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Liquidity support to banks during Indonesia's financial crisis

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  • J. Soedradjad Djiwandono

Abstract

During the 1997-98 financial crisis, Bank Indonesia provided liquidity support to many banks experiencing difficulties. This policy became controversial because of the magnitude of the likely losses to the government, which in the end would have to be borne by the general public. Suspicions of corruption involving bankers and officials of Bank Indonesia fuelled the debate. Surprisingly, however, concerns of this kind have not been raised in relation to the far larger amount of support provided to banks by the government in the form of recapitalisation bonds. The public's lack of understanding of the operations of the banking sector further complicated the debate. This paper attempts to shed some light on the central bank's actions and on the proposed solutions to the problems that arose from them.

Suggested Citation

  • J. Soedradjad Djiwandono, 2004. "Liquidity support to banks during Indonesia's financial crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(1), pages 59-75.
    • Handle: RePEc:taf:bindes:v:40:y:2004:i:1:p:59-75
    DOI: 10.1080/0007491042000205204
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    References listed on IDEAS

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    1. Cole,David C. & Slade,Betty F., 1996. "Building a Modern Financial System," Cambridge Books, Cambridge University Press, number 9780521570923, January.
    2. Armida Alisjahbana & Chris Manning, 2002. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(3), pages 277-305.
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    Cited by:

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    2. Emmanuelle Nys & Amine Tarazi & Irwan Trinugroho, 2013. "Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy," Working Papers hal-00916513, HAL.
    3. Ross Mcleod, 2006. "Indonesia's new deposit guarantee law," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(1), pages 59-78.
    4. 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.
    5. Ross H. McLeod, 2014. "The ill-fated currency board proposal for Indonesia," Departmental Working Papers 2014-02, The Australian National University, Arndt-Corden Department of Economics.
    6. Nys, Emmanuelle & Tarazi, Amine & Trinugroho, Irwan, 2015. "Political connections, bank deposits, and formal deposit insurance," Journal of Financial Stability, Elsevier, vol. 19(C), pages 83-104.

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