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Bank restructuring and financial institution reform in Indonesia

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  • Sato, Yuri

Abstract

The banking sector underwent drastic reform in post-crisis Indonesia. Bank restructuring, driven by IMF conditionalities, resulted in the exit of insolvent banks and ownership changes of major private banks. Through recapitalization and sales of government-held shares, foreign-owned banks emerged as leading actors in the place of business-group-affiliated banks. As part of the restructuring process, an exit rule was created. The central bank, which up to that time had been given only partial authority under the jurisdiction of the Minister of Finance, now gained a full range of authority over banks. The central bank's supervision system on banks, risk management systems at individual banks, and their efforts to build risk management capacities, began to function. This is totally different from the old financial institution under the Soeharto regime, where banks had no incentive to control risks, as the regime tacitly ensured their survival.

Suggested Citation

  • Sato, Yuri, 2005. "Bank restructuring and financial institution reform in Indonesia," The Developing Economies, Institute of Developing Economies, Japan External Trade Organization(JETRO), vol. 43(1), pages 91-120, March.
  • Handle: RePEc:jet:deveco:v:43:y:2005:i:1:p:91-120
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    References listed on IDEAS

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    1. Kwon, Jene K., 1986. "Capital utilization, economies of scale and technical change in the growth of total factor productivity : An Explanation of South Korean manufacturing Growth," Journal of Development Economics, Elsevier, vol. 24(1), pages 75-89, November.
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    3. Okuda, Satoru, 1994. "Taiwan's trade and FDI policies and their effect on productivity growth," The Developing Economies, Institute of Developing Economies, Japan External Trade Organization(JETRO), vol. 32(4), pages 423-443, December.
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    Cited by:

    1. repec:eee:inteco:v:150:y:2017:i:c:p:19-35 is not listed on IDEAS
    2. 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.
    3. Kawai, Masahiro & Schmiegelow, Henrik, 2013. "Financial Crisis as a Catalyst of Legal Reforms: The Case of Asia," ADBI Working Papers 446, Asian Development Bank Institute.
    4. 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.
    5. Muliaman D. Hadad & Maximilian J. B. Hall & Wimboh Santoso & Karligash Kenjegalieva & Richard Simper, 2009. "Productivity Changes in Indonesian Banking: Application of a New Approach to Estimating Malmquist Indices," Discussion Paper Series 2009_13, Department of Economics, Loughborough University, revised Sep 2009.
    6. Muliaman D. Hadad & Maximilian J. B. Hall & Wimboh Santoso & Karligash Kenjegalieva & Richard Simper, 2009. "A New Approach to Dealing With Negative Numbers in Efficiency Analysis: An Application to the Indonesian Banking Sector," Discussion Paper Series 2009_20, Department of Economics, Loughborough University, revised Dec 2009.
    7. Poczter, Sharon, 2016. "The long-term effects of bank recapitalization: Evidence from Indonesia," Journal of Financial Intermediation, Elsevier, vol. 25(C), pages 131-153.
    8. Muliaman D. Hadad & Maximilian J. B. Hall & Wimboh Santoso & Ricky Satria & Karligash Kenjegalieva & Richard Simper, 2008. "Efficiency and Malmquist Indices of Productivity Change in Indonesian Banking," Discussion Paper Series 2008_08, Department of Economics, Loughborough University, revised Aug 2008.
    9. Muliaman D. Hadad & Maximilian J. B. Hall & Wimboh Santoso & Ricky Satria & Karligash Kenjegalieva & Richard Simper, 2008. "Efficiency in Indonesian Banking: Recent Evidence," Discussion Paper Series 2008_13, Department of Economics, Loughborough University, revised Nov 2008.

    More about this item

    Keywords

    Financial institutions; Banks; Economic policy; Indonesia; 金融機関; 銀行; 経済政策; インドネシア;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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