The recent financial market turmoil has taken a heavy toll on all investors. The manufacturing sector is predicted to feel the pinch of a global recession next year. The Jakarta Post business section features a special report on the effect of the global financial meltdown on Indonesia. Here are the stories.

Aside from tailing the impact of the global financial turmoil, the recent havoc in the stock market has been fueled primarily by the failure of the capital market watchdogs to make the big players comply with strict transparency principles.

After the Jakarta Composite Index tumbled last Wednesday and forced regulators to suspend trading for the first time since 2000, Finance Minister Sri Mulyani Indrawati blamed rumors about the Bakrie Group of companies for exacerbating the plunge.

Mulyani said the rumors stemmed from unclear information revolving around concerns the group's flagship PT Bakrie & Brothers would be unable to pay its US$1.2 billion debts pledged under stake collateral in its publicly listed units.

The minister has every reason to be furious, with a meltdown in the shares of Bakrie companies dragging down other publicly listed firms, as well as contributing to the sharp depreciation of the rupiah against the U.S. dollar.

Rumors about Bakrie, controlled by the family of Coordinating Minister for the People's Welfare Aburizal Bakrie, might have been prevented back in April if the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) and the Indonesia Stock Exchange (IDX) had taken steps to force Bakrie to disclose its debt arrangements.

Since Bakrie's publicly listed units account for a third of daily trading by value, the watchdogs have strong grounds to probe the companies in a bid to prevent any adverse effect to investors in general should the shares plummet further.

However, it was not until a media outcry on Aug. 20 over Bakrie's lack of disclosure on the debt arrangements that Bapepam, under the auspices of the Finance Ministry, and the IDX took action to soothe the market.

"Bapepam failed to ensure the trust was there. It is their task to probe complicated financial engineering such as practiced by Bakrie," said Gadjah Mada University economist Revrisond Baswir.

"The practice may be normal, but are there any loopholes in the regulations that could have been used by them to escape litigation? Bapepam should ensure companies comply strictly with disclosure arrangement regulations."

Despite requiring Bakrie to make a disclosure, neither Bapepam nor the IDX attempted to investigate the debt arrangement in depth, thus triggering a time bomb that would eventually explode on Oct. 6.

Rather, the watchdogs eventually cleared Bakrie, the nation's largest publicly listed investment company, and its affiliates of all charges.

Bapepam chairman Fuad Rahmany told The Jakarta Post on Tuesday that Bakrie companies had done nothing wrong -- before or after Oct. 6, when their shares plummeted -- despite the agency's lack of an initial probe into transparency at the group.

"There is no breach of regulation. Do not believe the rumors," Fuad said, adding there was no need to question Bakrie because the agency saw no indication of violations, including accusations of withholding substantial information.

The Bakrie fiasco began when it borrowed $1.43 billion in short-term loans between April and September from, among others, Oddickson Finance, JPMorgan, and India's ICICI Bank for refinancing, funding investment and working capital.

Shares in Bakrie units were put up as collateral, including in crown jewel coal producer PT Bumi Resources, plantation firm PT Bakrie Sumatra Plantation and energy firm PT Energy Mega Persada.

The value of the shares pledged was estimated at $6 billion.

However, things turned messy when Bakrie shares lost 41 percent of their value on Oct. 6, before being suspended by the IDX along with five affiliated companies.

Investors sold shares in Bakrie and its units over fears their declining shares would prompt creditors to sell the collateral holdings.

The value of the pledged shares eventually plunged to $1.35 billion, forcing Bakrie to top up the covenant to assure creditors the stake value remained intact.

On Oct. 12, Bakrie announced it might sell shares in it units, including a 10 percent stake in Bumi, to raise about $1.2 billion to pay all outstanding debts.

However, the company refused to give any reason for the early payment of the debt, which was meant to be due in two years.

"The board of directors are responsible to the Bakrie shareholders. If we don't take any action when the stock market collapse the stocks of the companies will be gone. We don't want that to happen," said Bakrie & Brothers director Ari S. Hudaya.

As reported in several media outlets, tycoon Tommy Winata, the Sampoerna Group, and the Djarum Group have all shown an interest in purchasing Bakrie shares.

U.S. hedge fund Avenue Capital Group is reportedly in serious talks over securing the shares.

Following a request by Bapepam, the IDX is still suspending trading in shares of Bakrie companies over fears that if the debt settlement remains unclear, it will affect the entire stock market due to the group's prominent role in daily trading.

HD Capital head of research Adrian Rusmana urged Bapepam to calm the jitters surrounding Bakrie companies, saying that basically there was no deviation at all in their performance and corporate fundamentals.

"Bapepam must explain what is actually happening with Bakrie. They must explain it in detail as soon as possible to help investors take preparatory measures during these hard times," Adrian said.

"Because from Bakrie's recent public exposure, it is clear its fundamentals are great, the companies are performing. So what is actually going on?"

In response to accusation that Bakrie companies were behind the recent market turmoil, Ari urged those making the allegation to further study the stock market performance.

A noted analyst who refused to be named because his company handled Bakrie transactions, believed the mess in the market had to be viewed from a political perspective as well, given Aburizal's position as a minister and loyal supporter of Vice President Jusuf Kalla, chairman of the Golkar Party.

"It is difficult to measure the transparency of the regulator in doing its job to enforce the law when it comes to Bakrie," he said.

"The political factor will always come into play."

By Ika Krismantari, Indrawardhani Pringgodigdo, Rendi Akhmad Witular

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