Indonesia plans regulation to ensure primary bond dealers produce only research that is "credible", a senior finance ministry official said on Friday (07/01). (ID Photo/David Gita Roza)

Indonesia Plans Regulation to Ensure Bond Dealers Produce "Credible" Research


JANUARY 07, 2017

[Updated at 09:19 a.m. on Saturday, Jan 7, 2016 to add comment from an official in 9th and 10th paragraph]

Jakarta. Indonesia plans regulation to ensure primary bond dealers produce only research that is "credible", a senior finance ministry official said on Friday (07/01).

Emerging markets, including Indonesia, are vulnerable to capital outflows after Donald Trump won the US election and signaled more protectionist policies.

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 Ministry of Finance'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.

Nazara's comment came after Indonesia cut business ties with JPMorgan Chase & Co following a November downgrade by the US 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 Rp 20.15 trillion $1.5 billion) of Indonesian government bonds in the three weeks after Trump won the US 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.

David Sumual, chief economist at Bank Central Asia (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.