REUTERS-Indonesia is
planning regulation to ensure primary bond dealers produce only
"factual" research, senior government officials said, in a move that
is likely to add
to bankers' concerns about a growing backlash over negative
investment commentary.
The officials'
remarks came after the Indonesian government cut its business ties with
JPMorgan Chase & Co (JPM.N)
following a November downgrade by the U.S. bank in its Indonesian stocks
recommendation to "underweight" from "overweight".
While Indonesia has
subsequently sought to reassure banks and research firms that they will not be
sanctioned for their assessment of the country as long as it is
"credible", some Jakarta-based analysts at foreign banks have said
they were becoming more cautious.
Suahasil Nazara, the
Finance Ministry's head of fiscal policy office, said on Friday that primary
bond dealers have to ensure their assessments of Indonesia are based on facts
and do not cause a disruption to the financial system.
"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 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.
In the JPMorgan
case, the Finance Ministry dropped the U.S. bank's services as a primary dealer
for domestic sovereign bonds and as an underwriter for bonds sold to the global
market. The bank also no longer receives certain transfers of state revenue.
JPMorgan said in
response that the impact on its clients was minimal and that it continued to
operate its business as usual in Indonesia.
FOREIGN OWNERSHIP
Indonesia's
sensitivity to negative commentary is likely enhanced due to the relatively
high foreign ownership of its sovereign bonds and broader concerns over
potential capital outflows, analysts have 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.
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 also highlights the conflicts that banks face
when their analysts express a negative view on a country or a company.
Banks ranging from
Morgan Stanley (MS.N) in
China to Banco Santander (SAN.MC)
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 (BBCA.JK)
is Indonesia's biggest bank by market value and one of the country's primary
dealers.
($1 = 13,360.00 rupiah)
REUTERS
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