Indonesian government’s next moves hotly watched (BY IFN)

See: http://redmoney.newsweaver.co.uk/gseo92lkarqh38rwoni3wx?email=true&a=6&p=23838465&t=21190425



INDONESIA: All eyes are back on Indonesia as the government is said to be preparing to unveil its new shareholding rules for the country’s commercial banks this month.

In addition to the impact the new regulations — expected to limit single-shareholder ownership in banks — will have on foreign institutions present in Indonesia, market watchers now ponder whether the country’s uncertain regulatory environment has weakened the momentum of its recent sovereign rating upgrades by Moody’s and Fitch.

In fact, not all are convinced that Indonesia has turned a fresh page in terms of economic and political reform; with Standard & Poor’s maintaining its “junk” rating on Indonesia. Its opinion is based on the country’s low per capital income, structural and institutional impediments to higher economic growth, continued high private sector external debt and shallow domestic capital markets.

“We have detected some policy slippages, after a remarkable decade of entrenching democracy following the collapse of the Suharto administration. The abandonment of a planned electricity tariff rise, the inability to implement fuel subsidy cuts despite rising oil prices and a host of proposed or actual policy measures in industry and trade point to rising policy uncertainty,” noted the ratings agency in a recent report.

Meanwhile, Cheah King Yoong, a banking analyst at Malaysia’s Alliance Research, noted that CIMB Group and Maybank could be negatively hit by Indonesia’s limits on single-shareholder stakes in local banks; due to their majority stakes in CIMB Niaga and Bank Internasional Indonesia, respectively.

“The implementation of this regulation could force these banks to pare down their stakes…and dampen their earnings prospects,” said Cheah in a report.

Another Malaysian player, Syarikat Takaful Malaysia, may also face difficulties in Indonesia due to the expected new rules. “The regulatory framework in Indonesia is ever changing and unpredictable. Sometimes it poses risks to what we want to do moving forward,” said Hassan Kamil, its group managing director.

The firm owns 56% in Syarikat Takaful Indonesia (STI) and could see hurdles on two fronts: Firstly as STI’s partnership with Bank Muamalat Indonesia could be affected by a possible streamlining of the bank’s business due to its own foreign ownership conundrum (Bank Muamalat’s foreign shareholders include the IDB and Kuwait’s Boubyan Bank); and secondly as Takaful Malaysia will have to pare down its own stake in STI.

Hassan noted that Takaful Malaysia will need a longer time to reduce its stake in STI; while it also planned for the Indonesian subsidiary to contribute strongly to the group’s growth going forward.

With the far-reaching impact of Indonesia’s regulatory framework and its possible negative effect on foreign investments, the country’s government may need to re-balance its policy moves to ensure its newfound shine is not short-lived.