1983-1993 a critical period in RI's financial history<\/p>\n
Financial Sector Deregulation,
\n Banking Development and Monetary Policy
\n The Indonesian Experience 1983-1993
\n Binhadi
\n Published by Indonesian Bankers Institute, 1995
\n Pp XXXIV + 540<\/p>\n
JAKARTA (JP): From the years 1983 to 1993, no less than 11
\nderegulation packages and a new banking bill were approved within
\nIndonesia's financial and monetary sectors, shaking the very
\nfoundation of the established financial mechanism upon
\nimplementation of these new strategies.<\/p>\n
Author Binhadi presents a review of this critical as well as
\nimportant period in Indonesia's financial history.<\/p>\n
The process of change began with the introduction of a
\nliberation policy of interest rates in June 1983. In October
\n1988, the second deregulation package followed, bringing
\nstructural reformation. Deregulation in February 1991 and May
\n1993 brought improvement and precautionary measures to banking
\noperations. The March 1992 deregulation package covered
\nreformation of the legal structure.<\/p>\n
The deregulatory measures were issued with one and the same
\nobjective: to prune government intervention in these sectors in
\nstages.<\/p>\n
Deregulation became an unavoidable measure after the effects
\nof the global recession in the early 1980s began to be felt in
\nIndonesia in 1982. Economic growth nosedived to 2.3 percent
\nduring that year, the state balance deficit rose from $0.4
\nbillion to $1.9 billion, while export earnings from oil deflated
\nfrom $9.6 billion to $6.5 billion.<\/p>\n
The government promptly rescheduled several development
\nprojects, skimping on subsidies for foodstuffs and basic
\nsupplies. The rupiah underwent a 38 percent devaluation. In
\naddition, a new tax bill was later introduced in 1984 to generate
\nmore income for the government.<\/p>\n
Some development projects were able to go on, because the
\ngovernment continued borrowing foreign loans. Public funds began
\nto assume a greater role in the financial, monetary and banking
\nsectors to achieve increased efficiency.<\/p>\n
A series of deregulation policies became effective in the
\nmonetary sector with the June package in 1984. The package
\naltered the basic policy of the monetary sector, cutting down
\ndirect intervention to instrumental intercession, thereby
\nfacilitating open-market operations, discount facilities and a
\nreserve requirement mechanism. The measure aimed to maintain a
\nhold on the total money circulation, level of interest rates and
\nforeign exchange transactions.<\/p>\n
To round out the package, the Central Bank (Bank Indonesia)
\nlater introduced Bank Indonesia Certificates and money market
\nsecurities to facilitate open-market operations.<\/p>\n
The initial deregulation continued to surge and -- like a
\nstrong electrical current -- ignited the banking sector. In turn,
\nthe following packages were issued: PAKTO (October Package) 1988,
\nPAKMAR (March Package) 1989, PAKDES (December Package) 1989,
\nPAKFEB (February Package) 1991. These measures culminated with
\nthe launching of the 1992 banking bill.<\/p>\n
With the deregulation packages, a simple strategy which
\ngenerated spectacular results proved its effectiveness. Banking
\nopportunities, through PAKTO 1988 in particular, became readily
\navailable. The effects of this deregulation were awesome. The
\ntotal number of commercial banks grew from a mere 124 in October
\n1988 to 240 in 1994. Bank offices rose from a total of 1,900 to
\n6,000 throughout Indonesia.<\/p>\n
On the local scene, an improved credit system was accomplished
\nwith the deregulation of January 1990, which lessened the
\nimportance of credit liquidity in the national credit system. The
\nstrategy grew further with the May package of 1993, which led to
\na relaxing of capital adequacy ratio terms, designed when credit
\ngrowth in 1992 and early 1993 slowed down considerably.<\/p>\n
During that period, a revitalized capital market also gained
\nmomentum as a result of various deregulation packages: PAKDES
\n1987, PAKDES 1988 and PAKDES 1990. A revision of the capital
\nmarket was implemented through these deregulations as well. The
\ngovernment took a back seat concerning price fluctuations of the
\ncapital market, listing processes were made easier, and a branch
\nof the stock exchange was established.<\/p>\n
In addition, the government also began to induce a protective
\nrule for investors in an effort to raise the Indonesian stock
\nexchange's credibility overseas.<\/p>\n
The post-1983 period made it evident that the deregulations
\nheld positive results for the Indonesian economy. An average
\ngrowth rate of 5 percent was recorded until 1988. Yearly
\ninflation was down at 7.2 percent. Non oil exports surpassed oil
\nfrom 1987 on.<\/p>\n
A spirited stock exchange moved from 24 listed companies in
\n1987 to more than 200 firms at present. In the banking sector,
\nthe 1988 PAKTO deregulation brought new banks into existence,
\nalthough overheating of the economy gave at the same time cause
\nfor worry. The situation cooled down under a tight money policy
\ninduced in 1990.<\/p>\n
In his book, author Binhadi has successfully managed to
\nanalyze the various phases of change taking place within the
\nfinancial, monetary and banking sectors in a comprehensive way.
\nMore than that, he was able to infuse new spirit at the onset of
\nevery changing stage. This is not wholly unexpected, taking into
\naccount the 35 years of work experience the writer achieved with
\nBank Indonesia. He also played a key role in the formulation of
\nsome deregulation packages at the time. His direct experience
\ngives color and perspective to his work. The author's coverage of
\nan interesting and active period in Indonesia's financial history
\nmakes this an important and valuable book.<\/p>\n
-- Yuswohady<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/1983-1993-a-critical-period-in-ris-financial-history-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }