Insolvency Reform and the Indonesian Financial Crisis

David Linnan

Bulletin of Indonesian Economic Studies, 1999, vol. 35, issue 2, 107-137

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.

Date: 1999
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DOI: 10.1080/00074919912331337617

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Bulletin of Indonesian Economic Studies is currently edited by Firman Witoelar Kartaadipoetra, Arianto Patunru, Robert Sparrow, Sarah Xue Dong and Sean Muir

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