Primary bond dealers have to ensure their assessments of
Indonesia are based on facts and do not cause a disruption to
the financial system, said Suahasil Nazara, the Finance
Ministry’s head of fiscal policy office.
“The point is, the analysis has to be credible and
correspond to factual data,” Nazara said in a text message.
A primary bond dealer is a bank or a securities firm
appointed by the finance minister that can buy government bonds
in auctions and resell them in the secondary market. Indonesia
had 19 such dealers as of Nov. 25.
The officials’ comments came after Indonesia cut business
ties with JPMorgan Chase & Co following a November
downgrade by the U.S. bank in its Indonesian stocks
recommendation to “underweight” from “overweight”.
The Finance Ministry dropped JPMorgan’s services as a
primary dealer for domestic sovereign bonds and as an
underwriter for bonds sold to the global market.
The regulation will “hopefully” be released next week and
will govern the accountability of analysis or the release of
information, Robert Pakpahan, director general of budget
financing and risk management, said in a text message.
“The publication of analysis and opinion that is inaccurate,
speculative in nature and not based on facts will not be
allowed,” Pakpahan said, adding that the regulation has to be
approved by the finance minister.
Foreign investors sold 20.15 trillion rupiah ($1.5 billion)
of Indonesian government bonds in the three weeks after Trump
won the U.S. presidential election on Nov. 8.
JPMorgan’s skirmish with the Indonesian government
highlights the conflict banks face when their analysts express a
negative view on a country or a company.
Banks ranging from Morgan Stanley in China to Banco
Santander in Brazil have faced rows with governments in
emerging markets, although the pressure has usually been less
explicit than faced by JPMorgan in Indonesia.
In some cases that had led to a chilling effect where
analysts cut back on even run of the mill research, leaving
investors in the dark as to any risks or opportunities.
David Sumual, chief economist at PT Bank Central Asia Tbk
(BCA), said the “fire-wall” between the bank’s business and
research divisions had been reinforced since the global
financial crisis in 2008.
Sumual said his research is based on the data that is
available to him, but “there’s still a disclaimer that this can
change from time to time and the ultimate decision still lies
with the investors.”
BCA is Indonesia’s biggest bank by market value
and one of the country’s primary dealers.
($1 = 13,360.00 rupiah)
(Reporting by Hidayat Setiaji and Gayatri Suroyo; Writing by
Eveline Danubrata; Editing by Ed Davies and Janet Lawrence)