Banking reform in Indonesia & its significance during global financial crisis

• Main Author: Juan Intan Kanggrawan
• Other Authors: Soedradjad Djiwandono
• Format: Theses and Dissertations
• Language: English
• Published: 2017
• Subjects: DRNTU::Social sciences::Political science
• Online Access: http://hdl.handle.net/10356/69784
• Institution: Nanyang Technological University

This paper adopts a political economy approach in arguing that banking reform initiatives in early 2000s have significant role to Indonesia's stability in facing Global Financial Crisis. Banking reform usually takes place after the occurrence of financial crisis. It is conducted as the corrective action and prevention effort of the future crisis. For Indonesia, significant banking reform was performed after Asian Financial Crisis. The Global Financial Crisis can be viewed as the external factor that tested the significance and results of the banking reform. The complex interactions between various institutions (e.g. Bank Indonesia, government and IMF) had significantly influenced the banking reform initiatives, especially on the aspect of political interference and establishment of new institutions in the banking sector (e.g. IBRA and OJK). Through various reform initiatives, banking sector in Indonesia had gone through significant improvement in the aspects of transparency, surveillance and governance. Bank restructuring resulted in the exit of insolvent banks and ownership changes of major private banks. During Global Financial Crisis, the banking industry performed well despite of significant pressures from the global market turmoil. The global crisis did not directly impact the Indonesian banking system as it mainly conducted conservative and traditional banking activities. Close coordination between the government and Bank Indonesia had improved monitoring and surveillance aspects in both banking sector and non-bank financial institutions. During this crisis period, Indonesian banking system's performance indicators still reflected a healthy and sound banking system.