Indonesia rushes to assure investors amid stock market crisis

Economy minister outlines new measures to deepen market as head of exchange resigns

- Wahyudi Soeriaatmadja Indonesia Correspondent

The Indonesian government scrambled to reassure investors this week after a US$80 billion (S$101 billion) stock market rout, triggered by mounting concerns over governance and market transparency.

This comes on the back of the rupiah's slide to a historic low a week earlier, and compounds persistent unease over Indonesia's fiscal imprudence, concerns over nepotism and aggressive state intervention.

The Jakarta Composite Index (JCI) plunged nearly 9 per cent on Jan 28 after MSCI issued a warning that it might downgrade Indonesia from an emerging-market economy to a frontier-market one, citing concerns about the investability of local shares. The index provider said it would immediately pause certain index changes, including additions, until regulators address concerns over tightly held ownership of listed firms.

This echoed investors' longstanding concerns over the transparency of the "free float", or the portion of company shares available for public trading.

Many stocks are allegedly thinly traded and effectively controlled by small groups of wealthy individuals, making them vulnerable to price manipulation.

In a bid to calm the markets, Coordinating Minister for Economic Affairs Airlangga Hartarto gave assurances of stock market reform at a media briefing on Jan 30.

He outlined new measures to deepen the stock market, including raising the required minimum free float for listed companies from 7.5 per cent to 15 per cent by March, and allowing pension and insurance funds to invest up to 20 per cent of their portfolios in equities, up from the current 8 per cent cap.