Derivatives The absence of a deep and liquid market to hedge interest rate and foreign exchange fluctuations is a prime impediment to capital market development. Hedging markets facilitate long-term financing and help investors manage duration and currency mismatches which is key given Indonesia's reliance on foreign capital. An integrated approach is required which encompasses, inter alia: Better inter-agency and cross-segment coordination is required Coordination. regarding money markets (e.g. to provide a liquid reference rate), and the government’s issuance policy (e.g. to match maturity dates of futures contracts). The framework should be reviewed to stimulate Regulatory and tax framework. the participation of a broad range of market participants (e.g. allow derivatives trading on the exchange, remove double taxation). Speed-up the implementation of the necessary upgrades in OTC Infrastructure. derivatives, in compliance with G-20 commitments. Investor base Additional efforts are necessary to grow the domestic institutional investor base and The authorities have implemented measures to enhance their market participation. mobilize savings, such as the recent social security reform, and enhance regulations of different capital markets products, but scope for improvement remains. Greater participation of domestic institutional and retail investors in capital markets require, inter alia, improvements in: The framework currently deters broader participation in different Tax framework. investment products (e.g. by pension funds in mutual funds). Current features drive pension investments into short-term products Regulation. and restrict pension funds’ ability to use derivatives to manage their portfolios. There is a need to address a conservative investor culture and Investor literacy. judiciously increase participation in capital market products. instruments would allow banks and institutional Hedging instruments. investors to manage longer-term exposures and duration mismatches. Insolvency and Creditor Rights Adequate insolvency and creditor rights (ICR) regimes increase access to credit, particularly for SMEs, and contribute to financial stability. Well-functioning insolvency regimes channel failed enterprises to liquidation to ensure that valuable assets are recycled into productive use, and help restructure distressed but viable enterprises. This lowers the cost of credit, enhances enterprise growth, and creates and preserves jobs.
Derivatives The absence of a deep and liquid market to hedge interest rate and foreign exchange fluctuations is a prime impediment to capital market development. Hedging markets facilitate long-term financing and help investors manage duration and currency mismatches which is key given Indonesia's reliance on foreign capital. An integrated approach is required which encompasses, inter alia: Coordination. Better inter-agency and cross-segment coordination is required regarding money markets (e.g. to provide a liquid reference rate), and the government’s issuance policy (e.g. to match maturity dates of futures contracts). Regulatory and tax framework. The framework should be reviewed to stimulate the participation of a broad range of market participants (e.g. allow derivatives trading on the exchange, remove double taxation). Infrastructure. Speed-up the implementation of the necessary upgrades in OTC derivatives, in compliance with G-20 commitments. Investor base Additional efforts are necessary to grow the domestic institutional investor base and enhance their market participation. The authorities have implemented measures to mobilize savings, such as the recent social security reform, and enhance regulations of different capital markets products, but scope for improvement remains. Greater participation of domestic institutional and retail investors in capital markets require, inter alia, improvements in: Tax framework. The framework currently deters broader participation in different investment products (e.g. by pension funds in mutual funds). Regulation. Current features drive pension investments into short-term products and restrict pension funds’ ability to use derivatives to manage their portfolios. Investor literacy. There is a need to address a conservative investor culture and judiciously increase participation in capital market products. Hedging instruments. instruments would allow banks and institutional investors to manage longer-term exposures and duration mismatches. Insolvency and Creditor Rights Adequate insolvency and creditor rights (ICR) regimes increase access to credit, particularly for SMEs, and contribute to financial stability. Well-functioning insolvency regimes channel failed enterprises to liquidation to ensure that valuable assets are recycled into productive use, and help restructure distressed but viable enterprises. This lowers the cost of credit, enhances enterprise growth, and creates and preserves jobs.
Indonesia-FSAP-Update-FSA-07072017.docx