Description

This study investigates whether the sharp decline in credit from banking sector in
Indonesia has been a result from a ‘credit crunch’ or due to weak credit demand
accompanying the recession. Using the macro and micro (panel data) analyses as well as
surveys on banks and non-financial firms, the study confirms the existence of a credit
crunch in Indonesia. Furthermore, we reveal that the banks’ source of firms’ funds
have decreased dramatically, from around 40% to around 25%. This study provides
policy implications for both monetary and financial policies of Indonesia and in general
of Asian countries.