Scandinavian Working Papers in Economics

EIJS Working Paper Series,
Stockholm School of Economics, The European Institute of Japanese Studies

No 154: INTEREST RATE POLICY AND ITS IMPLICATION ON THE BANKING RESTRUCTURING PROGRAMS IN INDONESIA DURING THE 1997-FINANCIAL CRISIS: AN EMPIRICAL INVESTIGATION.

Reza Y. Siregar ()
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Reza Y. Siregar: School of Economics, University of Adelaide

Abstract: Despite a number of changes in the leaderships of the Indonesian Bank Restructuring Agency (IBRA) and in the policy approaches adopted by the country to restructure the banking sector, the progress has been less than impressive. This study shows that that the selection of policy measures adopted by the monetary authorities during the post-1997 financial crisis, has adversely affected the performance of the restructured banks. In particular, the high domestic interest rate policy adopted to stabilize the local currency and to keep a tight growth of base money has not been an effective one. Instead, this policy has arguably raised the cost of bank restructuring in the country.

Keywords: Financial Crisis; Bank Restructuring; Interest Rate

JEL-codes: E51; E52; E58; F31

28 pages, September 1, 2002

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