Financial Fragility And Instability In Indonesia (routledge Contemporary Southeast Asia Series)

This highly relevant study provides an incisive analysis of a critical phase in recent East Asian financial history, exploring the underlying causes of the financial crisis that struck Indonesia during the second half of 1997. Matsumoto’s extensive commercial experience in Indonesian finance during these critical years, allows him to skilfully argue that the roots of the crisis lay in the period of capital liberalization undertaken during the boom years from 1994 to 1997 which encouraged the development of fragile and unstable financial structures, involving increased corporate leverage, reliance on external debt, and the introduction of riskier and more complicated financial instruments and transactions. In-depth fieldwork data and four detailed case studies illuminate the microeconomic foundations of the crisis, showing how Indonesian capitalists sought to liquidate their Indonesian assets without losing control of their corporate empires, by taking advantage of increased access to foreign loans and complex financial re-engineering, actions which ultimately precipitated instability and crisis throughout the entire financial system. Finally, it reflects upon the policy implications of this episode, putting forward the case for comprehensive capital controls for open and developing economies until they establish appropriate financial institutions to monitor and manage the level of indebtedness and the volatility of capitalists’ behaviour.

This highly relevant study provides an incisive analysis of a critical phase in recent East Asian financial history, exploring the underlying causes of the financial crisis that struck Indonesia during the second half of 1997.

Matsumoto’s extensive commercial experience in Indonesian finance during these critical years, allows him to skilfully argue that the roots of the crisis lay in the period of capital liberalization undertaken during the boom years from 1994 to 1997 which encouraged the development of fragile and unstable financial structures, involving increased corporate leverage, reliance on external debt, and the introduction of riskier and more complicated financial instruments and transactions.

In-depth fieldwork data and four detailed case studies illuminate the microeconomic foundations of the crisis, showing how Indonesian capitalists sought to liquidate their Indonesian assets without losing control of their corporate empires, by taking advantage of increased access to foreign loans and complex financial re-engineering, actions which ultimately precipitated instability and crisis throughout the entire financial system. Finally, it reflects upon the policy implications of this episode, putting forward the case for comprehensive capital controls for open and developing economies until they establish appropriate financial institutions to monitor and manage the level of indebtedness and the volatility of capitalists’ behaviour.

"This book examines the underlying causes of the financial crisis that struck Indonesia during the second half of 1997 and 1998. It argues that the roots of the crisis lay in the financial activities undertaken by the Indonesian corporate sector during the boom years from 1994 to 1997, which encouraged the development of fragile and unstable financial structures, involving increased corporate leverage, reliance on external debt and the introduction of riskier and more complicated financial instruments and transactions. It goes on to consider four detailed conglomerate-level case studies that illuminate the microeconomic foundations of the crisis, showing how Indonesian capitalists sought to liquidate their Indonesian assets without losing control of their corporate empires, by taking advantage of increased access to foreign loans and complex financial re-engineering actions which ultimately precipitated instability and crisis throughout the entire financial system. Finally, it reflects upon the policy implications of this episode, putting forward the case for comprehensive capital controls for open and developing economies until they establish appropriate financial institutions to monitor and manage the level of indebtedness and the volatility of capitalists' behaviour. Overall, this book provides incisive analysis of a critical phase in recent East Asian financial history."--Résumé de l'éditeur "This book examines the underlying causes of the financial crisis that struck Indonesia during the second half of 1997 and 1998. It argues that the roots of the crisis lay in the financial activities undertaken by the Indonesian corporate sector during the boom years from 1994 to 1997, which encouraged the development of fragile and unstable financial structures, involving increased corporate leverage, reliance on external debt and the introduction of riskier and more complicated financial instruments and transactions. It goes on to consider four detailed conglomerate-level case studies that illuminate the microeconomic foundations of the crisis, showing how Indonesian capitalists sought to liquidate their Indonesian assets without losing control of their corporate empires, by taking advantage of increased access to foreign loans and complex financial re-engineering actions which ultimately precipitated instability and crisis throughout the entire financial system. Finally, it reflects upon the policy implications of this episode, putting forward the case for comprehensive capital controls for open and developing economies until they establish appropriate financial institutions to monitor and manage the level of indebtedness and the volatility of capitalists' behaviour. Overall, this book provides incisive analysis of a critical phase in recent East Asian financial history."--Jacket Book Cover......Page 1 Title......Page 4 Copyright......Page 5 Contents......Page 8 Figures......Page 12 Tables......Page 14 Preface......Page 18 Acknowledgements......Page 20 Abbreviations......Page 24 Short profile of author......Page 28 Introduction......Page 30 1 Indonesia’s external debt problem in the 1990s......Page 33 2 Minsky’s financial instability hypothesis: Interpretation and critical adjustments for the Asian context......Page 45 3 Methods and databases for empirical studies......Page 73 4 The financial positions of the Indonesian corporate sector in the 1990s......Page 90 5 The analysis of offshore syndicated debt for Indonesian borrowers during the finance boom in the 1990s......Page 113 6 Case study 1: The Salim Group’s financial activities in the 1990s......Page 138 7 Case study 2: The Lippo Group’s financial activities in the 1990s......Page 159 8 Case study 3: The Sinar Mas Group’s financial activities in the 1990s......Page 173 9 Case study 4: The Gajah Tunggal Group’s financial activities in the 1990s......Page 189 10 The collapse of cash-flow chains......Page 201 11 Conclusions......Page 218 Notes......Page 231 Bibliography......Page 263 Index......Page 278 Indonesia's External Debt Problem In The 1990s -- Minsky's Financial Instability Hypothesis : Interpretation And Critical Adjustments For The Asian Context -- Methods And Databases For Empirical Studies -- The Financial Positions Of The Indonesian Corporate Sector In The 1990s -- The Analysis Of Offshore Syndicated Debt For Indonesian Borrowers During The Finance Boom In The 1990s -- Case Study 1 : The Salim Group's Financial Activities In The 1990s -- Case Study 2 : The Lippo Group's Financial Activities In The 1990s -- Case Study 3 : The Sinar Mas Group's Financial Activities In The 1990s -- Case Study 4 : The Gajah Tunggal Group's Financial Activities In The 1990s -- The Collapse Of Cash-flow Chains -- Conclusions. Yasuyuki Matsumoto. Includes Bibliographical References (p. [234]-247) And Index.