Indonesia Pledges Crackdown On Stock Manipulation After Market Rout

by Stefan J. Bos, Worthy News Chief International Correspondent

JAKARTA (Worthy News) – Indonesia has pledged to crack down on alleged stock manipulation and accelerate financial reforms to restore investor confidence after a sharp market selloff raised concerns about transparency in Southeast Asia’s largest economy.

Financial Services Authority (OJK) acting chair Friderica Widyasari Dewi said investigations will be launched into alleged “pump and dump” schemes following a volatile week for Indonesian equities.

The moves come after several senior market officials resigned, including Indonesia’s top financial regulator and the head of the local stock exchange, in an effort to restore confidence following the turmoil, a Christian stock trader noted to Worthy News.

Pressure has intensified since MSCI Inc. flagged concerns over transparency and liquidity in Indonesia’s stock market.

MSCI, short for Morgan Stanley Capital International, is a leading global provider of stock market indexes widely followed by major international investors. Its decisions can strongly influence foreign investment flows into a country.

MINISTER SEEKS ‘TRANSPARENT, FAIR MARKET’

Benchmark shares suffered their worst two-day rout in nearly three decades before regulators intervened.

Coordinating Minister for Economic Affairs Airlangga Hartarto said President Prabowo Subianto has instructed regulators, the finance ministry, and the stock exchange to ensure markets function normally and to uphold “a transparent, fair and world-class investment climate.”

Authorities have outlined additional reforms, including raising the minimum free float requirement — the portion of company shares available for public trading — to 15 percent starting in February.

Low free float levels have long been criticized for reducing liquidity and increasing the risk of market manipulation.

Analysts warn that failure to meet MSCI’s transparency requirements by May could lead to a cut in Indonesia’s index weighting or even a downgrade to frontier-market status.

LOWER FOREIGN INVESTMENT INFLOWS SEEN

A cut in index weighting would reduce Indonesia’s share in MSCI’s emerging-market benchmarks, potentially lowering foreign investment inflows.

A downgrade to frontier-market status would reclassify Indonesia as a smaller, riskier market, which could force some major global funds to withdraw because they are restricted from investing in frontier markets.

Despite the turmoil, officials insisted Indonesia’s economic fundamentals remain strong, with growth expected to improve in the fourth quarter in what is the world’s largest Muslim nation.

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