CONTROL AND COMPETITION: BANKING DEREGULATION AND RE-REGULATION IN INDONESIA

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 customeroriented,
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.