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This paper was prepared for the Bank Indonesia–IMF Conference on Macroeconomic Issues Facing ASEAN Countries, in Jakarta, November 7-8, 1996 and will be published in the conference proceedings. The views expressed are the author’s alone and should not be attributed to the IMF or Bank Indonesia. The author thanks David Folkerts-Landau and Garry Schinasi for support and encouragement; Geoff Bascand, Christopher Browne, John Hicklin, and Reza Vaez-Zadeh for helpful comments; Robert Dekle, Olivier Frécaut, Subir Lall, and Michael Spencer for useful information; and Scott Anderson for research assistance.
Previous analysis of the Indonesian financial system includes Hanna (1994), which considers the effects of the financial reform process between 1983 and 1991.
The rule currently limits exposure to an individual borrower to 20 percent of capital and to a single company to 35 percent (20 percent by March 1997). The sum of exposures to all affiliated entities must not exceed 12.5 percent of capital (10 percent after March 1997).
In late 1995, Bank Lippo was hit by rumors of real estate losses in the Lippo corporate group. Although the bank reportedly was well capitalized, investors withdrew deposits and the bank entered technical default for one day. A group of private banks cooperated to inject liquidity into the bank so that it could meet its obligations (Sinclair, 1996).
This is the same measure used by Folkerts-Landau et al. (1995) to analyze volatility in Hong Kong, Korea, Thailand, and Mexico.
A closed-end fund has a fixed number of shares and is funded by a one-time offer of shares to the public. In contrast, an open-end fund has a variable number of shares, and permits new share purchases and redemptions at the current net asset value of the fund, which normally is computed daily. Shares in closed-end funds are traded on a stock exchange at a price that may be either a premium or a discount to the net asset value of the fund.