Indonesia: Anatomy of a Banking Crisis Two Years of Living Dangerously 1997–99

Arto Kovanen, Olivier Frecaut, Barbara Baldwin and Charles Enoch

No 2001/052, IMF Working Papers from International Monetary Fund

Abstract: This study looks at the first two years of the banking crisis that erupted in Indonesia in late 1997. It finds that the banking sector was weak at the outset, and that governance problems intensified the crisis and seriously delayed its resolution. Although a strategy was put in place over the initial months, protracted delays in implementation led to an explosion in the costs of resolution. By end-1999, the critical elements to reconstruct the banking system were in place, and the political transition seemed completed; but, in a continuing unsettled environment, the new authorities still faced daunting challenges. This study looks at the first two years of the banking crisis that erupted in Indonesia in late 1997. It finds that the banking sector was weak at the outset, and that governance problems intensified the crisis and seriously delayed its resolution. Although a strategy was put in place over the initial months, protracted delays in implementation led to an explosion in the costs of resolution. By end-1999, the critical elements to reconstruct the banking system were in place, and the political transition seemed completed; but, in a continuing unsettled environment, the new authorities still faced daunting challenges. This study looks at the first two years of the banking crisis that erupted in Indonesia in late 1997. It finds that the banking sector was weak at the outset, and that governance problems intensified the crisis and seriously delayed its resolution. Although a strategy was put in place over the initial months, protracted delays in implementation led to an explosion in the costs of resolution. By end-1999, the critical elements to reconstruct the banking system were in place, and the political transition seemed completed; but, in a continuing unsettled environment, the new authorities still faced daunting challenges.

Keywords: WP; central bank; interest rate; banking sector; bank Mandiri; economic crisis; banking crisis; bank restructuring; blanket guarantee; lender of last resort; banking supervision; banking system; bank closure; financial condition; liquidity situation; money market; restructuring process; joint-venture bank; BTO bank; taken-over bank; problem bank; bank management; Commercial banks; Bank resolution; Liquidity; Banking crises; Foreign banks; Central Asia (search for similar items in EconPapers)
Pages: 139
Date: 2001-05-01
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Citations: View citations in EconPapers (8)

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