Abstract

Nothing is surprising when, after going through a major financial crisis like in 1997, efforts have been made to strengthen the financial sector. This has always happened in all crisis-affected countries. Being one of them, Indonesia is no exception. In several areas since the crisis, the country’s financial sector has made some improvements. Yet a combination of side effects of a liberalized system, misguided policy, and failure to diversify especially during the period of strong growth and ample liquidity still makes the country vulnerable to external shocks. Boundless complacency prevails due to weaknesses and policy. While the sector has grown steadily, supported by improvements in the regulatory and supervisory work, shortcomings remain.