The Boom, Bust and Restructuring of Indonesian Banks

IMF Working Papers, April 1, 2002

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This paper studies why currency and monetary shock hit Indonesia's economy and banking sector so severely and the measures that were taken to deal with the banking crisis, the lessons learned, and challenges faced in restructuring and strengthening the banking system.
The vulnerable state of the banking sector, in combination with exchange rate and interest rate shocks, led to a systemic banking crisis.

The banking sector was vulnerable prior to the shocks; this vulnerability, combined with exchange rate and interest rate shocks, produced a systemic banking crisis.
Priorities identified for bank restructuring include:
- complete the separation of nonviable from viable banks,
- recoup losses,
- implement new rules and regulations,
- develop an incentive-based system for the consolidation of banks.

Complete the separation of nonviable from viable banks.
Recoup losses associated with failed or nonviable institutions.
Implement new rules and regulations to strengthen supervision and banking practices.
Develop an incentive-based system to encourage consolidation of banks.

Subject: Bank credit, Bank resolution, Banking, Commercial banks, Financial crises, Financial institutions, Foreign banks, Loans, Nonperforming loans
Keywords: Asian financial crisis, bank Central Asia, bank closure, bank Danamon, bank Indonesia, bank Putera, Bank resolution, bank restructuring, bank restructuring program, banking reforms, c bank, Central Asia, central bank, Commercial banks, commercial paper, community bank, development bank, East Asia, Foreign banks, foreign exchange, Indonesia, liquidity support, Loans, Nonperforming loans, recapitalized bank, thirty-eight bank, WP