Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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issues. If investee firms become publicly listed, venture-capital firms are required to dispose of
their shareholdings within 36 months of the listing.
Many venture-capital firms provide conventional lending rather than equity capital. These
firms often make lending decisions based on collateral rather than cash flow, in effect acting as
a bank. Moreover, current regulations and tax rules do not recognise equity financing, which is
a crucial element of developed venture-capital industries. Many firms, except for joint-venture
companies, are owned by the government or are part of large business groups, creating a
situation where ownership and capital management are structurally linked.
Institutions promoting investment and stock exchanges
Indonesia’s government encourages foreign individuals and corporations to invest in
Indonesian securities, including through the Indonesia Stock Exchange (IDX). As of September
2013, 479 companies were listed on the IDX, all of which were domestic. Market capitalisation
stood at US$367bn, which makes the IDX reasonably moderate among Asia’s major exchanges,
equivalent in size roughly to that of Thailand.
The government’s investment promotion agency is the Indonesia Investment Coordinating
Board (BKPM), which acts as an intermediary between the government and the business
community and is mandated with increasing the levels of both domestic and foreign
investment. The BKPM is also responsible for maintaining the Negative Investment List (DNI),
which identifies the sectors that are wholly or partially closed to foreign investment.
Debt and equity instruments
Government bonds include rupiah- and US dollar-denominated Treasury bonds, which are
regulated by the 2002 Sovereign Debt Securities Law. The IDX is permitted to trade
government bonds as well as corporate bonds. Government bonds had previously changed
hands through over-the-counter trading offered by banks and securities firms. According to
the Ministry of Finance, at end-June 2012 banks held just under 40% of the total of around
Rp800trn (US$75bn) in outstanding government bonds; foreigners held around 30%.
Since mid-2006, Indonesian citizens have been able to buy retail state bonds (ORIs) from the
finance ministry, which offer a higher yield than bank deposits. The bonds are sold by
designated sales agents to individual purchasers without an auction process, and are subject to
a final withholding tax of 15%, compared with a 20% levy on regular deposits. Foreigners can
buy retail state bonds on the secondary market or through nominated locals.
The Indonesian government issued its first US dollar-denominated sukuk bond in 2009. As the
country has the world’s largest Muslim population, the government is committed to Islamic
finance and the issuance of sukuk bonds; it now holds one or two such sales a year. Most
recently, it raised US$1.5bn from rupiah-denominated sukuk bonds issued in September 2013.
In addition to US dollar and yen-denominated conventional bonds, the authorities are
considering launching bonds denominated in Chinese renminbi and South Korean won.