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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

The Man in the Hot Seat

Can Indonesia's Nurhadi meet expectations?

By Matthew Fletcher
and Keith Loveard / Jakarta


IT HAS BEEN A baptism of fire for Cyril Nurhadi, the 35-year-old head of the Jakarta Stock Exchange. In June, two months after he became president, Bapepam, the agency that regulates Indonesia's capital markets, expressed "regret" over the JSX's failure to probe a 96% one-day price surge in the shares of medium-sized Bank Mashill. In July, political unrest in the capital brought trading to a virtual standstill. More recently, the bourse was criticized over deals involving two other companies, one of them the $6-billion conglomerate Lippo.

Nurhadi admits that the JSX can be more efficient. "At the moment, the [investigation] process is perhaps not carried out as properly as people expect," he says. "We have to search for the reason for the [unusual] price movements and we need a tool to do that. This is the area we're trying to strengthen to increase the confidence of the market." He has pledged improvements in surveillance and "close monitoring of price fluctuations of each listed company." The exchange already has the equipment for the task. The new building it moved into last year has a fully computerized trading floor.

So why didn't the JSX take action when Mashill's price jumped from $0.59 to $1.16 on April 8? The bank was a takeover target of some high-profile investors including Tito Sulistio, a commissioner at the Surabaya bourse, and President Suharto's daughter Siti Hediati Prabowo. The bourse was alerted, says Nurhadi, but it was unclear whether Sulistio and his partners were acting in concert. Taken separately, their purchases did not reach the 5% level that requires stock-exchange notification. "Severe punishment in terms of administrative fines have been given to Bank Mashill," says Nurhadi. Bapepam ordered the bank to pay $3,000 for failing to disclose a Mashill director's intention to sell shares. Sulistio's group has aborted its bid for Mashill. The stock now trades at $0.88.

Questions have also been raised about the propriety of a Surabaya bourse official like Sulistio buying and selling stocks in Jakarta. But there is no regulation that prevents exchange commissioners from trading. "We can't accuse him of unethical conduct," says a senior broker, "though arguably there should be such a rule, since it would raise confidence in the market."

There have been other controversies. In June, the share price of packaging firm Super Indah Makmur nearly tripled in three weeks. Singapore-based VDH group later bought a big stake in the company. Indonesian legislators asked why JSX did not investigate the price rise. In September, Nurhadi got flak over the restructuring of Lippo Bank, a subsidiary of the Lippo Group. When the proposal was first presented, Lippo quoted two brokerages as praising the transaction. "This was price-sensitive information," argues an analyst. "The brokerages obviously had the news hours before the rest of us."

What is a stock exchange to do? Continue to strengthen its systems and strive to be more vigilant, says Nurhadi. He notes that the bourse was on top of things when tobacco firm HM Sampoerna raised to 15% its stake in auto-to-agribusiness conglomerate Astra International in September: "They have to report to the exchange, and they did." But as more takeovers are launched and the rights of minority shareholders seemingly are not safeguarded, people may start mistrusting Indonesia's corporate elite, warns one investor. A geologist who studied business in the U.S. and then headed a government-owned finance firm, Nurhadi has his work mapped out.


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