JCI Closes Higher on Monday Despite Collapse of Floor in IDX Building

Jakarta Globe, Sarah Yuniarni, January 15, 2018

The Jakarta Composite Index closed higher on Monday, bouncing back from
Friday despite the collapse of a mezzanine floor in the Indonesia Stock Exchange
building, shortly after the end of the day's first trading session. (JG Photo/Yudha Baskoro)

Jakarta. Indonesia's benchmark stock index closed higher on Monday (15/01), bouncing back from Friday despite the collapse of a mezzanine floor at the local bourse in Jakarta, shortly after the end of the day's first trading session.

The Jakarta Composite Index (JCI) closed 0.19 percent higher at 6,382.

Nafan Aji, an analyst at brokerage firm Binaartha Sekuritas, said the JCI opened higher at 6,379 on Monday due to strong gains in Asian stocks, spurred by an improvement in global commodity prices.

The index reached 6,389 at around 10 a.m., but dropped during the second session.

"The country's index weakened slightly during the second trading session, likely due to negative sentiment from a deficit in Indonesia's trade balance, and the collapse of a first-floor corridor in the Indonesia Stock Exchange [IDX] building, but it bounced back and [still] closed higher than Friday," Nafan said.

Indonesia recorded a $270 million trade deficit in December, but the country still had a cumulative $11.84 billion trade surplus for 2017, Central Statistics Agency (BPS) data shows.

Foreign investors, who accounted for 37 percent of Monday's trading, bought Rp 1.96 trillion ($147.4 million) more in shares than they sold, while local investors sold Rp 1.96 trillion more than they bought.

Some indexes rose during Monday's trading, led by a 1.53 percent gain in the one that tracks mining stocks, including Vale Indonesia and Medco Energi Internasional.

The index that tracks financial stocks, including Bank Mandiri and Bank Central Asia, gained 0.67 percent.

Gainers beat decliners by 168 to 175 on Monday.

IDX Floor Collapse

At least 77 people were injured when a mezzanine floor in the second tower of the IDX building collapsed shortly after 12 p.m. on Monday.

The tower, which is also home to the offices of the World Bank, International Finance Corporation, property consultants and several local lenders, was built in 1998.

The IDX said in a statement that the building management was still investigating the cause of the incident. Police have ruled out an explosion as the cause.

The second trading session started at 1:30 p.m. as normal, despite the incident.

The collapse of a mezzanine floor of the Indonesia Stock Exchange (IDX) building 

on Monday (15/01) was not caused by a bomb. (Antara Photo/Elo)

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Pension fund in China not for stock market bail-out: official

Want China Times, Xinhua 2015-08-29

People walking past a pension fund management center in Fuzhou, Fujian
province, June 30. (File photo/CNS)

Allowing China's pension fund to invest in the stock market was not intended as a bail out, but to create long-term and stable returns, said the vice minister of human resources and social security on Friday.

The change will eventually have a positive effect on China's real economy and support a healthy capital market, but the core purpose is to gain long-term and stable yields for the fund, vice minister You Jun said at a press conference.

The fund's management must prioritize safety, and the timing of the fund's entry into the stock market will be decided by the market, You added.

The State Council finalized guidelines on Sunday allowing the pension fund to invest in new products, including the domestic stock market.

The guidelines allow the fund to invest in more than 20 financial products, including high-risk stocks and equities, as well as low-risk bank deposits and bonds, which diversify the investment risk, You said.

To minimize risks, the guideline restricts the maximum proportion of investment in stocks and equities to 30% of total net assets.

The fund will also participate in major projects and purchase shares in state-owned enterprises to gain long-term yields, he added.

Around 2 trillion yuan (US$330 billion) of the funds total assets can be invested, You said, adding that the amount will increase as the fund grows.

China's pension fund, which accounts for roughly 90% of the country's total social security fund pool, had net assets of 3.5 trillion yuan (US$547 billion) at the end of 2014.

The pension fund was previously parked in banks or invested in treasury bonds with low yields, provoking calls for change as China faces the challenge of caring for its growing elderly population.

The new policy came as China's stock markets continue to decline, beset by shrinking turnover and greater volatility. The key Shanghai index plunged more than 30% from its June peak, wiping out most of this year's gains.

"Market-oriented operation of the pension fund requires more market supervision by authorities," said You.

The National Council for Social Security Fund (SSF), a social security strategic reserve for China's future aging population, played an exemplary role in increasing the fund's investment returns. The SSF has had an average yearly return of 8.5% over the past 14 years as of 2014 and outpaces the consumer price index growth.

The SSF has a bigger investment scope than the pension fund and is allowed to invest in domestic and overseas stocks as well as fixed income assets.

In China, private urban employees pay for their pension before retirement and usually get a pension equal to about half of their final salary.

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Indonesia’s Pension Funds Seen Rising 20% This Year

Jakarta Globe, Thomas E Harefa, Oct 21, 2014

An employee of the Indonesia Stock Exchange takes a nap while others work in
 Jakarta on July 10, 2014, when stocks closed at the highest since May 2013.
 (AFP Photo/Adek Berry)

Jakarta. Indonesia’s Financial Institution Pension Fund Association, or ADPLK, estimates that pension funds under management at its 23 members will rise 20 percent by the end of this year.

The target is based on a new government policy that allows companies to invest in a reserve for an employee’s severance payment through a pension fund, said ADPLK chairman Nur Hasan Kurniawan on Monday.

The funds of 23 ADPLK members increased to Rp 31 trillion ($2.6 billion) at the end of the first half of this year, from Rp 29 trillion at the end of last year, Nur Hasan said, adding that the amount of funds accounted for 18 percent of the total of Rp 174 trillion in the country’s pension funds.

In Indonesia, a financial institution pension fund is a third-party financial service that manages pension funds for customers, as opposed to an employer’s pension fund, in which the employer or company manages the funds for their employees.

Lack of knowledge has led the majority of Indonesians to underestimate their pension spending.

Only 3.5 million employees out of 63 million workers in the formal sector have pensions fund, either from financial institutions or their employers, ADPLK data showed.

Investor Daily

Indonesian Financial Markets Rise as President Jokowi Takes Over

Stocks, bonds and rupiah advance

Jakarta Globe, Dion Bisara, Oct 20, 2014

President Joko Widodo is sworn in during his presidential inauguration at the House
of Representatives building in Jakarta on Monday. (Reuters Photo/Darren Whiteside)

Jakarta. Indonesian financial markets rose on Monday, as Joko Widodo became the country’s seventh president, lifting optimism that he will guide the nation toward improving the economy and the public’s livelihood through reforms such as reducing costs on fuel subsidies.

The Jakarta Composite Index rose 49.72, or 1 percent, to 5,078.67 as of 11:30 a.m.

The rupiah rose 0.5 percent against the dollar to 12,048, according to data compiled by Bloomberg. The yield on the 10-year government note slipped to 8.070 percent from 8.210 percent on Friday, Bloomberg data show. Yields move inversely to price, indicating that Indonesian bond prices were higher.

Investors are eagerly waiting for clues on the make-up of his new cabinet and fuel subsidy policy, which are viewed as crucial to Joko’s commitment to improve the country’s economy.

“Jokowi’s first task is to announce his cabinet,” DBS Bank said in a note to clients on Monday. “It has been widely anticipated that technocrats will dominate the key economic portfolios, but markets will also look at the cabinet appointments for any cues of political bargaining.”

Next on the agenda is the long-awaited subsidized fuel price increase, said Lana Soelistianingsih, economist at Samuel Sekuritas. “Joko needs to increase the subsidized fuel price so that he will have funds to finance more productive programs.”

DBS said that the move will help to save about $15 billion from the 2015 state budget and will help to narrow the country’s current account deficit.

DBS, though, warns that Joko needs to maintain close coordination with Bank Indonesia, the central bank, in implementing policy in order to avoid shocks to financial markets.

“We believe that maintaining financial market stability is crucial for longer-term growth potential in GDP [gross domestic product], especially noting the adverse impact from a weak rupiah on investment growth since last year,” DBS said.

Joko, citing the Constitution at the legislative building, reminded that the country is still a long way in achieving its goals in protecting its people, improving their prosperity, developing the nation’s intellectual capacity, and contributing to a world order based on freedom, lasting peace and social justice.

“We can bear this heavy historical burden together, with unity, cooperation with each other, and hard work,” the president said.

Joko also promised to make the bureaucrats work so that all remote parts of the country “can enjoy government service.”

The president also said that he will build Indonesia from its seas, in an attempt to return the country to its maritime glory.

“We have too long been neglecting our oceans, seas, straits and bays,” Joko said.

Indonesia Bonds, Rupiah Gain as Summers Quits Race for Fed Chief

Jakarta Globe, Bloomberg, September 16, 2013

Rupiah forwards strengthened for a third day after the central bank raised
interest rates last week. (Reuters Photo/Enny Nuraheni.)

Indonesia’s bonds advanced, driving the 10-year yield to a one-month low, and rupiah forwards gained after Lawrence Summers withdrew from the race to become the next Federal Reserve chief.

Summers may have provided less monetary stimulus than Chairman Ben S. Bernanke when his term ends in January, according to a Bloomberg Global Poll in which 47 percent of respondents said Janet Yellen, another candidate, would stick with the current policy. One-month non-deliverable rupiah forwards climbed for a third day after the central bank raised interest rates last week to stem a slide in the currency.

“Summers is more conservative and would have been keen to reduce stimulus sooner as he thinks the U.S. economy has improved,” said Rully Nova, a foreign-exchange analyst at PT Bank Himpunan Saudara 1906 in Jakarta. “Continuing euphoria over Bank Indonesia’s responsiveness in raising rates to tackle inflation is also supporting the rupiah and bonds.”

The yield on the 5.6 percent notes due May 2023 fell 40 basis points, or 0.4 percentage point, to 8 percent as of 9:45 a.m. in Jakarta, the lowest level since Aug. 14 and the biggest drop in almost two months, according to prices from the Inter Dealer Market Association.

One-month rupiah forwards rose 1 percent to 11,155 per dollar, trading 2.3 percent stronger than the spot rate, the biggest premium in data tracked by Bloomberg going back to 2001. In the onshore market, the currency was little changed at 11,416 from 11,410 on Sept. 13, prices from local banks compiled by Bloomberg show.

Ease inflation

Bank Indonesia boosted its benchmark reference rate to 7.25 percent on Sept. 12 from 7 percent. The move will speed up an improvement in the current-account deficit and stabilize inflation, Deputy Governor Perry Warjiyo said the same day. Consumer prices rose 8.8 percent in August from a year earlier, the fastest pace in four years, official data showed Sept. 2.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, fell 65 basis points to 17.8 percent, the least since Aug. 20, data compiled by Bloomberg show. A fixing used to settle rupiah forwards was set at 11,174 per dollar on Sept. 13, according to the Association of Banks in Singapore.

Bloomberg

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Indonesia Occupies Wall Street With Its Heft of Resources, Democracy

Jakarta Globe, Shoeb K. Zainuddin, September 25, 2012

Indonesian President Susilo Bambang Yudhoyono visited Wall Street, in
 downtown Manhattan, to drum up investor interest in Indonesia, during his
visit to New York on Monday. (AFP Photo/Timothy A. Clary)

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New York. For about three hours on Monday morning Indonesia occupied Wall Street as President Bambang Susilo Yudhoyono addressed several American captains of industry and financial titans.

For the first time in its history, the New York Stock Exchange hosted an Indonesian Investment Day, a reflection of growing global interest in the country and Indonesia’s rise as a major global economy.

As pointed out by the chief executive of NYSE Euronext, Duncan Niederauer, in the past seven years, Indonesia’s gross domestic product has grown by 200 percent, its blue-chip stocks have risen by 200 percent and its overall stock market has shot up by 300 percent.

In his speech, Yudhoyono sought to differentiate Indonesia from the rest of the emerging economic pack.

“Here on Wall Street and around the world, there is a lot of talk about emerging markets,” he said. “Indonesia is included in almost every acronym to describe these markets, but among emerging powers, Indonesia is unique.”

Yudhoyono added that Indonesia is constantly adapting itself to global economic and social trends and the government is very conscious of not falling into the resource trap.

The government, he added will not be irresponsible with the nation’s wealth in natural resources.

“We are mindful that natural resources can also be a curse. In fact, we will add value. By 2014, all raw materials will be processed domestically before being exported, as this will not just boost growth but social equity,” he noted.

“Indonesia is doing well, but for how long is the common question. I believe it can be sustained because we have built the foundations and our political stability anchors our economic strength,” he added.

Indeed, few economies in the world offer opportunities for growth and profits that Indonesia does, said Nouriel Roubini, chairman of Roubini Global Economics. He said that the rise of emerging markets would totally transform the global economy over the next few decades, as consumption rises and demand for natural resources increases.

“Who will produce these natural resources? There are a lot of opportunities in Indonesia, which has an abundance of these resources,” he said.

Roubini added that there has been too much hype given to the BRIC countries (Brazil, Russia, India and China) over the past few years, but in many aspects Indonesia fairs much better than they do. “Indonesia has a more robust democracy and a much more diversified economy than Russia or China.”

“One of the strong points of the Indonesian economy is that while its exports are strong, domestic demand makes up two thirds of the economy,” he added. “This is what makes it very resilient.”

The country will, however, need to continue to invest in infrastructure and manage its widening current-account deficit.

Shares Slump as Coal Miner Bumi Probes Irregularities

Jakarta Globe, Clara Ferreira-Marques, Sarah Young, Janeman Latul & Neil Chatterjee, September 24, 2012

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London. Bumi Plc, the coal mining group controlled by Indonesian investors including the politically influential Bakrie family, has begun an urgent investigation into allegations of “financial and other irregularities” at its Indonesian operations, sending its shares down more than 30 percent.

Bumi, co-founded by financier Nat Rothschild, said in a brief statement on Monday that it had commissioned an independent investigation into the allegations concerning its Indonesian subsidiaries, including 29-percent owned Bumi Resources, Asia’s biggest exporter of thermal coal, which is used in power stations.

Bumi is one of several foreign-owned, London-listed miners that have raised corporate governance concerns among investors over the past year. It has heavily underperformed the mining sector since its re-listing in June last year, weighed down by worries over its subsidiaries’ debts amid weak thermal coal prices, battles between shareholders and a complex corporate structure.

The group’s Indonesian partners tried to oust Rothschild from the board last year after he called for a “radical cleaning up” of governance at Bumi Resources, in what was seen as a sign of his frustration with the Bakries. In a reshuffle at Bumi Plc that followed, Rothschild stepped down as co-chairman, and key investor and coal entrepreneur Samin Tan took the chairman’s role.  

The investigation, to be led by an as-yet unnamed law firm, is expected to include a close look at some $300 million of funds used by subsidiaries and affiliated companies to develop new projects, and also at certain loans extended by Bumi Resources, long a concern for investors.

 Bumi said that “an area of focus” would be the “extensive” development funds of Bumi Resources, most of which were written down to zero at the end of last year, along with one potential mining project held by another subsidiary, Berau Coal Energy.

“We have no knowledge and will await further information before we can comment further,” said Dileep Srivastava, Bumi Resources’ investor relations spokesman.

Bumi, the most traded British mid-cap stock on Monday at 8 times its 90-day daily average, was down 32 percent at 0930 GMT, at 133 pence, off an earlier all-time low of 119.5 pence.

Shares in other Bakrie Group firms also fell on Monday on investor concerns that Bumi’s financial problems would affect related companies. Property developer Bakrieland Development and energy firm Energi Mega Persada both slid 12 percent, while plantation firm Bakrie Sumatera fell 9 percent.

“It’s a major development for Bumi Plc, which now has Samin Tan in control. People have been wondering whether these national coal assets have been mismanaged,” said Jemmy Paul, an equity fund manager at Sucorinvest Asset Management in Jakarta, who manages over $200 million.

But some saw the move as potentially positive.  

“We see this investigation as a positive development, although we feel it does have the potential to bring to light some gross [and potentially criminal] mismanagement of funds which may turn off shareholders in the short-term,” analysts at Liberum said.

“Clearly, given PT Bumi’s high debt levels, the repatriation of funds and focus on core coal mining business is critical.”

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British financier Nathaniel Rothschild, left, has criticized the
 management and corporate governance at Bumi Resources,
 the Indonesian coal company he is trying to transform into a
 top-tier global miner, the Financial Times reported on
Thursday. (Antara Photo/File)

Chinese companies pull out of U.S. stock markets

CBS News, August 14, 2012 

(MARK RALSTON/AFP/Getty Images)

(AP) BEIJING - Just a few years after Chinese companies lined up to sell shares on Wall Street, a growing number are reversing course and pulling out of U.S. exchanges.

This week, Focus Media Holding Ltd., announced a $3.5 billion plan to buy back its U.S.-traded shares and take the Shanghai-based advertising company private.

Smaller companies also are withdrawing from U.S. exchanges. A state bank has provided $1 billion in loans to help them move to domestic exchanges.

The withdrawals follow accusations of improper accounting by some companies and a deadlock between Beijing and Washington over whether U.S. regulators can oversee their China-based auditors.

Some Chinese companies say they are pulling out of U.S. markets because a low share price fails to reflect the strength of their business.

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Going ‘Green’ Key to Drawing Investment in Indonesia

Jakart Globe, Dion Bisara, February 03, 2012

Indonesia has been warned it may not fully benefit from its recent investment
 grade status to draw significant offshore funding if it fails to impress investors
looking for environmentally sustainable investments.

               

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Indonesia has been warned it may not fully benefit from its recent investment grade status to draw significant offshore funding if it fails to impress investors looking for environmentally sustainable investments.

Two international rating agencies have in the past month granted Southeast Asia’s largest economy investment-grade status, improving its chances of attracting long-term foreign funds.

However, Elmar Bouma, the director of the Indonesia Netherlands Association, cautioned that pension funds and investment managers, which together account for an estimated $30 trillion in capital, had strict sustainability requirements in line with the UN Principles for Responsible Investment.

“Its hard to say how much of that would come to Indonesia, because they apply much stricter standard regarding sustainability,” Bouma told a news conference on Thursday.

Data from Towers Watson and UNPRI’s Web site show that big funds include Norway’s Government Pension Fund Global, the world’s second-largest sovereign fund with more than $550 billion in assets, and South Korea’s National Pension, the world’s third largest with around $290 billion.

Indonesia, with its $706 billion economy, is fast becoming a magnet for foreign investors as its growth continues amid a global crisis marked by European debt and the US economic slowdown.

Indonesia’s prudent fiscal and monetary position, coupled with its demographic bonus — a productive population that outnumbers its unproductive one — provides a foundation for accelerating growth over the next decade.

“Indonesia promises growth in the long term, but the scope of those pension funds is longer,” said Poltak Hotradero, the head of research at the Indonesia Stock Exchange.

Bouma said Indonesia’s banking system should take the  initiative to spearhead sustainable banking practices. There are 120 commercial banks operating in Indonesia.

“The banking sector of Indonesia must anticipate this development to tap the new source capital,” he said.

Sakariza Qori Hermawan, group head of corporate sustainability at Bank Negara Indonesia, said Bank Indonesia, the central bank, may soon issue a regulation on green banking.

Lenders would be required to assess customers based on social and environmental sustainability standards as well as financial.

Thus far, he said, social and environmental sustainability were low priorities for Indonesia’s banks and businesses.

Sakariza said his Jakarta-based lender had only disbursed Rp 7.7 trillion ($862.4 million) in “green category” loans in 2010, or around 5.7 percent of its total outstanding loans valued at Rp 136.4 trillion. Some green loans financed geothermal power plants.

“Looking for excellent green companies is quite hard,” he said.

Sakariza said green banking would force corporations to comply with the UNPRI framework.

Rubin Japhta, a senior officer at the International Finance Corporation, said Indonesian companies and banks would need time to change their business paradigm.

While waiting for the shift, he said, Indonesian banks could try to tap the funds while committing themselves to transformation along the way.

The IFC, the investment arm of the Washington-based World Bank, has implemented these “flexible” policies with its investment partners in Indonesia including Bank Tabungan Pensiunan Negara, Bank Maybank Indonesia, Hana Bank and Bank Danamon.

Goldman, Morgan in Talks to Buy Indonesian Brokers: Sources

Jakarta Globe, September 12, 2011

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Goldman Sachs and Morgan Stanley are each in talks to buy an Indonesian brokerage firm to expand their reach into the booming capital market of Southeast Asia’s biggest economy, sources said.

Goldman is in talks to buy Tiga Pilar Sekuritas and expects to complete the acquisition before the end of 2011 as it aims to start a local brokerage operation next year, two sources with direct knowledge of the deal told Reuters on Monday.

Goldman does not have an underwriting or broking license in Indonesia, while Morgan Stanley secured an underwriting licence in 2008, but is seeking a bigger presence through a full-fledged broker license.

Both banks plan to add research analysts as well as sales and trading staff to the brokerages next year, while Goldman could also add investment bankers, as they seek to win fees from equity offerings and debt deals, the sources said.

“I think this signals a positive view on our capital market ... It has really become an important destination for global investment banks,” said Winston Sual, who manages nearly $1 billion in funds at Panin Sekuritas in Jakarta.

“This will give more competition for fees among global bankers like JPMorgan and Credit Suisse.”

The banks’ plans in Indonesia, which has seen its stock market hit records this year on surging foreign investment, follow moves by Nomura Holdings and Citigroup to ramp up equity research teams in Jakarta this year to challenge leaders Credit Suisse and Deutsche Bank.

Investment interest in the G20 member is set to rise again next year, when Indonesia hopes to get an upgrade by Fitch Ratings to an investment grade sovereign rating that will put it alongside top emerging BRIC nations such as Brazil. 

Goldman has completed due diligence for Tiga Pilar and both parties are now negotiating the deal structure and valuation, said one of the sources, who all declined to be identified.

“Goldman has already asked Tiga Pilar to start looking for prospective staff and bankers as a precondition before they complete the deal,” said the source. No financial details were immediately available.

Officials at Tiga Pilar and Goldman declined to comment.

The Tiga Pilar deal size is likely to be small as Goldman is only seeking to buy the operating licenses that the deal will provide. It will need to at least inject the Rp 50 billion ($6 million) in license costs and required brokerage capital.

Tiga Pilar, partly owned by the family of Tan Pia Sioe, traded Rp 445 billion by stock value in the first six months of this year, ranking it 102 out of 117 active brokerages, according to stock exchange data.

The IDX composite index has jumped over 5 percent so far this year, topping the list of gainers in Southeast Asia. 

Goldman’s rival Morgan Stanley has also identified a target brokerage firm to acquire and hopes to conduct due diligence this year in order to start operations next year, said three other sources with direct knowledge of this deal.

“Talks are ongoing. It is still early to mid-phase. Morgan Stanley is talking to people,” said one of the sources. Sources declined to give the name of the target brokerage and no financial details were available.

A Morgan Stanley spokesman declined to comment. The talks are aimed at either buying a brokerage to get their seat on the stock exchange or to buy a seat from an existing brokerage, one of the sources said.

A full broking license would allow the firm to cover the secondary side of sales and trading as well as research, the source added.

Citigroup bought Indonesian brokerage Republik last year and this year added bankers and analysts, including veteran analyst Ferry Wong from Macquarie as its new head of research.

Citi was not in the top five for underwriting Indonesian equity deals last year but this year has surged up the league table to rank second among global banks, behind Deutsche.

Reuters

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The company formed by the union of Bumi Resources and Berau
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Insight : Reforming wealth management (Part 1 of 2)

The Jakarta Post, Amol Titus, Sat, 05/14/2011

Wealth multiplication is an ingrained motive in the capitalist model which sits at the heart of modern financial markets. And acts of entrepreneurship which result in legitimate wealth multiplication are to be marveled as lessons in good management.

For example, take the profits e-Bay has made on Skype. Some time ago it sold a 70 percent stake in Skype for approximately US$2 billion and earlier this week it will make a similar amount for its balance 30 percent stake sale after it was announced that Microsoft is buying Skype for a whopping $8.5 billion as it tries to keep up with the mega trend of web and device based social connectivity.

Many other examples abound and several Indonesian businessmen have similarly multiplied their wealth through shrewd investment decisions and impressive risk taking over the past decade.

However, illegitimate wealth multiplication through money laundering, fraud, tax evasion and corruption is downright illegal and deserving of criminal prosecution as per regulations.

Like any other criminal activity those accessory to it are also liable for prosecution under the law, both local and international.

As the recent serious fallouts from bank scandals have highlighted there is a seamier side of wealth management that is tarnishing the discipline and reputation of the banking system.

Worse it is obstructing the efforts of anticorruption teams whose hands must be strengthened if a key emerging market like Indonesia is to graduate beyond short term hype as a resource rich play to long term progress as a better governed economy.

To understand the seamier aspects of wealth management begin by asking four questions.

First, is it a core KPI of the seller of financial products to conduct proper due diligence on source of funds.

Second, is it the obligation (both professional and moral) of an overseas branch office of that institution located in a financial tax haven to distinguish legitimate wealth flows from illegitimate flows and stop hiding behind the hypocrisy of “the corruption did not occur in our country so it’s OK so long as funds flowed through some banking channel”.

Third, should the current bonus system of wealth managers which incentivizes leveraged sales of speculative products be reviewed and strictly monitored.

And fourth, should banks stop treating senior wealth managers as untouchable prima donnas and use common sense policies of rotation, codes of conduct and conflict of interest mechanisms.

If you believe the answer to the above four questions is ‘Yes’ then read on as the above issues and practical solutions will be elaborated in this two part series.

Bankers are prone to use the terminology of “smell test” to identify something fishy or suspicious related to banking transactions.

This is good because funds flows through banks are under serious scrutiny by regulators since serious crime invariably has a financial motive and trail.

In practical terms the smell test boils down to due diligence and surprisingly for a discipline as sensitive and prone to manipulation as wealth management, due diligence has tended to get lax and loose.

The main reason for this is that retail banking divisions of most banks now have two principal drivers of revenue and profitability — wealth management and consumer finance.

The wealth management product range has also become more complex as financial derivatives are now increasingly being sold to retail customers.

As margins reduce in sales to sophisticated institutional and corporate clients, treasury departments (the financial engineering labs within banks) are collaborating more with wealth management departments.

But problems arise when unsophisticated customers — individuals and SME business owners — are sold complex products at times with misleading sales pitches that over emphasize gains and downplay the risks which are very real and can come back to painfully bite the clients.

Since most banks have jumped onto the wealth management bandwagon competition is intense and as has been seen with other banking disciplines like credit cards or sub-prime mortgages when a ‘herd’ mentality is adopted standards invariably slip.

What has slipped the most is the quality and effectiveness of due diligence when a customer wants to open a significant wealth management account or make a sizeable transfer.

It is surprising that the same bank which will insist on salary statements, proof of income and assets for a simple credit card will not raise the alarm bell when an account holder is effecting a deposit or transfer that bears little co-relation to his or her salary or sources of income.

Asking for a NPWP (tax) number, sighting the account number of another bank or simply believing the customer under pressure or charm (majority of wealth management meetings take place in luxurious settings in which wealthy clients show off to gullible relationship officers) is incomplete due diligence.

Like with other aspects of banking there need to be firm procedures and systems to differentiate between genuine customers and those which require deeper background checks.

Once illegitimate funds enter the banking system chances of effective laundering are high and the seamier side of wealth management has also enabled conduits to seemingly untraceable tax havens, trusts, front companies and so on.

Reputable global and local financial institutions cannot talk of Good Corporate Governance and then turn a blind eye to the seamier aspects of wealth management practice.

Reform must begin first at home. The price of financial penalties, criminal liability and worse reputation damage is far too high to compromise.

International banks that have large wealth management centers in financial tax havens must also ensure that they have additional screens to detect illegitimate wealth and implement a cast iron policy that they will not become facilitators, wittingly or unwittingly, of corruption related money flows.

The columnist is CEO of international management consulting firm IndonesiaWISE. Prior to become a senior strategy advisor to leading companies and institutions, he spent over 18 years in the international financial sector. The second part of this article will appear in the next edition of Insight.

Economy grows as expected: minister

Antara News, Tue, February 08 2011

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Jakarta (ANTARA News) - Finance Minister Agus Martowardojo said the country`s economic growth at 6.1 percent in 2010 pleased the government as it had exceeded the 5.8 percent assumed in the state budget.

"We hail the outcome. Indeed we had hoped it would surpass six percent and it did, and even reached 6.1 percent. This means that the outcome was higher then the targeted 5.8 percent," the minister said here on Monday.

He said the growth in 2010 was good and had met expectations thanks to growth in domestic consumption, investment and exports.

"Household consumption growth was high and we also see other factors such as investment and exports. And exports got more support because the prices of several other commodities increased. It seems that this factor played a role in the fourth quarter of 2010," the minister said.

He said there were several matters that needed to be improved by the government, particularly in the consumption sector such as accelerating the absorption of the budget so that the growth target for 2011 which was set at 6.4 percent could be achieved.

Editor: B Kunto Wibisono

Moody's upgrades RI rating to one notch below investment grade

The Jakarta Post, Jakarta | Mon, 01/17/2011

Moody's Investor Services on Monday upgraded Indonesia’s sovereign credit rating to one notch below investment grade, a statement released on Monday shows.

According to the statement, the top rating agency upgraded Indonesia's rating from Ba2 to Ba1 with a stable outlook, citing economic resilience, macroeconomic balance, an improving government debt position and the central bank's foreign currency reserve adequacy as well as prospects for foreign direct investment inflows.

"We have upgraded the sovereign credit ratings as momentum in the economy is expected to be sustained by steady domestic demand, a reasonable pace and sequencing of policy and structural reforms, and rising foreign direct investment.

"Furthermore, Indonesia’s debt position and reserve adequacy remain on an improving trajectory relative to most of its ratings peers," says Aninda Mitra, a vice president at Moody's and its lead sovereign analyst for Indonesia.

Moody's, however, still considers key risks to the rating outlook to be mainly embedded in Indonesia’s political system.

"Opposition from coalition partners has slowed the government's drive to implement far-reaching economic reforms," the agency says, adding that this opposition has not impacted overall policy management capabilities or near-term economic prospects.

Nonetheless, Moody's notes that adversarial or obstructionist politics that impede policy making and banking supervision could make investor confidence suffer and financial market pressure could increase.

Earlier, Finance Minister Agus Martowardojo has said he hoped Indonesia would receive achieve investment grade accreditation from top rating agencies this year, following its stellar economic performance in 2010. (est)