IslamicFinance.de

Four weaknesses in the financial system explain Indonesia’s capitulation to the crisis in 1998: the undercapitalisation of the banking system, a substandard regulation and supervision, the lack of inter-bank competition and the availability of cheap credit from state-owned banks with low risk which provided no incentive for the corporate sector to raise funds in the capital and bond markets. Between 1997 and 2013, the Indonesian government adopted a number of policies to rebuild and modernise Indonesia’s financial sector. It is through these policies that the Indonesian government has effectively reduced risks and moved the Indonesia financial sector from a state of collapse towards a modern financial system.