JPMorgan Allowed to Deal in Indonesia Bonds After Ban Lifted

(Bloomberg) -- Indonesia reappointed JPMorgan Chase & Co. as a primary dealer of sovereign bonds, more than a year after banning the U.S. bank from doing business with government entities.

The bank was included in a list of 20 banks and securities firms enlisted by the government as primary dealers of bonds, Finance Ministry said in a statement in Jakarta on Monday. JPMorgan’s reinstatement is effective from May 2, the ministry said.

JPMorgan’s reappointment comes amid an exodus by foreign investors from the nation’s stocks and bonds, as a tumbling currency increases the odds of an interest rate hike. President Joko Widodo’s government snapped ties with JPMorgan in January last year after it downgraded the nation’s equities by two notches. While the bank subsequently upgraded Indonesia’s stocks, the government maintained the ban.

“The reappointment of JPMorgan could be a strategy by the government to better attract international investors and to create higher appetite for Indonesian assets during volatile times like this,” said I Made Budhi Purnama Artha, head of treasury at PT Maybank Indonesia. “Before the ban, JPMorgan was one of the players, along with Deutsche Bank, with significant market making in the U.S.”

Private Clients

The return of JPMorgan as a dealer of bonds may also open doors for it to be appointed as an underwriter of sovereign bonds overseas and securities issued by the state-owned enterprises. While the U.S. bank missed out on being part of the government’s fund-raising program for 16 months, it continued to serve its private clients in Indonesia, where it provides investment and commercial banking services.

JPMorgan’s reappointment followed an application made by the bank in February after the one-year ban ended, said Luky Alfirman, director-general for budget financing and risk management at the Finance Ministry. “JPMorgan is now committed to follow all rules,” he said.

The bank believes “a primary dealer license will strengthen our ability to service our clients who invest in Indonesia more effectively,” Li Anne Wong, a spokeswoman for JPMorgan in Singapore, said.

Research Curbs

In the days following the crackdown against JPMorgan, Finance Minister Sri Mulyani Indrawati’s ministry ordered primary bond dealers to uphold the nation’s interests and maintain relations with the government that are “based on professionalism, integrity and avoiding conflicts of interest.” The move was seen as an attempt to gag critical research as violation of the rule meant underwriters risked losing their dealership licenses.

Indonesia’s rupiah is trading near a 27-month low even after aggressive interventions by the nation’s central bank as investors exit emerging markets amid higher U.S. Treasury yields and a stronger dollar. The rout in the currency has now extended to the nation’s stocks and bonds.

Indonesia’s government is set to borrow a total of 856.5 trillion rupiah ($62 billion) this year with about 80 percent of it likely to be raised through the sale of bonds and sukuks in the local market and the rest from a combination of dollar, euro and samurai bonds overseas, according to finance ministry data.

©2018 Bloomberg L.P.