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Indonesia's new deposit guarantee law

  • Ross Mcleod

The blanket guarantee introduced in 1998 in response to the emerging banking and economic crisis resulted in $50 billion of losses to the general public. The government has now introduced a law that allows the phasing out of this blanket guarantee, but also allows its reinstatement in the event of a threatened collapse of the banking system. Rather than eliminating the possibility of any repetition of the previous banking disaster, the new law effectively mandates an almost identical approach to handling system-wide banking collapses in the future, suggesting that the authorities and their advisers learned very little from the recent bitter experience. It is argued here that the crucial starting point for formulating policy in this field is to specify correctly the exact purpose that government intervention is intended to serve: namely, the avoidance of major macroeconomic disruption as a result of bank failures.

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Article provided by Taylor & Francis Journals in its journal Bulletin of Indonesian Economic Studies.

Volume (Year): 42 (2006)
Issue (Month): 1 ()
Pages: 59-78

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Handle: RePEc:taf:bindes:v:42:y:2006:i:1:p:59-78
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  1. Mari Pangestu & Manggi Habir, 2002. "The Boom, Bust and Restructuring of Indonesian Banks," IMF Working Papers 02/66, International Monetary Fund.
  2. Ross Mcleod, 2005. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(2), pages 133-157.
  3. Hadi Soesastro & Raymond Atje, 2005. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 5-34.
  4. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
  5. Manning Mark J, 2003. "Finance Causes Growth: Can We Be So Sure?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-24, December.
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