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Insolvency Reform and the Indonesian Financial Crisis

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  • David Linnan

Abstract

Treatments of Indonesia's financial crisis customarily focus on exchange rate collapse, neglecting the question of why enterprises were so highly leveraged beforehand. This article reviews controlling shareholder-debtor behaviour both before and during the crisis. It then examines Indonesia's emergency bankruptcy legislation effective August 1998—which enjoys a mixed record in implementation—and articulates bankruptcy policy principles for the replacement legislation now being drafted. Progress on the insolvency front has been limited to a relatively small number of voluntary debt reorganisations. Early indications are that such restructurings largely take the form of debt rescheduling rather than debt-equity swaps, loan write-offs, or other approaches that would lessen enterprises' heavy leveraging. This outcome reflects problems in creditor as well as debtor preferences. What began as a private sector insolvency problem increasingly overlaps with efforts to address general banking sector difficulties. Further, nationalism questions complicate the resolution of insolvencies.

Suggested Citation

  • David Linnan, 1999. "Insolvency Reform and the Indonesian Financial Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(2), pages 107-137.
  • Handle: RePEc:taf:bindes:v:35:y:1999:i:2:p:107-137
    DOI: 10.1080/00074919912331337617
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    1. Lucian Bebchuk & Reinier Kraakman & George Triantis, 1999. "Stock Pyramids, Cross-Ownership, and the Dual Class Equity: The Creation and Agency Costs of Seperating Control from Cash Flow Rights," NBER Working Papers 6951, National Bureau of Economic Research, Inc.
    2. Kevin Evans, 1998. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(3), pages 5-36.
    3. Timothy Lindsey, 1998. "The IMF and Insolvency Law Reform in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(3), pages 119-124.
    4. Lisa Cameron, 1999. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(1), pages 3-41.
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