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Editorial: Suspending fears
Mon, 10/13/2008 11:39 AM | Opinion
Fears have gripped the financial market the world over: fears we must defeat if we are to spare this country from the impact of the global crisis. And yet, what the local market authorities have done by prolonging the suspension of the Indonesian Stock Exchange (IDX) last week has only fueled further market tension.
Initially, the suspension was welcomed, and helped to calm the market by allowing players to discern what had gone wrong. However, when the market closure was prolonged and the government (through Coordinating Minister for the Economy Sri Mulyani) failed to keep its promise and reopen the stock exchange on Friday, uncertainty set in -- and this uncertainty has fueled fears.
So then the authorities promised to reopen the market on Monday. What if on Monday the stock market opens and most shares tumble? Will the government then intervene and ask the IDX to suspend trading again?
Investors and traders become even more jittery following a government announcement that it would establish a special task force to pursue stock market "criminals".
Sri Mulyani said, "If there are parties who want to reap gains while causing losses to others, they will face legal action. A task force will be employed to deal with this."
What a weird statement!
Everyone in the stock market knows that if you make profits, you make them at someone else's expense. As long as you do it legally, you should never face prosecution for it.
Instead of going after those who have profited from the stock market, the task force should chase those who commit the real stock market crimes -- like insider trading -- and force listed companies to fulfill their disclosure obligations.
Now that they have their special task force, who or what will they pursue?
What happened in Indonesia last week and in the weeks before the crash had a lot to do with global bearish sentiment, uncertainties and especially margin trading -- and margin trading is legal. And it centered around shares of the Bakrie Group, which was gripped by various rumors and speculation. The speculation centered around concerns that PT Bakrie & Brothers would not be able to repay its short-term debts -- amounting to some US$1.43 billion -- owing to companies including to JPMorgan Chase & Co. These loans are backed by shares of affiliated companies, including PT Bumi Resources, PT Energi Mega Perkasa and PT Bakrie Sumatra Plantations.
Last Monday, PT Danatama Makmur securities, which had been acting on behalf of Bumi to buy back Bumi shares, failed to pay traders selling Bumi shares. This led to a massive sell off of Bumi and other shares under the Bakrie umbrella, and led the IDX index to fall by 10.03 percent that day -- its biggest one-day decline in years.
The following day, IDX management officially suspended the trading of PT Bakrie & Brothers and its units, and this prompted investors who had been doing margin trading on Bakrie shares to sell their other shares -- to repay their debts to securities houses from where they borrowed money to do margin trading in the first place.
These massive sell-offs continued until Wednesday, and the IDX index had fallen by another 10 percent by mid-morning that day. This massive fall of the index prompted the IDX to suspend all trading on the bourse.
Thus, in addition to bearish sentiment in the global market, the Bakrie factor and the suspension of its shares were largely responsible for the fall of the Indonesian stock market. The IDX management rightly demanded an explanation from the Bakrie Group, and Bakrie responded belatedly by holding a press briefing on Sunday.
The task force, instead of running after traders looking for profit, should enforce the disclosure requirements by listed companies. Otherwise, uncertainty will continue to cloud our market.
If the authorities act slowly on this important issue of full disclosure and continue the suspension of Bakrie shares and the stock market as a whole, we fear that the perception the government is using the suspension to bail out Bakrie will prevail. This perception is strong because the Bakrie Group is controlled by the family of Coordinating Minister for the People's Welfare Aburizal Bakrie.
There are already people toying with nationalist sentiment, suggesting market authorities protect Bakrie & Brothers and its units, especially Bumi, from a hostile takeover. Thus, it is important for us to remind the market authorities to act independently and that they should never succumb to political pressure.
It is also important for financial authorities to establish certainty and dispel fears by acting independently and confidently by reopening the stock market on Monday.
Let the market fix itself. When shares fall this much, eventually, someone will greedily snap them up at a rock-bottom price. After all, greed is good here, and it can save us from falling further.
