Financial Sector Development

Weakness of the financial sector was one of the principal causes of the depth and duration of the crisis in Indonesia in the late 1990s. The chapter describes measures taken by the government to strengthen the banking sector and develop the domestic capital and bond markets. FDI policies in the financial sector are also reviewed. Through restructuring and regulatory improvements, the banking system has improved its health and performance, as evidenced by its ability to withstand the recent global financial crisis. The chapter is structured around the questions set out in the Policy Framework for Investment (PFI). Each section is preceded by the relevant PFI questions, which serves as general context for consideration of the main policy areas.