Suharto-Era Coordinating Minister for the Economy's Masterstroke: Closing 16 Banks to Curb the 1998 Crisis
JAKARTA, KOMPAS.com - Coordinating Minister for the Economy during the Suharto era, Ginandjar Kartasasmita, who also served as Chairman of Bappenas, was at the forefront when the 1998 economic crisis unfolded.
The closure of 16 banks in 1998 was a tough measure taken by the government to dissect and clean up the banking system. The decision stemmed from an analysis of institutions that were fundamentally no longer fit to operate.
In his book titled Ginandjar Kartasasmita “Pengabdian dari Masa ke Masa”, published by Penerbit Buku Kompas, it is recounted that Ginandjar was tasked by President Suharto to restore market confidence. Additionally, international support was deemed key to curbing the crisis at that time.
When the rupiah’s value plummeted sharply, recovery became critically important. Creditor nations emphasised that aid could only be channelled through the IMF.
“I received this message directly from US Treasury Secretary Robert Rubin, followed by Lawrence Summers, who offered full support to improve Indonesia’s relations with the IMF, which were in poor shape at the time. High-level delegations from the US, Japan, Germany, the IMF, and the World Bank, including Joe Stiglitz, came to Indonesia. Together with them, we drafted an economic recovery agenda,” said Ginandjar, quoted from the book on Thursday (9/8/2025).
According to him, the closure of the 16 banks was a bitter but necessary decision. Ginandjar explained that the banks closed were those that were no longer entitled to exist. The root problem was overly lax banking regulations in the preceding period, which allowed banks to be established with very small capital. “At that time, we had to close banks that were indeed no longer entitled to live,” Ginandjar stressed.
These banks, operating with minimal capital, practically did not function well, thereby creating significant systemic risks amid monetary turmoil.
Although technically the closure of banks fell under the authority of Bank Indonesia (BI), during the crisis, the BI Governor operated under the coordination of the Coordinating Minister for the Economy, then held by Ginandjar. The final decision to close the 16 banks was discussed and approved in the highest economic forum. “That was decided in the Economic Affairs Cabinet Meeting,” said Ginandjar.
Ginandjar candidly admitted that during negotiations with the IMF, no “external” ministers were involved, including himself. This situation, he said, had both “regrettable and beneficial” aspects, as despite his strategic position in the economic field, he was not part of the technical decision-making circle. Everything could be said to be secretive; no one ever knew that negotiations were underway between the government and the IMF.
According to Ginandjar, the ministers who negotiated with the IMF at that time were Coordinating Minister for the Economy Saleh Afif, Finance Minister Ma’rie Muhammad, and BI Governor Sudrajat Jiwandono. Also present were government advisors Widjojo Nitisastro and Ali Wardhana, overseeing the negotiations.