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Control and competition: Banking deregulation and re‐regulation in Indonesia

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  • Ross McLeod

Abstract

Policy changes in Indonesian banking from 1983 to 1992 saw the removal of controls on interest rates, lending and expansion of branch networks, and of barriers to entry. The dismantling of loan subsidy programmes financed by the central bank ran in parallel with these changes. Private banks were enabled to erode rapidly the market share of the previously dominant, but less efficient and less customer‐oriented, state banks. Opponents of deregulation tend to blame it for Indonesia's persistent inflation in the early 1990s and for contributing to the currency crisis in 1997–98, but their arguments are found wanting. Nevertheless, despite the impressive progress resulting from reform, interventionist policy had been making a comeback prior to the crisis, and the central bank still maintained its role as a significant supplier of subsidized loans.

Suggested Citation

  • Ross McLeod, 1999. "Control and competition: Banking deregulation and re‐regulation in Indonesia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 4(2), pages 258-297.
    • Handle: RePEc:taf:rjapxx:v:4:y:1999:i:2:p:258-297
    DOI: 10.1080/13547869908724682
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    Cited by:

    1. G. P. Manish & Colin O’Reilly, 2019. "Banking regulation, regulatory capture and inequality," Public Choice, Springer, vol. 180(1), pages 145-164, July.
    2. Ross McLeod, 1999. "Crisis-Driven Changes to the Banking Laws and Regulations," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(2), pages 147-154.
    3. Ross H. McLeod, 2002. "Second and Third Thoughts on Privatisation in Indonesia," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 9(2), pages 151-164.
    4. Tri Mulyaningsih & Anne Daly & Riyana Miranti, 2015. "Managing the endogeneity problem of the market structure: a study on banking competition," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 7(2), pages 135-154, April.
    5. Prasetyantoko, A. & Rosengard, Jay K., 2011. "If The Banks Are Doing So Well, Why Can’t I Get A Loan? Regulatory Constraints to Financial Inclusion in Indonesia," Scholarly Articles 8705903, Harvard Kennedy School of Government.
    6. Gregory James & Michail Karoglou, 2009. "Financial Liberalisation and Stock Market Volatility: The Case of Indonesia," Discussion Paper Series 2009_11, Department of Economics, Loughborough University, revised Sep 2009.
    7. George Fane & Ross H.McLeod, 2002. "Banking Collapse and Restructuring in Indonesia, 1997-2001," Cato Journal, Cato Journal, Cato Institute, vol. 22(2), pages 277-295, Fall.
    8. McLeod, Ross, 2002. "Privatisation Failures in Indonesia," Departmental Working Papers 2002-06, The Australian National University, Arndt-Corden Department of Economics.
    9. Ross H McLeod, 2003. "Rethinking vulnerability to currency crises: Comments on Athukorala and Warr," Departmental Working Papers 2003-11, The Australian National University, Arndt-Corden Department of Economics.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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