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Indonesia's banking crisis: a new perspective on $50 billion of losses

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  • Olivier Frecaut

Abstract

The Asian crisis devastated the Indonesian banking sector and led to astronomical losses, almost entirely paid for by the government, i.e. by the general public. The paper provides a new perspective on the crisis, stressing that bank losses are not the same as losses to the economy: most of the 'losses' of the banks are actually transfers to borrowers and depositors. It should be possible to recover part of the amounts concerned through taxation of the major beneficiaries. The paper contrasts the conventional approach, embedded in business accounting, used to manage the banking crisis, with an alternative approach that relies on national accounting concepts. It shows how the latter can provide a new perspective, elucidating the massive transfers of wealth that took place during the crisis. This suggests possible improvements in bank resolution strategies, through the identification and quantification of the main transfers of wealth, followed by their taxation.

Suggested Citation

  • Olivier Frecaut, 2004. "Indonesia's banking crisis: a new perspective on $50 billion of losses," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(1), pages 37-57.
    • Handle: RePEc:taf:bindes:v:40:y:2004:i:1:p:37-57
    DOI: 10.1080/0007491042000205196
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    Cited by:

    1. Ross H Mcledo, 2008. "The Soeharto Era: From Beginning to End," Departmental Working Papers 2008-03, The Australian National University, Arndt-Corden Department of Economics.
    2. Stephen Grenville, 2004. "What sort of financial sector should Indonesia have?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(3), pages 307-327.
    3. Anne Booth, 2011. "China’s Economic Relations with Indonesia: Threats and Opportunities," Journal of Current Southeast Asian Affairs, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 30(2), pages 141-160.
    4. Mr. Robert M Heath, 2013. "Why are the G-20 Data Gaps Initiative and the SDDS Plus Relevant for Financial Stability Analysis?," IMF Working Papers 2013/006, International Monetary Fund.
    5. Martin Ravallion & Michael Lokshin, 2007. "Lasting Impacts of Indonesia’s Financial Crisis," Economic Development and Cultural Change, University of Chicago Press, vol. 56(1), pages 27-56, October.

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