Control and competition: Banking deregulation and re-regulation in Indonesia

Abstract

Policy changes in Indonesian banking from 1983 through 1990 saw the removal of controls on interest rates, lending, and expansion of branch networks, and of barriers to entry. The dismantling of loan subsidy programmes financed by the central bank ran in parallel with these changes. Private banks have been enabled to erode rapidly the market share of the previously dominant, but less efficient and less customer oriented, state banks. Despite the impressive progress resulting from these reforms, however, interventionist policy has been making a comeback during the 1990s, and the central bank still maintains its role as a significant supplier of subsidised loans.