Improving Corporate Governance Seen as Key for Further Foreign Investment in Indonesia

Improving Corporate Governance Seen as Key for Further Foreign Investment in Indonesia

By Vanesha Manuturi on 11:00 pm February 4, 2014.

Jakarta. Indonesian Finance Minister M. Chatib Basri has called on the country to improve corporate governance as part of its efforts to lure more foreign investors.

“During the era of easy money, foreign investors usually place their portfolio without a full assessment of the country,” Chatib said at an event organized by the Financial Services Authority (OJK) in Jakarta on Tuesday.

“As that era ends, investors will take more time with their decisions and start looking to corporate governance as one of the indicators.”

The comments came as the OJK, which oversees financial institutions including banks and the stock market, made its stance on corporate governance by releasing a manual for such practices on Tuesday. The OJK partnered with the International Finance Corporation, the investment unit of World Bank, to produce the manual for Indonesia.

“The Good Corporate Governance [GCG] Roadmap will be the main reference in improving the practice and regulations toward good corporate governance for Indonesian companies, especially for listed companies,” OJK chairman Muliaman Hadad said.

The OJK’s manual listed 33 initiatives on good corporate governance in five areas: corporate governance framework, protection of shareholders, role of stakeholders, information transparency, and the responsibilities of commissioners and directors.

One of the initiatives requires listed companies to create their websites in both English and Indonesian. Nurhaida, who is the OJK’s commissioner for capital markets, said that having no website in English showed a lack of transparency to foreign investors.

The OJK aims to regulate this initiative in June 2015.

“We hope to fill in all the gaps [in the practice of corporate governance] within the next two years,” said Muliaman, who was a deputy governor of Bank Indonesia before being appointed as chairman of the OJK two years ago.

Chatib said companies may need time to adjust to the changes adopted by the OJK.

“If it’s done drastically, [the initiatives] will be a burden to companies, but if it’s done well, good corporate governance will produce a positive outcome for both the companies and the Indonesian economy,” Chatib said.

The perception of business practices of Indonesia-listed company may have been in doubt as Bumi Resources, the country’s largest coal miner, separates from Bumi Plc, the London-listed company vehicle for Bumi Resources, with both companies’ shareholders involved in a public spat on ownership.

Eric Sugandi, an economist at Standard Chartered Bank in Jakarta, said improving corporate governance is a good step, but its impact will take a while.

“In terms of attracting investors, it won’t happen right away. But it sets up conditions for a better climate for companies in the future. Investors will definitely be happier if there’s more transparency,” he said.

The World Economic Forum in its World Competitiveness Report 2013-14 noted that improvements in the quality of private and government institutions had increased Indonesia’s competitiveness ranking to 38th after three years of gradual decline.

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