Institutions for Healthy Assets Market and Economy: A Retrospect for Indonesia before 1997

Simarmata, Djamester A. (2005): Institutions for Healthy Assets Market and Economy: A Retrospect for Indonesia before 1997. Published in: Economic Jounal. Journal of Faculty of Economics Padjadjaran Universty , Vol. Volume, No. No. 2 (September 2005): pp. 149-180.

Abstract

Abstract The financial market is a subset of assets market. Its efficiency is very important for economic development, functioning as a screening institution for investments. The property sector is another group, comprising urban land. Urbanization is unavoidable, but very important for developing countries, including Indonesia. The process needs huge amount of investment, both private and public. There are many choices, and the financial market should be capable to channel the funds to the best overall investments. It should avoid any unproductive investment, including speculation. Banking is the most important of the financial institutions in Indonesia, which is later complemented by the capital market. As a dominant financial intermediation from the society, the commercial banks should channel the funds to the highest productive sector, reflected by its rate of returns, both the ROI and the ROE. As a rule of thumb, the two indicators should be higher than the deposit rates or lending rates. They should also be higher than the implied return for undeveloped urban land. If not, there is inefficiency. The study of the two indicators on a number of firms in the Jakarta Capital Market and the calculation of the “implied ROI” for urban land show that it is higher for the second. It leads to the conclusion of the inefficiency of funds allocations, and the banking system has failed to screen the best investments, while the capital market does not satisfy the EMH. Why? The answer lies in the absence of adequate institution in the assets market, namely the lack of investors and society’s participation on financial supervision, wide availability of adequate information on comparative investment alternative, freedom from favoritism in the banking system, independent institution for the valuation of the assets market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Assets, pricing; urban land market; capital allocation; distortion
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O18 - Urban, Rural, Regional, and Transportation Analysis ; Housing ; Infrastructure; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis > R51 - Finance in Urban and Rural Economies

References

References

Claasen, Emil-Maria. 1996. Global Mone¬tary Economics. Oxford University Press, Oxford, OX3 6DP.

Corbridge, Stuart, Ron Martin, and Nigel Thrift (editors). 1994. Money Power and Space. Basil Blackwell, Oxford OX4 1JF, United King¬dom.

Fujita, M. 1990. Urban Economic Theory Land Use and City Size. Cam¬bridge University Press, Cam¬bridge Galbraith, John Kenneth. 1975. Money. Whence It Came, Where It Went. Penguin Books, New York, USA.

Gart, Alan. 1994. Regulation, Deregula¬tion, Reregulation. The Future of the Banking, Insurance, and Securities Industries. John Wiley & Sons, Inc. New York.

Giarini, Orio et Jean Remy Roulet. 1988. L’Europe Face a la Nouvelle Economie de Service. Publications de l’Institut Universitaire d’Etudes Europeennes, Geneve, Switzer¬land, et Presses Universitaires de France, Paris.

Global Development Network (GDN) in Bonn. 1999. Several papers.

Hicks, J.R. 1946, 4th impression 1979. Value and Capital. An Inquiry into Some Fundamental Principles of Economic Theory. ELBS and Oxford University Press.

Huriot, J-M., Jacques-Fracois Thisse, edi¬tors. 2000. Economics of Cities. Theoretical Perspectives, Cam¬bridge University Press, UK

IMF publication. 2000. World Economic Outlook.

Khan, F.U., Nauro F. Campos, and Jennifer Tessendorf [1999]: “Can good institutions substitute for bad policies? Evidence from Rural Pakistan”, paper presented at the 1st GDN Conference, December 1999

Kidwell, D.S., Richard L. Peterson, David W. Blackwell. 2000. Financial Institutions, Markets, and Money. The Dryden Press, Harcourt College Publishers, Fort Worth.

Levy, Brian and Pablo T. Spiller. 1993. “Regulation, Institutions, and Com¬mitment in Telecommunica¬tions.” in Proceedings of the World Bank Annual Conference on De¬velopment Economics.

Laffont, J.-J., Jean Tirole. 1993. A Theory of Incentives in Procurement and Regulation. The MIT Press, Cam¬bridge, Massachusetts; London, England.

NBER working papers, several of 1999 and 2000 issues through internet.

McCann, P. 2001. Urban and Regional Economics, Oxford University Press, UK.

McAuslan, Patrick. 1985. Urban Land and Shelter for the Poor. Earthscan, IIED, London.

O’Sullivan, A. 2003. Urban Economics, McGraw-Hill Irwin, Boston, …

Proceedings of the World Bank. 1994. Annual Conference on Develop¬ment Economics.

Several publications of The Economists, magazines, 1999, 2000.

Simarmata, D.A. 1997. Land and Property Economics in Indonesia. Concept, Facts, and Analysis. Printed by PT Grasindo for CPIS, Jakarta.

Shiller, Robert J. 1991. Market Volatility. The MIT Press, Cambridge MA, USA.

Steil, Benn, editor. 1994. International Financial Market Regulation. John Wiley and Sons, Chichester, New York, ….

Sundaresan, S. 1997. Fixed Income Markets and Their Derivatives, South-Western College Publishing, Ohio, USA