INDEX
[Page numbers followed by f, t, or n refer to figures, tables, or footnotes, respectively.]
A
Aggarwal, R., 112
Asia, generally
banking sector exposure to corporate
risk, 96–98
causes of inflation, 8–15, 12t
corporate loan default risk, 100–2
foreign exchange reserves, 63, 64f, 65–67, 65f
governance quality, 96, 96f
Indonesia’s trading partners, 49–50, 50f, 51–53, 52f
infation rate comparison, 3–4, 4f, 5–6t, 7f
quality of corporate governance, 86, 86f
Asian financial crisis (1997–98)
corporate governance as factor in, xi, 81
effect on corporate ownership structure, 84
inflation outcomes in Asia, 3–4
outcomes in Indonesia, vii
output losses in, 67–68, 68t
policy response in Indonesia, vii postcrisis reforms, 94–96
B
Bank Indonesia
balance sheet, 116, 116t
coordination of micro- and macro-supervision, 115
inflation targeting regime, ix, 15, 28–29
as lender of last resort, 113
profit and loss patterns, 117t
prompt corrective action regime, 112
recent reforms, 109, 115
recommendations for government
bonds, xii, 115–17
recommendations for promoting
financial autonomy, xii, 115, 117
recommendations for supervisory and regulatory function, 111
Bank Indonesia Act, 109, 113n
Bank Indonesia Certificates (SBIs), 29n, 116
Bankruptcy and restructuring laws, 105
Basel Core Principles for Effective
Banking Supervision, 110–11
Basel II implementation, 109, 111
Benston, G.J., 112
Borrowing rates, government
domestic borrowing rates and, 21
foreign reserves coverage and, 72–75
inflation effects, 19, 20f
C
Capital adequacy ratio of Indonesian
banks, xi, 109
Capital flows
current vulnerabilities of corporate
sector, 98–100
effects of 2008–09
financial crisis, xii foreign exchange reserves to control
effects of, 63, 66
Indonesia’s recent policies and
performance, viii, x insurance model of foreign exchange
reserve levels, 67–72
public debt and, 32
recent patterns, 66, 67
Capital Investment Coordinating Board, 106
Cerra, V., 68n
China, 50, 51
Commodity export boom course of, 47
Dutch disease risk, x, 47, 55–58, 62
exchange rate appreciation in, 53, 54f, 56
price volatility trends, 60–61, 61f
source of, 47–50
terms-of-trade concerns, 60, 62, 62f
trading partners, 49–50, 50f, 51–53, 52f
vulnerability concerns, x, 47, 53–55, 58–60
Consumer price index, inflation patterns, 4, 8f, 17
Contingent claims analysis, 100–104
Corporate governance
debt ratios, 98
macroeconomic significance, 81
market valuation of firm and, 82, 88–90
ownership structure, 82, 84, 85f, 87, 96
quality trends, 84–86
recent history, xi
recommendations for improving, xi regional comparison, 86, 86f
responses to 1997–98
financial crisis, 94–96
risk-taking behavior, 82
See also Leverage, corporate governance and
Corporate sector
access to information about, 106–7
accounting and auditing practices, 106
bank loans, 93, 96–98, 97f, 103, 104
current vulnerabilities, 98, 99f
default risk modeling, 100–104, 101f
global market risks, 98–99
international borrowing by, 98, 99t
new firm registration process, 106
at onset of 2008–09
financial crisis, 94–98
outcomes of 2008–09
financial crisis, xi, 93, 105
process for becoming publicly traded
firm, 107
regional comparison of default risk, 101–2, 103, 104
size of firm as performance factor, 81, 83, 88, 103–4
small and medium enterprises, 96–98, 103–4
spillover effects in financial sector, 93, 103–4
Standard and Poor’s credit ratings, 102, 102f
strategies for improving, xi, 105–7
See also Corporate governance; Leverage, corporate governance and
Credit access. See Leverage, corporate governance and
Credit Information Bureau, 106
Credit ratings, vii
Crisis prevention
coordination of micro- and macro-supervision, 114–15
Indonesia’s accomplishments, viii, 94–96
recommendations for financial safety net, xi, xii, 110, 113–14
recommendations for monetary policy, ix
See also Prompt corrective action regime
D
Deficit control, viii, ix–x, 36. See also Public debt
Deposit guarantee agency (LPS), 110, 111, 112, 113–14
Deposit insurance, 110, 113
Dutch disease, x, 47, 55–58, 62
E
Economic growth
corporate leverage decisions and, 81
effects of 2008
global financial crisis, vii inflation and, 3, 19
public debt and, 32n
Emerging Markets Bond Index, 69
Employment
output gap in inflation, 8, 9f, 12, 12t, 13, 15
sectoral distribution, 56, 58f
Exchange rate
capital flow management, viii, x
causes of inflation in Indonesia, 14–15
commodity export boom and, 53, 54f, 56
Dutch disease hypothesis, 55
inflation and, 7, 11f
success of Indonesia’s policies, viii
Export boom. See Commodity export boom
F
Federal Deposit Insurance Corporation
Improvement Act, 112
Financial safety net, xi, xii, 110, 113–14
Financial sector
asset classification, 111
Basel II implementation, 109, 111
capital requirements, 109
coordination of micro- and macro-supervision, 114–15
corporate sector spillover effects, 93, 103–4
corrective action regime, xii
default risk of corporate loans, 100–104, 101f
deposit insurance, xi, 110
effectiveness of bank supervision and
regulation reforms, viii, xi, 109–10
effects of 2008
global financial crisis, viii, 93
exposure, definition and limits of, 110
legal protection for authorities involved
in crisis management, 112, 113, 115
loan portfolios, 93, 96–98
nonperforming loans, 98, 104, 109
prompt corrective action regime, xii, 111–12
return on assets, xi, 109
strategies for strengthening, xi–xii, 105, 109, 110–15
stress test findings, viii, xi, 110
systemic and nonsystemic risk, 113, 114–15
Financial Sector Assessment Program, viii, xi–xii, 109, 110, 111, 115
Financial Stability Forum, 110
Fiscal policies
framework for assessing sustainability
of public debt, 34, 35
need for risk assessment in strategy
planning, 34
recent performance in debt management, ix–x, 31
risk assessment of medium-term
strategy, 34–44
vulnerability to shocks, x
Food price inflation, 4
Foreign currency debt, 31
Foreign exchange reserves
current levels, 63, 64, 65, 66–67, 69–70, 75–76
current policies and outcomes, x–xi effects of 2008
financial crisis, vii external liabilities and, 66–67
Greenspan-Guidotti rule, 65, 66
insurance model of optimal levels, 67–72, 76
international comparison, 63, 64f, 65–67, 65f, 67f
measures of reserve adequacy, 66
opportunity costs of, 69
as percent of GDP, 63, 68–69
rationale for buildup, 63–64
recent trends, x, 63, 66
recommendations for, 64, 65
threshold model of spreads-reserves
elasticity, 72–75, 76t, 77t
Fuel subsidies
administrative price adjustments, 18, 18f
costs, 33
fiscal sustainability risk assessment, 36–39, 42–43, 44
future prospects, 44
inflation and, viii, 18
negative effects, 33
projected spending, 33
recommendations for reform, x, 44
G
Global financial crisis (2008–09) commodity export trade and, 47
corporate default risk after, 100–105
effects on corporate performance, xi foreign exchange reserves and, 63
health of Indonesia’s corporate sector
going into, 94–96
outcomes in Indonesia, vii, xi, 93, 94f
Governance and bureaucratic functioning
inflation and, 12–13, 12t
new firm registration process, 106
regional comparison of governance
quality, 96, 96f
strategies for strengthening corporate sector, 106–7
Government bonds (SUPs)
Bank Indonesia holdings, 116
restructuring for trade, xii, 115–17
term premium calculations, 19–20
term structure model for determining
yields, 22–24
See also inflation risk premium for government bonds
H
Harris, M., 83, 87
Hong Kong SAR, 69
I
India, 50, 51
inflation
across consumer price index
components, 4, 8f
administrative price adjustments and, 18
adverse effects, ix borrowing costs and, 19, 20f
causes of, generally, 4–8, 12t
causes of, in Indonesia, ix, 8–15
central bank independence and, 7
costs of uncertainty in forecasting, 17, 19
econometric analysis, 11–15
economic growth and, 3, 19
effectiveness of targeting, 18, 19f
expectation effects, 4–7, 25–26, 27–29
future prospects, 15
inertia effects, 4–7, 8, 8f, 12, 12t, 13, 14
monetary and exchange rate policy and, 7, 9–10, 11f, 13, 14–15
output gap and, 8, 9f, 12, 12t, 13, 15
political and governance factors, 7–9, 10f, 12–13, 14
rationale for lowering and stabilizing, ix recent policies and outcomes in
Indonesia, viii regional comparison, 3–4, 4f, 5–6t, 6f, 9–11, 17–18, 17f, 18f
volatility, ix, 18–19, 18f, 24
See also inflation risk premium for government bonds
inflation risk premium for government bonds
historical inflation volatility as source
of, 17–19
investor uncertainty as source of, ix, 27–29
methodology for calculating, 19–24
projections, 20
as source of higher term premium, 24–26
strategies for reducing, 28–29
Initial public offerings, 107
Institutional reforms
after Asian financial crisis, vii, 96
opportunities for improvement, viii
See also Corporate governance
Integrated Financial Authority (OJK), 113, 115
Interest rates
conundrum question, 21
Emerging Markets Bond Index, 69
public debt levels and, 32, 32n
risk reduction strategies for banks, 110
term premiums and, 21
International Accounting Standards, 111
Investment climate
legal protections for investors, 82, 83
rationale for lowering and stabilizing inflation, ix
strategies for improving, 106–7
J
Jacques, K.T., 112
Japan, 50, 51, 112
Jeanne, O., 67, 68, 76
K
Kapteyn, A., 65
Kaufman, G.G., 112
Kim, D.H., 21
Korajczyk, R., 83n
Korea, Republic of, 9n, 102, 112
L
Legal system
bankruptcy and restructuring laws, 105
corporate governance–leverage linkage
and, 82–83
investor protections, 82, 83
protection for authorities involved in bank crisis management, 112, 113, 115
reforms after 1997–98
financial crisis, 96
regional comparison of governance quality, 96, 96f
Lender-of-last-resort facility, xi, 110, 113
Leverage, corporate governance and
access to international financing and, 84–85
firm size and, 81, 83, 88
linkages, 81–84, 91
macroeconomic implications, 81
market valuation of firm and, 88–90
policy considerations, 91
recent trends in Indonesia, 84–87, 91, 94–96
regression analysis of variable affecting, 87–90
Levy, A., 83n
Low-income households, inflation effects, 3
LPS. See
Deposit guarantee agency
M
Macroeconomic policies and performance
basis for Indonesia’s success, viii causes of inflation, generally, 7
coordination of micro- and macro-supervision, 114–15
effects of 2008–09 global financial crisis, vii–viii
future challenges and opportunities, ix–xi
Malaysia, 17, 51, 102
Manufacturing sector
debt ratios, 98
Dutch disease concerns in commodity
export boom, x, 47, 55–58
effects of commodity export boom, x, 47
exchange rate policies and, x export patterns, 47, 48f, 49, 57f
sectoral performance, 57f
Mining, 56–58
Ministry of Finance, 113
Ministry of Law and Human Rights, 106
Ministry of Manpower, 106
Ministry of Trade and Industry, 106
Monetary policy
anchoring of inflation expectations, 26, 27–28
causes of inflation, generally, 7, 12, 12t
causes of inflation in Indonesia, 9–10, 11f, 13, 14–15
communication with market
participants about inflation targets, 28–29
perceived consistency and transparency, 29
strategies for lowering inflation risk
premium, 28
Taylor rule estimates, 27–28
Moody’s KMV CreditEdge, 100
N
Nielsen, A., 82
O
OJK. See Integrated Financial Authority
Output gap
effects of 1997 Asian financial crisis, 67–68, 68t
inflation and, 8, 9f, 12, 12t, 13, 15
P
Petroleum revenues in Indonesia
fiscal sustainability risk assessment, 36–42, 44
framework for assessing sustainability
of public debt, 34, 35
fuel subsidies and, 33
production shock modeling, 39–42
production trends, 39–40, 40f
proven reserves, 39–40, 40f
rationale for maintaining low debt
levels, 32–33
volatility, 32, 33f, 33n
Philippines, 17
Political functioning
causes of inflation, generally, 7–8
causes of inflation in Indonesia, 8–9, 10f, 12–13, 14
Indonesia’s transition to democracy, vii rationale for prompt corrective action regime, 111
regional comparison of governance quality, 96, 96f
See also Governance and bureaucratic functioning
Political risk index, inflation and, 12, 12t, 13
Prompt corrective action regime, xii, 111–12
Public debt
causes of inflation, generally, 7
foreign currency debt, 31
framework for assessing sustainability, 34, 35
fuel subsidies and, 33, 37–39, 42, 44
need for risk assessment, 34
as percent of GDP, 31, 36–37, 42
rationale for maintaining low levels of, 31–33
success of recent policies, viii, ix–x, 31, 44
sustainable levels, 36–37
vulnerability to shocks, x, 31, 44
R
Rajan, R., 81, 82
Rancière, R., 68
Rauh, J., 87
Raviv, A., 83, 87
Real term premium, 19, 21
Reinhart, C.M., 31n, 32n
Rogof, K.S., 31n, 32n
S
Sato, Y., 84
Savastano, M.A., 31n
Saxena, S., 68n
Service sector, 58
Singapore, 69
Standard and Poor’s credit ratings, 102, 102f
Stochastic simulation methodology, 34–36
Structural features of economy
causes of inflation, generally, 7, 13
causes of inflation in Indonesia, ix, 15
reforms after 1997–98 financial crisis, 94–96
Suf, A., 87
SUPs. See Government bonds
T
Taylor rule, 27–28
Term premiums
definition, 19–20
determinants of, 21
inflation risk premium as determinant
of Indonesia’s, 24–26
measuring inflation risk premium in, 21
regional comparison, 24, 25
term structure model for determining, 22–24
See also inflation risk premium for government bonds; Real term premium
Textile sector, 58
Thailand, 17, 68, 112
Tobin’s Q, 81–82
Trade performance
diversification of trade, 51, 60, 60f
export patterns, 47–50
foreign demand volatility, 51–53, 52f
Herfindahl index, 51, 60, 60f
Indonesia’s trading partners, 49–50, 50f, 52f
recent macroeconomic management, x sectoral, 56, 57f, 58
vulnerability to external shocks, 53–54, 58–61
See also Commodity export boom
Transparency
access to capital and, 83
access to information about corporations, 106–7
corporate governance–leverage linkage and, 82
monetary policy, 29
U
United States, 21, 51, 112
W
Wages
commodity export boom effects, 56–58
Dutch disease hypothesis, 55
inflation effects, 3
Wijnholds, J.O., 65
Wright, J.H., 21
Wyplosz, C., 66
Z
Zingales, L., 81, 82