chapter  4
34 Pages

Banking Reform

A central part of the technocrats' banking reform agenda thus became the introduction of new prudential banking regulations including legal lending limits, capital adequacy requirements, and loan-to-deposit restrictions and measures to clean up the state banks. Despite the strong structural pressures for reform, however, the technocrats were to have only partial success in promoting their reform agenda in the banking sector. The conglomerates were strongly opposed to the introduction of prudential banking regulations and, in particular, legal lending limits because most of them owned banks that were used to fund the activities of other companies within the same group. The main purpose of the general banking law was to establish a general legal framework for the operation of the country's banking system. The enormous expansion of the banking industry following deregulation saw demand for qualified banking personnel skyrocket. The scandal caused by these cases posed a severe threat to investor confidence in Indonesia's banking industry.