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The Boom, Bust and Restructuring of Indonesian Banks

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  • Mr. Mari Pangestu
  • Mr. Manggi Habir

Abstract

This paper studies why currency and monetary shock hit Indonesia's economy and banking sector so severely and the measures that were taken to deal with the banking crisis, the lessons learned, and challenges faced in restructuring and strengthening the banking system. The vulnerable state of the banking sector, in combination with exchange rate and interest rate shocks, led to a systemic banking crisis. The priorities for bank restructuring are to complete the separation of nonviable from viable banks, recoup losses, implement new rules and regulations, and develop an incentive-based system for the consolidation of banks.

Suggested Citation

  • Mr. Mari Pangestu & Mr. Manggi Habir, 2002. "The Boom, Bust and Restructuring of Indonesian Banks," IMF Working Papers 2002/066, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2002/066
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    References listed on IDEAS

    as
    1. Mr. Charles Enoch, 2000. "Interventions in Banks During Banking Crises: The Experience of Indonesia," IMF Policy Discussion Papers 2000/002, International Monetary Fund.
    2. George Soros, 1999. "The International Financial Crisis," Challenge, Taylor & Francis Journals, vol. 42(2), pages 58-76, March.
    3. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
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    Cited by:

    1. Vicente Cuñat, 2009. "Finance for Development: Latin America in a Comparative Perspective. By BARBARA STALLINGS with ROGERIO STUDART," Economica, London School of Economics and Political Science, vol. 76(301), pages 216-217, February.
    2. Iman Harymawan & Brian Lam & Mohammad Nasih & Rumayya Rumayya, 2019. "Political Connections and Stock Price Crash Risk: Empirical Evidence from the Fall of Suharto," IJFS, MDPI, vol. 7(3), pages 1-16, September.
    3. Mansur, Alfan, 2017. "Memantau Risiko Makro Finansial di dalam Perekonomian Indonesia [Surveillance on the Macro-financial Risks of Indonesia's Economy]," MPRA Paper 93752, University Library of Munich, Germany, revised 23 May 2018.
    4. Rasyad A. Parinduri & Yohanes E. Riyanto, 2014. "Bank Ownership and Efficiency in the Aftermath of Financial Crises: Evidence from Indonesia," Review of Development Economics, Wiley Blackwell, vol. 18(1), pages 93-106, February.
    5. Parinduri, Rasyad A. & Riyanto, Yohanes E., 2012. "The Impact of the Strategic Sale of Restructured Banks: Evidence from Indonesia," World Development, Elsevier, vol. 40(3), pages 446-457.
    6. Iskandar Simorangkir, 2012. "Study on early Warning Indicators of Bank Runs: Markov-Switching Approach," EcoMod2012 4147, EcoMod.
    7. Donsyah Yudistira, 2002. "The Impact of Bank Capital Requirements in Indonesia," Finance 0212002, University Library of Munich, Germany, revised 18 May 2003.
    8. Gary Gorton & Lixin Huang, 2004. "Liquidity, Efficiency, and Bank Bailouts," American Economic Review, American Economic Association, vol. 94(3), pages 455-483, June.
    9. Rasyad Parinduri & Yohanes Riyanto, 2011. "Do banks respond to capital requirements? Evidence from Indonesia," Applied Financial Economics, Taylor & Francis Journals, vol. 21(9), pages 651-663.
    10. Glenn Hoggarth & Jack Reidhill & Peter Sinclair, 2004. "On the resolution of banking crises: theory and evidence," Bank of England working papers 229, Bank of England.
    11. Rahmatina A. Kasri, 2011. "Explaining the Twin Crises in Indonesia," Working Papers in Economics and Business 201102, Faculty of Economics and Business, University of Indonesia, revised May 2011.
    12. Aykut Kibritcioglu, 2002. "Monitoring Banking Sector Fragility," Macroeconomics 0206004, University Library of Munich, Germany, revised 17 Mar 2006.
    13. Agusman, Agusman & Cullen, Grant S. & Gasbarro, Dominic & Monroe, Gary S. & Zumwalt, J. Kenton, 2014. "Government intervention, bank ownership and risk-taking during the Indonesian financial crisis," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 114-131.
    14. Siregar, Reza Y., 2002. "Interest Rate Policy And Its Implication On The Banking Restructuring Programs In Indonesia During The 1997-Financial Crisis: An Empirical Investigation," EIJS Working Paper Series 154, Stockholm School of Economics, The European Institute of Japanese Studies.
    15. Fazelina Sahul Hamid, 2015. "Dynamic Depositor Discipline: Evidence Based on East Asian Banks," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 9(3), pages 218-253, August.
    16. Parinduri, Rasyad A. & Riyanto, Yohanes E., 2012. "The Impact of the Strategic Sale of Restructured Banks: Evidence from Indonesia," World Development, Elsevier, vol. 40(3), pages 446-457.
    17. Barbara Stallings, 2004. "Financial Liberalization, Crisis, and Rescue: Lessons for China from Latin America and East Asia?," IDB Publications (Working Papers) 48078, Inter-American Development Bank.
    18. Ross Mcleod, 2006. "Indonesia's new deposit guarantee law," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(1), pages 59-78.
    19. Stephen Grenville, 2004. "The IMF and the Indonesian crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(1), pages 77-94.
    20. Obben, James & Nugroho, Agus Eko, 2003. "Determinants Of The Funding Volatility Of Indonesian Banks: A Dynamic Model," Discussion Papers 23700, Massey University, Department of Applied and International Economics.
    21. Stephen Grenville, 2017. "The Asian crisis: what did we learn and when did we learn it?," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 31(2), pages 30-44, November.
    22. Akhmad Rizal Shidiq & Philips Jusario Vermonte, 2013. "What Happened In The Early Years Of Democracy: Indonesia'S Experience," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 1-21.
    23. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.
    24. Margono, Heru & Sharma, Subhash C. & Melvin II, Paul D., 2010. "Cost efficiency, economies of scale, technological progress and productivity in Indonesian banks," Journal of Asian Economics, Elsevier, vol. 21(1), pages 53-65, February.

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