How is the Indonesian Corporate Governance condition in reality?
FCGI Publication 2006

Much needs to be done in Indonesia. A 1999 survey by PriceWaterhouseCoopers among international investors in Asia, showed that Indonesia ranks one of the worst in standards of auditing and compliance, accountability to shareholders, standards of disclosure and transparency and Board processes. Another study shows that the degree of investor protection in Indonesia is the lowest in Southeast Asia. (See the table below)

Tabel 2.
Perceived Standards of Corporate Governance in the Region

In Indonesia, the ownership of listed companies is highly concentrated, and the percentage of managers belonging to the controlling group is also very high. This is in itself typical for a developing corporate sector and a nascent stock market. However, as Indonesia's economy and companies inevitably further integrate into the world economy for their loan and equity financing and the buying and selling of products, the observance of internationally agreed standards of corporate governance becomes imperative for Indonesia.

Shareholders Participation and Protection
The Boards of Commissioners have generally been ineffective in safeguarding the interests of shareholders, because family based shareholders have held dominant positions. Control mechanisms ('checks and balances'), such as representation of third party interests through independent commissioners and independent committees for remuneration, nomination, and audit have been lacking. Transparency has been poor as disclosure practices, accounting standards and their implementation have been inadequate.

Creditor Monitoring and Protection
First, the creditor's position and role in corporate governance have been weak as creditors and banks themselves are poorly governed. The weak internal control and inadequate regulatory frameworks for the bank and non-bank financial institutions and bank's apparently underdeveloped internal risk management system explain this. Secondly, market scrutiny has been lacking as creditors and competitors have often been part of conglomerates owned by the same families as those who owned the borrowing firms. Thirdly, legal protection of creditors has been weak due to the inefficient judiciary system in Indonesia. Moreover, insolvency laws and procedures have been generally inactive in Indonesia, both in protecting creditors and disciplining borrowers.

The Market for Corporate Control and Product Market Protection
The market for corporate control has been largely inactive. The difficulties experienced in mounting hostile take-over reflect the concentration of ownership in companies. The high concentration of ownership of companies inhibits the market mechanism on the markets for corporate control and products.

Capital Markets and Corporate Finance
Due to the early stage of development of the capital markets in Indonesia, the capital markets were dominated by external finance, especially bank loans. Regulatory restrictions and ineffective legal procedures have limited the role of corporate bonds and corporate financing. Firms undertook extensive foreign borrowing because foreign interest rates were liberalized whereas domestic rates were regulated