By : J. Soedradjad Djiwandono
Gurubesar tetap Ilmu Ekonomi, Universitas Indonesia

A paper for a presentation at a Seminar "Indonesia at the Crossroads: Facing New Millenium Challenges" organized by PERMIAS Regional Midwest, Madison, WI, April 24, 1999.



  • The Indonesian crisis has implicated many aspects of people's lives, not just financial or economics, but social and political as well. The latest social unrest and killings in different regions in the midst of a bumpy road to the upcoming general election are disturbing, to say the least. For me, the most pressing issue for Indonesia at present is stills how to end the crisis, which has been creating so much social dislocations and human suffering. Financial and economic problems are complex and enormous, but they are relatively more tractable. However, social and political issues are even more complicated and more difficult to untangle.

  • In such a situation, our first priority is still to stop the process of economic and social deterioration. A legitimate national leadership that could create a turning point for the recovery and beyond could only do this. However, to be in this position, the national leadership has to have a credibility and ability to galvanize support from all parties within the society as well as external cooperation, to deal with the multi faceted problems. This would create a turning point for the recovery and beyond. The upcoming general election and the election of the President, if conducted in the true spirit of democracy, could become a sound basis toward a new and sustainable development.

  • After we survive the crisis, a new mode of development has to emerge for Indonesia, lest we will be back to suffer from similar upheavals, social dislocation and all other social and political malaise. Indonesian society after the crisis has to be a transformed society, free from past mistakes that brought down our economic, social and political fabrics. This is what a new development paradigm is about. I would share with you my view about a new development paradigm, with a view to different proposals about varieties of reforms in finance, economic and development. I would end the paper by making some notes on 'a new Indonesia' that all of us, in our respective ways, should contribute to build, coming out from the crisis. 1


  1. The first priority for Indonesia at present is freeing itself from the crisis that has no longer been solely a financial or economic crisis, but a crisis involving practically all aspects of people's lives. What has happened in Indonesia since mid 1997 to the present in finance and economics, social and politics ultimately has some bearing in human suffering. Pulling out from the crisis is the first priority. It has to start with a turn around from a slide down process that has hit Indonesia for more than a year and a half now. The turning point cannot come out from economic measures, since all parties in the market are holding a position of 'wait and see'. Problems of political certainty, human safety and legal protection have to be addressed first, before normal economic activities could resume.

  2. The present government, the legislative body, the judiciary and the military have loss most of their credibility. For the present national leadership to have credibility in pushing social, political, and economic reforms, they should demonstrate a strong signal of their firm commitments on reform programs. It is very crucial that the authorities demonstrate a clear signal of firm commitments for consistent implementation of programs and policies. Market is extreme and demanding. Of course it is impossible for any government to provide immediately, robust social, political as well as economic infrastructures, that were disintegrating in the crisis. However, a positive perception that the national leadership is trustworthy and capable for doing the job, is crucial here.

  3. Market perception has to be brought to change from a negative towards a positive one. For this to happen, the market needs a clear signal that authorities could do away with old practices of crony capitalism toward a new paradigm of good governance, law and order in a transparent manner. It has to start with a turning around of people expectation from a negative to a positive one. Korea and Thailand path of recovery was preceded with a turning point. Both countries had new governments that could change market perception for the economy and the country to pull out from the crisis. At the start, the most important element is public trust to the national leaders. Positive perception is very important. Indeed, it is even more important than the substance at the beginning. But, of course, it has to be followed by consistent implementation of all the stipulated policies. Only if the national leadership could produce a turning point that it could expect public trust and support, for all the hardships that accompanied the necessary adjustments for the recovery. Starting with a positive perception, and good reform programs with consistent implementation to follow, a path towards recovery could be established.

  4. I put the point above as a reminder that, before we could talk about a new paradigm for development, a new international financial architecture, or a holistic approach for development, the highest priority for Indonesia is still how to get out of the crisis. And how to get out of the present crisis depends on resolution of problems outside economics, like the presence of a credible government, public safety and protection of basic human rights. In economics, high priorities fall on basic problems, like how to deal with problems of food distribution and some other social safety net issues. But, this does not mean that we should shy away from discussing what to do after crisis.

1 An earlier version of New Development Paradigm: What is After Crisis? Presented at Permias Seminar 'Indonesia's Road to Recovery', University of California, Berkeley, March 27, 1999. This paper and other papers on various aspects of current Indonesian economic issues I wrote for various fora are filed in a website that anyone could download (http://www.pacific.net.id/pakar/sj/).


  1. Even though discussions on different approaches to deal with problems in specific policy areas have been going on for some time, it is the recent crisis that has become the 'wake-up call' for parties to be more focus on new strategies or approaches for development. Studies on banking crisis and banking soundness for macroeconomic policy by IMF and WB staffs had started in 1991. However, it was only after 1996 that these studies were getting more focus on the close link between soundness of banking system and monetary management.3

  2. Some samples of new approaches include the followings:4
    • A new development paradigm as proposed by Stiglitz who argued that development represents a transformation of society, a movement of traditional relations, traditional ways of thinking, traditional ways of dealing with health and education, traditional methods of production, to 'modern' ways. A successful development transformation affects not only what we do, but how we do it, it affects the strategies and policies, as well as the process. He reminded something very relevant for Indonesia's future development, namely that an economy needs an institutional infrastructure.
    • The World Bank proposal as shown by President Wolfensohn for a holistic framework that sharpens strategic vision in development. Included in this approach are the followings: First, addressing the crisis by creating economic structures that could manage crisis to be less frequent and less severe, designing effective ways of responding to crisis and addressing safety nets problems.5 Second, adhering to development framework in its broadest sense that includes good governance-transparency, regulatory and institutional fundamentals for workable market economy, policies that foster inclusion-education for all, public services and infrastructure necessary for communication and transport, and ensure environmental and human sustainability.
    • The now well known New International Financial Infrastructure, is a proposal for strengthening international financial system that host a huge volume of short term capital freely flowing internationally. The international financial infrastructure includes the followings; internationally accepted standard, transparency, strengthening financial system, promoting orderly integration of international financial markets, and involving private sector in the prevention and resolution of financial crisis.
    • Proposals for strengthening international financial infrastructure also include reforms of the International Monetary Fund (IMF) and the World Bank (WB), as well as discussions establishing Asia Monetary Fund and the Manila Framework. Proposals for reforming the Bretton Woods Institutions and strengthening international financial system have been posted due to the pivotal role of weak financial system in the crisis as well as IMF and the WB involvement in assisting member countries to deal with the crisis. Critics against IMF handling of the Asian crisis have been well documented now. Familiar names like Jeffrey Sachs, Paul Krugman, Joe Stiglitz, Martin Feldstein, George Schultz, and many others have been very vocal in their criticisms on how IMF supported policies to the crisis countries have been more contributing to than mitigating Asian crisis. Some, like the two former US Secretaries of Treasury, Schultz and Simon, would even argued for closing the IMF. Similarly, there are many studies proposing the path of reform of the present financial system to accommodate new phenomena in global finance, in particular the increasing role of short-term capital flows.
    • Internally, both the WB, IMF and AsDB also conducted studies, suggesting steps for improvement or reform of their respective role in assisting member countries in coping with problems of economic crisis and development. The IMF issued a report IMF-Supported Programs in Indonesia, Korea and Thailand: A Preliminary Assessment, defending its role in these countries. While the WB issued a critical evaluation of its involvement in Indonesian development in the last many years, in a report entitled Indonesia-Country Assistance Note. Similarly, more specific proposals have also been circulating, like one on the need for international lender of last resort by Stanley Fischer, techniques of exchange rate management and international banking standard by experts at the Institute for International Economics.6

  3. We have seen the evolution of approaches or theories in development; from growth theory (50's and 60's) to growth with equity (70's), up to the recent dogma of focusing on adjustment policies for the functioning of market economy (late 80's and 90's). In the most recent approach of development, the guiding principles have been the so-called Washington Consensus, with the dictum of liberalization, stabilization, and privatization. With the benefit of hindsight, most writings after the emergence of the crisis argued that there are requirements to be fulfilled for the implementation of the Washington consensus to be effective. Some would even argued that the Washington Consensus is not right. What could be said here is that, trusting the Washington consensus dictum blindly like a true believer or implementing it unintelligently could lead to confusing means with ends with costly implications, as some crisis countries had attested.

  4. The Indonesian experience in liberalization policies, I think, had this downside. Many of us, during the heyday of liberalization drive would take almost for granted that "deregulasi" is an end itself. The crisis showed us clearly that our banking liberalization was not executed intelligently. And we have to pay dearly. Of course, after the crisis, there are writings, IMF staffs' included, belatedly advising to liberalize prudently, or that liberalization in financial sector has to be accompanied or even preceded by robust financial infrastructures. Similar problem arose in privatization policy. Privatization and trade liberalization is means to pursue a more sustainable, equitable, and democratic growth. They are not ends in themselves. Strengthening banking system is part of economic fundamentals for economic stability, as we believe that prudent fiscal and monetary policies are.7 A failure to understand the subtleties of the market economy and concentrating almost exclusively on getting prices right, is not enough to make a market economy work. The weakness or absence of financial, social, legal and political infrastructures were never seriously considered as necessity for a market economy to function as promised. These should be part of the mea culpa that many parties in Indonesia (myself included) as well as others, including the Bretton Woods Institution should accept.

2 Since the crisis, references on these approaches or concepts have been flourishing. See for examples, Joseph Stiglitz, Towards a New Paradigm for Development: Strategies, Policies, and Processes, Prebisch Lecture, Geneva, October 19, 1998, James D.Wolfensohn, The Other Crisis, Address to the Board of Governors, Washington, DC, October 6, 1998, and Working Group of the Group 22 Finance Ministers and Central Bank Governors on Strengthening International Financial Infrastructure (mimeos).

3 In 1991 IMF published a study Banking Crisis : Cases and Issues, edited by V.Sundararajan and Thomas Balino. Then, only in 1996 and 1997 that some other studies were published, for examples Bank Soundness and Macroeconomic Policy , edited by Carl Johan Lindgren at al (IMF) and Bank Restructuring: Lessons from the 1980's edited by Andrew Sheng (WB), Systemic Bank Restructuring and Macroeconomic Policy edited by William E. Alexander et al, and Banking Soundness and Monetary Policy, edited by Charles Enoh and John Green (IMF).

4 These are proposals that I think relevant for Indonesia in our efforts to build a framework for a new development paradigm after the crisis

5 Joseph Stiglitz, Must Financial Crisis Be This Frequent and This Painful? McKay Lecture, Pitsburgh, PA, September 23, 1998 (mimeo).

6 Stanley Fischer, Reforming the International Monetary System, David Finch Lecture, Melbourne, November 9, 1998 (http://www.imf.org/external/np/speeches/1998/110998.htm), Morris Goldstein, The Case for International Banking Standard, (Washington DC: Institute for International Economics), 1997.

7 Again, many argued after observing the unfolding of the crisis that earlier warnings were made about the weakness of some fundamentals. But, there was practically no one made a specific argument that banking soundness should be treated as part and partial of macroeconomic fundamentals, until the crisis broke.



  1. The upcoming general election and election of the President, if conducted in a true democratic spirit, would produce a legitimate government that could credibly provide a leadership for Indonesia to move out from the crisis and get back to development path. But, as the Indonesian experience with unintelligent implementation of liberalization and privatization policy for the working of market economy had showed us its downside, we should not confuse between means and ends in practicing democracy through election. Conducting election with all the requirements for a true practice of democracy, open and fair is of the highest priority. But, this is not an end itself. It is a means to form a government that could lead Indonesia to face new challenges and opportunities in a new era of economic, social and political system commensurate with its place in a global system. I cannot help but voicing some concern over unguarded high expectations, held by some experts on Indonesian politics that everything will be all right because of the upcoming election.

  2. The recent crisis has revealed structural weaknesses of, not just Indonesian financial infrastructure, but also social and political infrastructure. These weaknesses made Indonesia the worst crisis country. Indeed, it has been argued by many that Indonesian path of development has left out institutional development. A robust infrastructure in economic, finance, social and politics has to be part of the new paradigm for Indonesian development. One very important aspect of this problem is the weak legal system in Indonesia. A combination of structurally weak legal system and a strong executive (President) of our system of government has caused resolution of banking or financial disputes through legal action ineffective. Strengthening economic, social and political infrastructures has to be part of the national effort to build a new paradigm of Indonesian development.

  3. It is my observation that, in spite of a relatively high rate of national savings, Indonesia has been living beyond the means that made development process unsustainable. Even though our national saving rate has not been bad, we kept having problem of financing S-I gap. Indonesia has to address the problem of S-I gap, from both the expenditure as well as the saving side. Corporations have to reduce the habit of highly leveraging. Corporate debt to equity ratio in Indonesia has been notoriously very high. For a sustainable development financing has to be done within the national means. This does not mean that borrowing should be avoided, but it should be conducted responsibly.

  4. The root of corruption, collusion and nepotism is a way of life that is based on living beyond one's means. Every Indonesian has to learn to be proud of earning what he or she gets, whether it is money, position or something else. Corruption, collusion and nepotism that are rampant in the deep-rooted crony capitalism of Indonesia are involving two parties, the recipient and provider. Both parties have to be uprooted in Indonesia after the crisis. Meritocracy and transparency should replace these practices. But, first we have to get rid of them.


  1. As stated before, Indonesia needs a national leadership who could route full support from the nation, including business communities, both Chinese and Pribumis, and people in general to mobilize assistance and cooperation from foreign creditors and investors with the help from industrial countries and multilateral institutions. In the economic sector, the first priority is to consolidate and strengthen food distribution and other means for implementation of social safety net programs. It goes without saying that consistent implementation of sound macroeconomic policies in fiscal and monetary, with a view to the adjustment process to end the crisis and continue towards recovery is crucial.

  2. At the outset I should reiterate that the Indonesian crisis developed from a combination of an external contagion and structural weaknesses of the national economy. It started with an external shock from a regional financial panic hitting the Indonesian currency market that caused the Rupiah to depreciate tremendously. Facing the shock, the national economy that was embedded with structural weaknesses, in banking as well as in the real sector, was unable to adjust, and was disintegrating. A contagious process developed, such that a currency shock very quickly spread to become a financial crisis, and soon after, an economic crisis. And since the social structure as well as the political structure was also suffering from weaknesses, the contagion worked quickly to hit the social and political foundation, and ultimately Indonesia experienced a total crisis.

  3. Aside from different views about causes of the crisis, experts seem to accept that the crisis is due not to a single factor, but multi causes. In general people also in agreement that there are two related factors that are crucial in the economic crisis of Indonesia, namely the large size of corporate debts, short-term in particular, and the weakness of the financial sector, banking in particular. Due to the strategic position of banking in the Indonesian economy, bank restructuring, including bank closures and recapitalization as well as strengthening banking infrastructures, is very crucial for the economy to move out from the crisis. However, since corporate debt, both external and domestic, is very much a part of the problem, it is not proper to discuss bank restructuring without addressing issues and problems of corporate debt restructuring. I look at bank restructuring in a broader context, the way Claessens defined.8 Restructuring, he wrote 'refers to several, related processes: recognizing financial losses; restructuring financial claims; and operational restructuring of corporations and banks. In cases of systemic restructuring, in tandem with these restructuring processes, the institutional framework for the financial and corporate sector undergoes major changes'

  4. Problems and prospects of bank restructuring are partly determined by the nature of the national debts, which for Indonesia includes the followings:9
    • Indonesia has been a high debt country for sometime, and it will even be more so after the crisis. With no debt repayments and new loans from multilateral institutions recently, the national debt is naturally rising. The Economist Intelligence Unit (EIU) put the Indonesian stock of debt by 2001 to be around $175 billion.

    • Since the beginning of the nineties the national debt has been increasing very rapidly, mainly due to a very rapid increase in private sector indebtedness. From 1992 to 1997 the government debt increased by five billions dollar, from $ 55.5 billion to $59.9 billion. But, the private sector debt went up from $28.2 billion to $78.1 billion, or an increase of fifty billions dollars. One half of the private sector debt increase occurred between 1996 and 1997.

    • Different from Korea and Thailand, the external exposure of Indonesian banks is relatively small, less than 10 per cent of total exposures. This suggests that corporate sector exposures are mostly direct loans from foreign banks and other financial institutions.

    • Corporate sector's exposures are mostly in foreign currencies (dollar). Even their exposures to domestic banks are fifty per cent in foreign currencies. In June 1998 out of $118 billion of total corporate debts ($ 67 billion external and $51 domestic), 74 per cent is denominated in US dollar.

  5. The followings are problems and prospects of debt restructuring:
    • The sovereign debt is increasing due to the recent additional loans from the multilateral institutions in the context of stand-by arrangement and loans for financing social safety net programs. Indonesia was granted a rescheduling program for some debts that were due last year through the Paris Club. But, issues on the sovereign debt have to be addressed at some point in the future.

    • A World Bank report on corporate debt restructuring in Indonesia identifies vulnerabilities of corporate debts in Indonesia that include the followings: There are ten big companies with strong ties to the banking system that own more than 50 per cent of market capitalization of Indonesia's corporations. These companies also have close ties with the Suharto family. Corporations are highly leveraging. A substantial part of corporate borrowings is denominated in foreign currency (even domestic borrowings), unhedged, and short- term.10 In addition, a large portion of loans is used to finance speculative investments in non-tradable projects, like properties. These make corporate balance sheets extremely vulnerable to sharp depreciation of rupiah and fluctuation of interest rates.

    • The fact that Indonesian banks' exposures constitute a minor part of the national debts turns out to be a complicating factor in debts restructuring. Why? Since corporations constitute the major part of the national debtors, debt restructuring has to involve a large number of entities. From the debtor's side there are more than 2000 corporations involve in foreign debts. The creditors are banks and other financial institutions; Japanese banks take the lead, followed by European, Korean and a small number of American and other banks. Altogether they are in hundreds. This is different from the Korean or Thai case.

    • It is curious to compare corporate debt restructuring in the three crisis countries. Thailand addressed problems of short-term debts very early at the beginning of the crisis. Korea did the same thing. Both countries resorted to debt restructuring rapidly. In fact, in both cases the IMF dealt with corporate debt problems from early on as a part of IMF-supported programs. This has not been the case with Indonesia. Even though the crisis hit Korea later than it hit Indonesia, the debtors and creditors agreed upon a framework of corporate debt restructuring much earlier in Korea than Indonesia. In the case of Indonesia, the first letter of intent (LOI) for stand-by arrangement in October 1997, did not mention corporate debts, except for stating the amount of the national debts ($140 billion), and that the private sector debt was $80 billion, of which $35 billion was short-term.11 Only after the second LOI that IMF was agreeing to discuss problems of the private sector debt (late January 1998). After a very slow and confusing start, some agreement was reached in June 1998 (Frankfurt Agreement), and a framework was agreed upon in September 1998 (the Jakarta Initiative), close to a year after.

    • Corporate debt restructuring in Indonesia is proceeding very slowly, even though this is part of the lynchpin of the crisis. In June 1997 the Government of Indonesia (GOI) reached agreement with a group of private creditors on restructuring Indonesian debt (Frankfurt Agreement). It started with an agreement for Indonesian debtors to pay trade credit arrears and restructuring of some inter-bank debt. This is the result of a series of discussions between creditors and the Indonesian corporations, organized by GOI with the help of the Fund and WB. Indonesia also established the Indonesian Debt Restructuring Agency (INDRA). Since then, the GOI has developed a framework for corporate restructuring with the objective of helping viable, market oriented corporations which can generate sustainable growth. This framework is designed to encourage out-of-court, voluntary corporate restructuring.

    • The Jakarta Initiative that was announced in September 1998 is designed to facilitate and encourage voluntary corporate debt restructuring. Basically it provides a framework of out-of court negotiations, which applies to domestic and foreign creditors in a non-discriminatory manner. So far, 125 firms have entered negotiations under the Jakarta Initiative, covering $17.5 billion in foreign debt and 7.8 trillion rupiah in domestic debt. Out of these, agreements have been reached with 15 companies covering $2 billion in foreign debt and 600 billion rupiah in domestic rupiah debt.12

  6. With respect to bank restructuring the following points deserved to be mentioned:
    • It has been rightly argued by many that bank restructuring is a process, not an event.13 For Indonesia during the crisis, since the first agreement with the IMF for a stand-by arrangement in October 1997 until the most recent one in March 16, 1999, there are 9 letters of intent signed by the government of Indonesia. In each LOI there are some part that itemize steps to be taken as an on-going process of bank restructuring.

    • Before last month policy of bank restructuring and re-capitalization, several important steps in bank restructuring taken by the government include the followings:

    • The controversial closure of 16 insolvent banks in November 1,1997

    • The policy to providing guarantee to all depositors and creditors of all locally incorporated banks and the establishment of the Indonesia Bank Restructuring Agency (IBRA) in January 27, 1998

    • The transfer to IBRA control, or nationalization of 7 large private banks accounting for over 75% of past Bank Indonesia liquidity support and 7 banks that have borrowed more than 500% of their capital, in April 22, 1998

    • The closure of 6 insolvent banks and restructuring 6 banks that was taken over by IBRA previously, in August 21,1998

    • The merger of 4 state banks (Exim, Bumi Daya, BDN and Bappindo) into Bank Mandiri in September 1998.

    • And a number of steps taken aimed at strengthening banking infrastructures in areas, like a new bill to make Bank Indonesia an independent central bank, technical assistance for improvement of bank supervision, improvements of banking act, introduction of bankruptcy law and commercial court, etc.

    • The most recent steps in bank restructuring and re-capitalization involved different policies concerning 128 private banks that were given chances for restructuring after completing due diligence process. From 128 private banks with different categories, the followings decisions were made:

    • 73 banks with CAR of 4 per cent or higher (class A banks) are allowed to operate normally without obligation for re-capitalization

    • 9 banks with CAR between -25 to 4 per cent (class B banks) are allowed to operate with an obligation to re-capitalize aimed at a CAR of 4 per cent by April 21, 1999. To re-capitalize bank owners have to provide in cash, 20% of capital needed, while the rest will be borne by the Government using bonds.

    • 9 class B banks are taken over by IBRA, and

    • 38 banks of class C and class B banks were closed.

    • With the last steps of bank restructuring, Indonesia's banking industry comprises of 73 healthy, but small private banks, constituting less than 6 per cent of banking system liabilities, and large but unhealthy banks (state and nationalized banks), plus a number of joined venture banks. Joined venture banks are relatively small, even though their conditions are relatively all right. In terms of total assets and liabilities, seven state banks plus a number of nationalized banks, all with weak conditions, dominate the Indonesian banking industry. The non-performing loans are quite high, some estimate goes as high as 60-75%. The World Bank report said that nearly half of all Indonesian corporations are insolvent and having problem to meet their debt-service obligations to external and domestic creditors.

    • The above observation implies that bank restructuring has not dealt with the state owned banks and some nationalized banks that constitute the major part of Indonesian banking.

    • To re-capitalize the state banks plus regional banks and the nationalized banks (four from the previous decision and seven from the latest one) the Government plans to issue 300 trillion rupiahs (approximately $35 billion or 30% of GDP) worth of bonds. The budgetary cost for interest payments on these bonds will amount to about 3.5% of GDP.

  7. Nothing has been said about problems and prospects of other financial institutions, including finance companies, insurance, and others. The condition of finance companies in Indonesia, more than 250 in total are worse than banks. Fortunately in terms of the value of both their assets and liabilities has not been phenomenal such that the problem is not proportionally sizeable. However, in time it has to be addressed.


  1. The important parts of financial infrastructure are related to good governance in both the regulators as well as the private sector, transparency, and legal culture.

  2. Central Bank: issues of independent central banking and financial supervision.14


  1. I would like to go back to my theme that our past has been a case of a nation living beyond its means. This has been true for the national economy, whereby Indonesia has problems of financing national investment to saving gap. Borrowing is all right, but a sustainable development required responsible borrowing nationally.

  2. But, this has also been the case with respect to our corporations. The commercial sectors, whether privately or state owned, whether in the real sector or financial sector, highly leveraging has been the norm rather than an exception. Most Indonesian corporations have high debt to equity ratio. Since the 90's this has been further complicated by heavy reliance on unhedged short-term external source of financing with for reckless investments. In the banking sector, partly due to the government policy CAR was very low since 1988. The correction in 1994/95 was not good enough to mitigate its implication. Casual observation also shows that our society have been showing more tendency towards living style that is beyond the their means. Even without corruption and crony capitalism, these practices are not sustainable. Indonesia after the crisis has to do away with all these unhealthy ways of conducting things.

  3. Development represents a transformation of society from the one full of weaknesses (the past) to a new one. Here are some areas for discussion:
    • The habit of thinking and acting based on 'exclusion' versus 'inclusion', 'partial and compartmentalization versus 'holistic'. We have to do away with 'tribal instinct' as argued by Arif Budiman to mean treating others outside his/her family/tribe as subhuman, if not non-human.15 What do these imply?
    • Transparency, openness and disclosures as part of the process of democracy. In non-transparent and weak governance in both government and private sector, it is hard to distinguish between the truth from the half-truth or a lie. Transparency is the answer. But, this has to be supplemented with an attitude for not taking things for granted nor believing things at face value.

@ Professor of Economics, the University of Indonesia, Jakarta, currently a Visiting Scholar at the Harvard Institute for International Development (HIID), Cambridge, MA.

8 Stijn Claessens, Systemic Bank and Corporate Restructuring: Experiences and Lessons for East Asia, World Bank: Washington DC, Background Papers, 1998 Annual Meetings of the IMF and the WB.

9 This section is taken from an earlier paper Problems and Prospects of Bank Restructuring in Indonesia, a short note presented at a panel in a Seminar "Indonesia at the Crossroad" organized by Georgetown University, Washington DC, April 7, 1999.

10 World Bank Brief on Corporate Restructuring in Indonesia, (mimeo)

11 Contrary to what has been widely reported in the media, the first LOI to the Fund (October 31, 1997) was already reporting the total national debt of $140 billion, of which $33 billion was short-term, as well as an estimate of private sector debt around $80 billion. For sure, the data was not complete, since part of the private debts was only acquired directly from a number of big companies after my series of meetings with company owners to ask them to report their external exposures to Bank Indonesia. It is unfortunate that the first letter of intent has not been made public to clarify some public misunderstanding or misgiving.

12 Indonesia: Supplementary Memorandum of Economic and Financial Policies, (Washington DC: IMF), March 16, 1999.

13 For examples, Financial Reform: Theory and Experience, Gerard Capricio, et al, Eds. (New York: Cambridge University Press), 1994 and Bank Restructuring: Lessons from the 1980s,, Andrew Sheng, ed. (Washington DC: The World Bank), 1996

14 I wrote two papers discussing these issues, Bank Indonesia yang Independent, Kompas, June 5 and 6, 1998, and Independensi Bank Sentral dan Pengelolaan Ekonomi Nasional, Forkem, August 12 (http://www.pacific.net.id/pakar/sj/)

15 Arif Budiman,Capitalism, Tribalism and Religion, a presentation at Harvard Asia Center, March 1999 (mimeo).

Cambridge, MA. April 22, 1999.