(Corrects headline and paragraphs 1, 5 and 10 to show analyst
downgrade was by equities analysts, not of bonds)
JAKARTA Jan 3 Indonesia has penalised JPMorgan
Chase & Co after the investment bank's research arm recommended
a smaller exposure to the country's stocks.
"After we did a comprehensive review, we said no need to use
JPMorgan's services as a primary (bond) dealer and a perception
bank," Suahasil Nazara, the head of the ministry's fiscal policy
office, told Reuters on Tuesday.
A 2006 government decree says a perception bank is one
appointed by the finance minister to receive transfers of state
revenue not related to imports, including tax, onshore excise
and non-tax revenue.
Nazara said the penalty on JPMorgan has already
The decision was taken after JPMorgan issued a note in
November downgrading its rating for Indonesia to "underweight"
from "overweight," he said.
The official said the bank's analysis "did not make sense"
because it recommended a "neutral" position for Brazil, a better
rating than for Indonesia, despite what he said was a more
stable political situation in the Southeast Asian nation.
"We have asked them to clarify their assessment. They've
explained to us, but we found their argument not credible. It's
not that we think we're so great, but we look at ourselves and
we look at other countries' economies," Nazara said.
"Our mindset is, if you're doing business here in Indonesia,
the spirit is to maintain stability. Don't create unnecessary
volatility to create business," he added.
BUSINESS AS USUAL
A JPMorgan spokeswoman said on Tuesday that it continued to
operate its business in Indonesia as usual. "The impact on our
clients is minimal and we continue to work with the Ministry of
Finance to resolve the matter," she said in an email.
In the note dated Nov. 13, JPMorgan equities analysts
downgraded emerging markets including Indonesia and Brazil,
citing higher risk premiums for their credit default swaps after
Donald Trump won the U.S. presidential election.
"Bond markets are starting to price in faster growth and
higher deficit," the bank wrote, adding that the "spike in
volatility" may stop or reverse flows into fixed-income assets
in emerging markets.
However, the bank said in the note that the downgrade on
Indonesia and Brazil was a "tactical" response to Trump's
victory. Both economies are improving, with lower policy rates
likely to support valuations for 2017, it added.
Indonesia's 10-year credit default swap, a
swap contract used to measure credit risk in fixed-income
products, and the yield of its benchmark 10-year bonds
spiked after the U.S. election, though they have
Trump signalled more protective U.S. trade policies, raising
concerns about the impact on developing markets.
Analysts have said that Indonesia's economy should be
supported by domestic consumption, which makes up more than half
of gross domestic product.
But the relatively high foreign ownership of government
bonds and Indonesia's lack of depth of financial markets make it
vulnerable to capital reversals, they say.
In 2015, then-Finance Minister Bambang Brodjonegoro said he
had given JPMorgan a sanction that "will be disturbing for them
and make them uncomfortable" after it recommended an
"underweight" position on Indonesian bonds. He didn't say what
the sanction was. (reut.rs/2is0VKj)
(Reporting by Nilufar Rizki and Eveline Danubrata; Additional
reporting and writing by Gayatri Suroyo; Editing by Richard