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A key element of Indonesia's comprehensive adjustment effort in 1983, following a sharp decline in oil revenues and a weakening of the economy's finances, was a reform of the financial system. Before the reform, the major instruments for conducting monetary policy available to the central bank, Bank Indonesia (BI), were credit ceilings for individual banks, and interest rate controls for state banks.
Before the financial reform, the expansion of liquidity credits and net foreign assets had led to a rapid growth of reserve money, which left the banking system with a large volume of surplus funds. This excess liquidity together with interest rate controls produced distortions in the pattern of domestic financial intermediation. More over, since an increasing proportion of deposits was being placed in nonbank financial intermediaries which were not subject to either interest rate controls or credit ceilings, during this period, the effectiveness of monetary controls was weakened.
The financial reform included replacing the system of restrictions on financial institutions with a more indirect system of monetary control. Interest rate controls were eliminated, a wide range of loan categories were made ineligible for liquidity credits, credit ceilings on individual banks were eliminated, and a new mechanism of monetary control that relied principally on open market operations was introduced.
Since there were no domestic public debt instruments available for open market operations, BI began issuing its own debt instruments which could be readily marketed under the prevailing circumstances of excess liquidity. The sale and repurchase of these instruments allowed the central bank to absorb or inject bank reserves at its own initiative and to influence domestic money market conditions.
The most important success of the reform was the rapid growth of domestic currency deposits after June 1983 and the marked slowdown in the accumulation of foreign currency deposits, reflecting the increased confidence in the domestic banking system and its greater competitiveness. Moreover, the move to open-market operations as the principal instrument of monetary control greatly improved the authorities' technical ability to manage monetary and reserve aggregates. Indonesia was able to successfully put in place an indirect system of monetary and interest rate management despite the lack of a sophisticated money market at the outset of the liberalization process.
Words you may need:
credit ceiling кредитный потолок
interest rate процентная ставка
liquidity credit ликвидный кредит
net foreign assets чистые иностранные активы
monetary control кредитно-денежный контроль
eliminate v уничтожать; упразднять
ineligible adj не имеющий права
open-market operations операции на открытом рынке
debt instrument долговое обязательство
excess liquidity избыточная ликвидность
currency deposits валютные вклады
marked slowdown заметное снижение
monetary and reserve aggregates денежные и резервные агрегаты
at the outset в начале
b) Reread the article more carefully and complete the sentences given below using information from the article:
1. A key element of Indonesia's adjustment effort in 1983 was _______.
2. Credit ceilings and interest rate controls were ______.
3. Before the financial reform rapid growth of reserve money was caused by_______.
4. The effectiveness of monetary controls was weakened because
5. In the course of the financial reform________were eliminated.
6. BI began issuing its own debt instruments as________.
7. The Central Bank influenced the domestic money market conditions by________.
8. Domestic currency deposits _______after June 1983.
9. Despite the lack of a sophisticated money market.
UNIT 7
Maintaining Operational Safety in Oil and Gas Industry
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