Jakarta to ease pension, insurance fund rules
Jakarta
INDONESIA'S financial services authority aims to boost the local capital market by making it easier for pension and insurance funds to invest in riskier products, a senior official at the regulator told Reuters.
South-east Asia's largest economy is heavily reliant on offshore funding to meet growth targets and undertake infrastructure projects, with foreign investors holding nearly 40 per cent of 1,292 trillion rupiah (S$136 billion) in outstanding government bonds.
Indonesia is keen to deepen its local non-sovereign market as many companies are trying to expand, and the impending economic community among members Association of Southeast Asian Nations (Asean) is expected to increase capital flows and raise competition among individual countries for funds.
Increasing the liquidity in the domestic market will also help to attract more investors as pension and insurance funds tend to keep their assets for a relatively long periods.
"Our market is not liquid enough because there are not enough products and not enough investors," Nurhaida, the capital market supervisor, said in an interview late on Thursday. "Pension or insurance funds could only invest in bonds with a certain rating, but many with lower ratings are actually quite safe. We will try to ease the investment (rules)."
One of the measures is allowing funds to invest in mortgage-backed securities issued by PT Sarana Multigriya Finansial, a finance company mandated by the government to raise funds from the capital market to support mortgage lenders and help increase home ownership.
The regulator will also try to push for more municipal bond issuance to finance infrastructure development, Ms Nurhaida said.
"We have to be prepared to compete because like it or not, in the next few years, there will be increased integration in the finance sector and capital market," she said. "With the freer flow of capital and services, the capital could be concentrated in a single country that provides ease of investment."
Indonesia's fund-raising pipeline, including shares and bond issuance, totals around 10 trillion rupiah, the regulator said.
President Joko Widodo needs to "mobilise the hundreds of trillions of rupiah in the non-bank sector" to fund his infrastructure development plan, Tom Lembong, chief executive of private equity firm Quvat Management, told Reuters. "It is urgently needed as the pension sector and the insurance sector are still sitting on too much short-duration assets to back up their long-term liabilities."
Branko Windoe, head of treasury at PT Bank Central Asia Tbk, the country's biggest bank by market value, also welcomed the regulator's move, but said that investors need to be able to manage the risk of lower-rated products effectively.
Investors are increasingly worried that Mr Joko's drive for clean governance is falling apart amid disputes between rival law enforcement agencies. Reuters
