Banking Collapse and Restructuring in Indonesia, 1997-2001
Most of Indonesia's banking system collapsed during the 1997-98 financial and economic crisis. We estimate that the net cost to taxpayers of the government's blanket guarantee of banks' liabilities, issued in February 1998, is about 40 per cent of annual GDP. Large banks fared worse in the crisis than small ones and state banks fared worse than private ones. Despite this, and despite the fact that bank capital turned out to have been inadequate, the government reduced the capital requirements for all banks, transferred the assets of closed banks, together with the lowest quality loans of those that were recapitalized, to a state-owned holding company, and thus excluded the private sector from participating in the process of liquidating these assets. The government offered to recapitalize several banks jointly with the private sector, but participation was restricted to the former owners, and even they could only participate on very unfavorable terms. As a result, too many banks were closed, too many nationalized and several were unnecessarily merged. We propose a more market oriented approach that would have strengthened banks by raising capital requirements and also minimized fiscal costs by auctioning those that failed to meet these requirements. In the case of insolvent banks, bidders should have been invited to submit tenders for taking over both their assets and liabilities. In all cases, bidders should have been able to choose between liquidating banks and keeping them operational, after injecting enough cash to meet the new capital adequacy requirements.
(This abstract was borrowed from another version of this item.)
Volume (Year): 22 (2002)
Issue (Month): 2 (Fall)
|Contact details of provider:|| Postal: |
Phone: (202) 842-0200
Fax: (202) 842-3490
Web page: http://www.cato.org/pubs/journal/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mari Pangestu & Miranda Swaray Goeltom, 2001. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(2), pages 141-171.
- Raden Pardede, 1999. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(2), pages 3-40.
- Kevin Dowd, 1999. "Does Asymmetric Information Justify Bank Capital Adequacy Regulation," Cato Journal, Cato Journal, Cato Institute, vol. 19(1), pages 39-47, Spring/Su.
- Ross McLeod, 2000. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(2), pages 5-41.
- Ross H. McLeod, 1996.
"Control And Competition: Banking Deregulation And Re-Regulation In Indonesia,"
Departmental Working Papers
1996-07, The Australian National University, Arndt-Corden Department of Economics.
- Ross H. McLeod, 1996. "Control and Competition: Banking Deregulation and Re-regulation in Indonesia," Trade and Development 96/7, Australian National University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:cto:journl:v:22:y:2002:i:2:p:277-295. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Emily Ekins)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.