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Coffee contract to launch new Indonesian market.

Coffee contract to launch new Indonesian market

Those travellers who are not entirely hypnotized by the prospect of sun, sand and surf have for years appreciated the discreet charms of Indonesia's capital city. Of course, most tourists tend to head straight for the enchanted island of Bali, but business people who take the trouble to explore the older, outer edges of Jakarta are usually won over by the gentle kindness of the people and the general helpfulness and goodwill of the community.

To be honest, though, it must be added that doing business in Indonesia was not always relaxing. Stimulating maybe, but not soothing. The bureaucracy seemed at times to be set in concrete, these were regulations covering - and usually forbidding - almost every category of business activity, and the telephone system yielded only to infinite patience.

Ten years ago, when the Jakarta Stock Market was established, it was regarded as a fairly laid-back sort of operation, and it didn't seem to offer much in the way of a threat to other markets in more plugged-in, switched-on cities. Now, though, the Stock Market is alive and earning, and in the not too distant future the building that houses these activities will provide floor space and offices to another enterprise which is designed to encourage Indonesia's growing stake in the capital market sector, in the shape of a commodity futures exchange.

Moreover, since millions of Indonesians depend entirely on coffee for a living, coffee is slated to provide the first contracts. In addition, Jakarta stands conveniently at the center of a time zone that embraces coffee producing areas like South India, Thailand, Vietnam, and the Philippines. The project is supported by the European Community and one of the firms closely involved is Financial Research Associates of London, headed by the Honorable Tim Lewin. Lewin, who has 20 years experience in the international coffee trade, much of it in the East, told me recently: "We did an initial survey last year and the whole thing is now moving at maximum revs!"

FRA is now working on an extended three-year contract to see the new exchange up and running. Here, Jakarta will enjoy one immediate advantage that its rivals in New York, Tokyo and London did not start out with. The new exchange will be operating as a fully automated market right from Day One. "Obviously we didn't want to open up with yesterday's technology, and we also felt that an automated system would be more suited to Indonesia than the old open outcry method," explains Lewin.

Coffee's lofty position in the economic structure of Indonesia has meant, too, that there will be a number of people readily to hand who have real experience in the international coffee market. Opened 10 years ago, the Jakarta Stock Exchange is now feverishly busy, and this factor has helped to highlight an enduring difficulty. . .the continuing lack of suitably talented and trained staff.

"That is one of the greatest drawbacks at the moment. There is a shortage of properly qualified operators, and there's a lot of staff poaching going on. Of course, that's fine for the staff, but. . ." The rest of the sentence is left unspoken.

However, there are other problems, of varying significance. For one thing, anyone who has done business in Indonesia in the past will remember the often highly frustrating shortcomings of the country's communications links with the rest of the world. "Well, yes, it is true that communications still aren't as good as they could be, in spite of the fact that the government has organized two new satellites, backed by a lot of quality equipment," Lewin concedes. "The drawback has been that there just wasn't enough of it." But he adds quickly that there is a huge project currently in the pipeline for installing digital dialing in the city. "And in any case, they're developing an automatic transfer system with the banks, so that instead of ending up with hundreds of terminals there'll be just a handful of sub-exchanges."

Mention of the banks raised another specter that once haunted the commercial life of Indonesia. There used to be a rigorously enforced ban on the foreign banks, which were limited to agency status, and in addition to the exchange controls had the entire capital marked laced to tightly into an unyielding fiscal corset that it could barely breathe.

"All gone!" beams Lewin. "A couple of years ago the government swept away all the old controls that were stifling development. The rupiah is now fully convertible and there are 185 foreign banks operating in the country."

The changes were just part of a daring move to reflate the entire Indonesian economy, which had been left stagnant in the wake of falls in world prices for oil and tin as well as coffee. At one time, too, 30 cents in every dollar had to be earmarked for servicing the country's vast foreign debts.

It worked, and the changes were rapid and widespread. Banking and insurance are not both high earners, and industry and manufacturing are expanding at a galloping pace.

All this encourages Lewin to believe that Jakarta will not evolve as "just another pokey little domestic market. Markets depend on their liquidity, and with other exchanges struggling there is a very good chance that Indonesia will develop into an important trading center."

Clearly, it would not be practical to physically import other coffees into Indonesia, but even so the fact that nearby Singapore already handles some 30 percent of Indonesian, 70 percent of Tai and 90 percent of Vietnamese beans means that, in essence, the coffee business is already established.

Lewin also sees other opportunities for the Jakarta market, in commodities that don't get their due recognition in some of the other markets, where too many commodities are already jostling for attention. "I'd like to see Indonesia trade some of these products in a different time zone, like SIMEX in Paris and the COMEX metal contracts," he says, before adding with a grin: "There aren't enough good ideas in the world, so it's sensible to use those that there are more than once."

Apart from its work on the Jakarta project, FRA is also developing an interesting if exotic activity in international legal circles. And, sadly in a way, it is largely due to the dwindling number of people who have direct and extensive experience of coffee as a highly individual, internationally traded commodity. It's become a truism in the leading trading centers to deplore the fact that, in 1990, there are few traders who can see beyond their desk terminals. Lewin, however, has a 20-year background in coffee and his long-time friend and partner Terry Hill goes back 30 years.

It began almost by accident on, of all places, a crowded commuter train heading for London, where Terry Hill happened to glance at a fellow passenger's copy of the Financial Times, and when he commented aloud on a coffee market report, the stranger showed an interest in the subject. Six months later there was a call from a prominent firm of attorneys who happened to be working on a coffee case for Lloyds Underwriters' Recovery Unit. The word spread to others in the legal profession, and FRA are currently advising on everything from cargo damage to suspect documents, and from quality misrepresentation to general mishandling of orders.

"We're now retained by three U.S. law firms and we're actively consulted by a number of British law firms," says Lewin. "At the moment, for instance, we're looking into five suspect claims on insurance underwriters involving something like $170 million."

Sound fascinating.

"Yes, it does, but it also means days and weeks of very painstaking research. I asked one attorney for all the papers involved in the case and two men carried in a wooden box the size and shape of a coffin, containing 70 kg of documents - all of which had to be read at least three times!"
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Title Annotation:commodity futures exchange
Author:Clark, Richard
Publication:Tea & Coffee Trade Journal
Date:Jun 1, 1990
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