* Primary dealers must ‘safeguard’ partnership with govt
* Govt can revoke appointment if dealers break the rules
* Govt to look at track record of dealership applicants
* Fin ministry cut ties with JPMorgan after research downgrade (Adds context)
By Eveline Danubrata and Gayatri Suroyo
JAKARTA, Jan 11 (Reuters) - Indonesia’s finance ministry, which recently cut its business ties with JPMorgan Chase & Co , announced new rules that require primary bond dealers to “safeguard” their partnership with the government and avoid conflicts of interest.
The regulation is likely to add to analysts’ concern about moves to strike back over unfavourable investment commentary after Indonesia punished the U.S. bank for its downgrade of the country’s stocks in November.
Primary dealers “have the duty to safeguard the partnership with the Indonesian government based on professionalism, integrity, the avoidance of conflict of interest, and looking at the interests of the Republic of Indonesia,” according to documents uploaded to the ministry’s website on Wednesday.
The documents, dated Dec. 30, said the finance minister can revoke the appointment of a primary dealer if it does not fulfill the stated conditions.
The finance minister also has the authority to accept or reject an application to be a primary dealer by taking into consideration the track record of the bank or securities firm, including its working experience with the ministry.
A primary dealer is a bank or a securities firm appointed by the finance minister that can buy government bonds in auctions and resell them in the secondary market. Indonesia had 19 such dealers as of Nov. 25.
Foreigners hold more than 37 percent of Indonesia’s government bonds. The local capital market lacks depth and liquidity, making the perception of foreign investors particularly important for Southeast Asia’s biggest economy.
The Finance Ministry dropped the JPMorgan’s services as a primary dealer for domestic sovereign bonds and as an underwriter for bonds sold to the global market. The bank also no longer receives certain transfers of state revenue.
Suahasil Nazara, the head of the ministry’s fiscal policy office, on Jan. 4 defended the penalising of JPMorgan, saying its research was “not credible and not objective”.
Additional reporting by Fransiska Nangoy; Editing by Richard Borsuk