Interest Rate Spreads and Mandatory Credit Allocations: Implications on Banks Loans to Small Businesses in Indonesia

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1 Dicuion Paper No Inere Rae Spread and Mandaory Credi Allocaion: Implicaion on Bank oan o Small Buinee in Indoneia Reza Y. Siregar January 2004 Indoneia Program Univeriy of Adelaide Adelaide 5005 Auralia

2 CENTRE FOR INTERNATIONA ECONOMIC STUDIES The Cenre wa eablihed in 1989 by he Economic Deparmen of he Adelaide Univeriy o renghen eaching and reearch in he field of inernaional economic and cloely relaed dicipline. I pecific objecive are: o promoe individual and group reearch by cholar wihin and ouide he Adelaide Univeriy o renghen undergraduae and po-graduae educaion in hi field o provide horer raining program in Auralia and elewhere o conduc eminar, workhop and conference for academic and for he wider communiy o publih and promoe reearch reul o provide pecialied conuling ervice o improve public underanding of inernaional economic iue, epecially among policy maker and haper Boh heoreical and empirical, policy-oriened udie are emphaied, wih a paricular focu on developmen wihin, or of relevance o, he Aia-Pacific region. The Cenre Direcor i Reza Y. Siregar Furher deail and a li of publicaion are available from: Execuive Aian CIES School of Economic Adelaide Univeriy SA 5005 AUSTRAIA Telephone: (+61 8) Facimile: (+61 8) Mo publicaion can be downloaded from our Home page: hp://www.adelaide.edu.au/cie/ ISSN erie, elecronic publicaion

3 1 CIES DISCUSSION PAPER 0402 Inere Rae Spread and Mandaory Credi Allocaion: Implicaion on Bank oan o Small Buinee in Indoneia Reza Y. Siregar School of Economic Univeriy of Adelaide Adelaide, SA, 5005 Auralia January 2004 Suggeion and commen from paricipan a eminar hoed by he School of Economic, Adelaide Univeriy, he Reearch School of Pacific and Aian Sudie (Diviion of Economic), he Auralian Naional Univeriy and he Bank of Indoneia are grealy appreciaed. In paricular, he auhor wihe o hank Ramkihen Rajan, Richard Damania, Ralph Bayer, Richard Pomfre, Colin Roger, Thoma Timberg, William Jame, Hal Hill, Ro Garnau, Prema-Chandra Ahukorala and Ro Mceod. Excellen reearch aiance from Sau Simanjunak are grealy acknowledged. The uual diclaimer apply.

4 2 ABSTRACT: Recen udie have conienly hown ha he Ea-Aian crii-ricken counrie have uffered from differen degree of credi crunch, paricularly during he early age of he crii. However, only few of hem have looked cloely ino he breakdown of he loan and he role of differen group of bank in explaining he rie and fall of bank lending, paricularly o he mall buinee during he po-1997 financial crii. Thi paper aim o fill hi void by looking a cloely he recen developmen in Indoneia. Key Word: Small-Scale Enerprie, Bank oan, Inere Spread, Mandaory Credi Allocaion, Sae and Privae Naional Bank, Indoneia JE Claificaion: E51, E52, E58

5 3 1. Inroducion Recen udie have conienly hown ha he Ea-Aian crii-ricken counrie have uffered from differen degree of credi crunch, paricularly during he early age of he crii. 1 Reveral of inernaional capial movemen, unprecedened exchange rae devaluaion, igh moneary condiion (refleced by high key domeic inere rae), fligh o qualiy (hifing of ae oward le riky one uch a governmen ecuriie) and impoiion of higher and ricer capial adequacy raio have frequenly been lied a ome of he key deerminan of a credi crunch. 2 However, hardly any of hee recen udie have looked cloely ino he breakdown of he loan and he role of differen group of bank in explaining he rie and fall of he bank lending in any of hee Ea Aian crii-effeced economie during he po-1997 crii. Only few udie have alo been done o evaluae he availabiliy of credi o he mall buinee during he recen credi crunch in Ea Aia. 3 A mall enerprie form an eenial pillar o he economie, he knowledge on how differen facor or policy meaure affec he upply of mall buine loan will inarguably be very valuable for he policy maker of hee Aian counrie. Thi paper aim o fill hi void by looking a cloely he recen developmen in Indoneia a a udy cae. We have evidence ha he reurgence of bank credi in hi mo-populaed counry in Ea Aia during he po-1997 crii ha, in fac, no been fel by all ecor of he economy. In paricular, we wan o how ha he growh 1 Refer o Agenor, Aizenman and Hoffmaier (2000), Borenzein and ee (2002), Ding, Domac and Ferri (1998), Agung e.al (2001), Bank Indoneia (2000) and Ghoh and Ghoh (1999), Fane and Mceod (2002)). 2 In addiion o hoe udie lied in foonoe #1, ome of hee apec have been fully addreed by variou udie uch a Bernanke and ow (1992), Bernanke, Gerler and Gilchri (1996), Kahyap, Sein and Wilcox (1993) and Mihkin (1991). Refer o (hp://www.ern.nyu.edu/globalmacro/acad_re/udie_banking_crii.hml) for more relevan udie. 3 Hancock and Wilcox (1998) have looked a he implicaion of he credi crunch on he availabiliy of credi o mall buine in he Unied Sae from 1989 o Borenzein and ee (2002) review he preence of credi crunch a he firm level in Korea during he 1997 financial crii. Paen, e..al (2001) look a variou loan (including microfinance and mall buine loan) by one key ae bank (he Bank Rakya Indoneia) in Indoneia during he recen Ea Aian crii.

6 4 rae of nominal and real loan o mall buinee in paricular have remained unable and failed o keep up wih he growh of he loan o he re of he economy (Figure 1a and 1b) 4. Thi i depie he fac ha he mall indury ha been he mo vibran ecor of he Indoneian economy during he peak- and he po-1997 financial crii (Table 1). 5 A in any developing and developed naion, hi indury in Indoneia relie heavily on he banking ecor for i working capial. 6 During he pre-1997 crii, he privae and ae bank conribued almo equal hare o heir oal of around 90 percen of he mall enerprie credi ouanding by he banking ecor (Figure 2). 7 In addiion, here have alway been rong and poiive correlaion beween he monhly growh rae of mall loan and ha of he oal ouanding credi for boh group of bank during he pre-crii. Ye, depie he reurn of much-needed annual growh of ouanding credi by boh group of bank, heir hare of he mall loan experienced few oppoing rend ince he beginning of he crii (Figure 2 and 3)). While he quarerly average of credi ouanding o he mall enerprie by he ae bank increaed by abou 8 percen in 2001 from i level in 1997, he quarerly average of mall enerprie loan by he privae naional bank everely dropped by over 50 percen for he ame period. The ubanial decline in he upply of loan by he domeic 4 5 Real loan are nominal loan adjued by he price level (he conumer price index). According o he Small Buine aw of he Republic of Indoneia number 9/1995, mall buinee canno have ae (excluive of building and land) of more han 200 million rupiah and ale of more han one billion rupiah. Thi enerprie mu be owned by an Indoneian ciizen, and anding on i own, no par of a buine affiliaion or buine branch owned or dominaed or having affiliaion direcly wih medium and big buinee. Wih he collape of domeic conglomerae and large corporaion in 1998 and 1999 (he wo wor year of he 1997 financial crii), he conribuion of he mall buine ecor in he economy of Indoneia increaed eadily, reaching i highe a 43 percen of he oal gro domeic produc in 1999 (Table 1). More imporanly, in average around 90 percen of he annual oal employmen and enrepreneur were aociaed wih he mall buinee beween Refer o Samolyk (1997); Brewer e.al (1996); Mihkin (1995); Bernanke and Gerler (1995) ; Huang (2003); and Pangeu and Habir (2002). 7 A for he re, he regional developmen bank upplie he majoriy hare. The conribuion of he foreign privae bank i very inignifican ---le han one percen of he annual average of he oal ouanding credi o he mall enerprie in he la 10 year.

7 5 privae bank ha conribued o he repored 13 percen drop in he quarerly average of oal ouanding mall loan by he banking ecor in 2001 from i level in Beween 2001 and 2002, mall loan from boh group of bank experienced eady decline, albei he drop in he ae bank loan wa more moderae. 9 Wha ha been he underlying facor generaing hee periodically conraing rend in he upply of loan by he wo major group of bank? Wha were he caue of he overall drop in he mall buine loan in lae 2001 and 2002? Timberg (1999) and Mua (1998) reveal ha mall firm have oher nonbanking financial reource. The availabiliy of he non-banking ource of fund for he mall-cale firm cerainly could reduce heir dependence on he banking ecor. I doe no however adequaely explain he harp fall of he percenage loan o he mall firm by he privae bank in one hand, and he ignificanly much ronger flow of loan o he mall enerprie by he ae bank on he oher (Figure 2 and 3). Undoubedly, o anwer hee queion, i i imperaive ha we look ino he demand ide of he loan. Bu, he lack of readily available relevan daa on mall firm preclude u from evaluaing he demand for he mall buine loan. 10 Baed on he finding of previou udie on he overall bank loan in Indoneia and he rong performance of he mall buinee during he crii, one can however 8 Moreover, depie he harp fall during he fir ix monh of he crii, he quarerly average hare of he ae bank ouanding mall buine loan wa ill a a repecable rae of around 27 percen from 2000 o 2001, roughly four percenage poin higher han i highe pre-crii average, repored from quarer 1, 1996 o quarer 1, 1997 (Figure 3). In conra, wih he excepion for he la ix monh of 2000, he quarerly average hare of mall enerprie credi by he privae bank during he crii period ha been ubanially below he level repored during he la wo year of he pre-crii period. 9 The repored hare of he mall buine loan by he privae bank for he econd quarer of 2001 onward had hovered back o he lowe level of he crii period (a he fir wo quarer of 1999). Converely, he mall loan hare by he ae bank a he fir quarer of 2002 wa ill abou he ame level repored during he pre-crii period of fir quarer of Timberg (1999) ha alo acknowledged he limied availabiliy of daa on he mall and medium enerprie.

8 6 argue ha he ource of he drop in he mall-cale loan would likely o come from he upply ide. 11 One upply ide phenomena ha will obviouly be worh menioning i he impac of he cloure of everal inolven bank a he early age of he 1997 financial crii on he loan o mall firm. To our knowledge, no udy ha looked ino hi paricular iue. Thi facor ha undoubedly conribued o he fall in he acual oal nominal and real value of ouanding bank loan o he mall firm, epecially in (Figure 1a and 1b). Bu i i alo inadequae in explaining he up and down of he percenage hare of he mall enerprie loan by he exiing privae bank (Figure 3). Agung e.al (2001), Bank Indoneia (2000), Ghoh and Ghoh (1999), Azi and Thorbecke (2002), and Siregar (2003), have found ha flucuaion of key domeic inere rae have largely been reponible for he harp drop in he overall bank lending during he early and wor age of he crii in Indoneia. In paricular, hee udie have hown ha a rie in key domeic inere rae exacerbaed and provoked a large decreae in lending, conien wih he overall concluion of Mankiw (1986) and Greenwald and Sigliz (1993). Supporing he finding of hoe early udie, Figure 1a, 1b, 4 and 5 how convincingly ha he reurn of more conducive inere rae rucure in he banking ecor, refleced by he poiive inere pread (paricularly beween he lending rae and he depoi rae; and beween he lending rae and he rae of he cerificae of Bank Indoneia (SBI)) in early 1999, wa followed by he one of relaively robu poiive growh rae of oal credi ouanding by he banking ecor aring lae The mall buine credi have, however, coninued o agnae or even 11 Early udie have conienly confirmed ha he growh of credi have been largely explained by he upply-ide facor (Agung e.al (2001), Bank Indoneia (2000) and Ghoh and Ghoh (1999)). 12 The cerificae of Bank Indoneia i he key moneary policy inrumen ha he cenral bank employ o conduc i open marke operaion.

9 7 experienced negaive quarerly growh rae, paricularly ince he fir quarer of To generae a beer accoun of he driving force behind he flucuaion in he mall enerprie lending, we conider a hird facor : he Bank Indoneia Policy of January 2001 which ha effecively abolihed a ringen condiion whereby each public bank (ae and privae) mu allocae a lea 20 percen of heir oal credi ouanding for he mall enerprie loan. 13 In hi paper, a profi maximizaion model i conruced o explicily how he poenial role of he hree moneary policy relaed variable (he wo inere rae pread and he mandaory credi allocaion) in explaining he flucuaion of he mall buine loan by he ae and privae bank. We hen empirically evaluae he ignificance of hoe hree explanaory facor in explaining he quarerly percenage hare of he mall buine loan in he oal ouanding credi of: a) privae and ae bank combined; b) privae bank only; and c) ae bank only during he pre- and po-1997 financial crii. By way of preview, we find he hree lied facor influenced ignificanly he hare of loan o he mall enerprie by hee wo group of bank. In general, he reul confirmed he advere implicaion of he igh moneary policy and alo he fligh o qualiy phenomena (Bernanke, Gerler and Gilchri (1996)). Inereingly, he reul for he ae bank eem o ugge ha hi group of bank wa able o coninue expanding i hare of mall loan depie he negaive pread beween he lending rae and he depoi rae a he peak of he 1997 financial crii. The hare of he mall loan by he privae bank, on he oher hand, had been adverely affeced by he negaive pread. Thee conraing finding parly explain he rie (and fall) in he hare of he mall loan by he ae (and privae bank) from 1997 o Furhermore, hey alo eem o ugge ha he baic aumpion of profi- 13 Bank Indoneia Policy No.3/2/PBI/2001. Under hi lae regulaion, Small enerprie loan are hoe credi up o 500 million rupiah.

10 8 maximizaion behaviour i only applicable for he privae bank, no for he ae bank. A for he po 2001 period, he abolihmen of he mandaory credi allocaion o he mall buinee ha largely been reponible for he decline in he mall loan hare by hee wo group of bank. The impac of hi policy meaure, ha, however, affeced he privae bank mall loan more everely han hoe of he ae bank. Due o heir focu only on oal loan by he banking ecor, early udie fail o capure all of hee criical conraing reul. The nex ecion of he paper will briefly review a number of ylied fac on he hree poenial deerminan of he upply of bank credi o he mall enerprie. In ecion 3, we inroduce a heoreical framework ha capure a number of poible relaionhip beween he upply of credi and i key deerminan. The empirical ecion conduc wo e of uni-roo e (he Augmened Dickey-Fuller and he Banerjee, umdaine and Sock (BS) rolling e). Baed on he uni-roo properie of he erie, boh he Johanen coinegraion e and he auoregreive diribued lagged (ARD) error correcion model e for he long-run and hor-run analyi are conduced. Secion 5 of he paper preen furher policy analye baed on he e reul. A brief concluding remark ecion end he paper. 2. Brief Review of Trend and Sylied Fac 2.1 Inere Rae Spread The ending and SBI Spread One of he exenive debae ha have aken placed in Indoneia a he iniial and wor age of he 1997 financial crii wa on he deirabiliy of riing key inere rae o defend he local currency and o manage he growh rae of he bae money. 14 A i highe level repored in Augu 1998, he one-monh cenral bank ecuriy (1-monh SBI rae) rae wen beyond 70 percen. During he peak period of 14 Johnon (1998).

11 9 he crii (1998 and 1999), he inere reurn of one-monh SBI wa in fac ignificanly higher han he lending rae, by an average of more han 20 percen for he privae naional bank and 30 percen for he ae bank (Figure 4). Beween June 1999 and April 2000, he one-monh rae of he cenral bank ecuriy repored a eady decline and reached i lowe rae a around 11 percen in April However, he rae ha revered back o a riing rend ince June In he la 6 monh of 2001, he one-monh SBI rae reached an average level of well above 17 percen. In early June 2003, he SBI rae have hovered back o level beween 10 o 11 percen The ending and Depoi Spread The combinaion of he high inflaionary preure and he igh moneary policy o defend he local currency paricularly a he fir wo year of he crii puhed he depoi rae o increae proporionally o enure he real inere rae o be marginally above zero. The lending/ working capial rae, on he oher hand, could no rie a much o preven furher defaul on he loan. Subequenly, a he depoi rae exceeded he lending rae in he early 1998, he domeic banking ecor in Indoneia experienced a coly period of negaive-inere rae pread (Figure 5). From January 1998 o December 1998, he ix-monh depoi rae wa in average around 7 percen higher han he lending rae. In Ocober 1998, he negaive pread wa a a aggering rae of 19 percen. The negaive pread coninued during he fir even monh of 1999, wih he average pread rae a 2.2 percen. Only aring he econd half of 1999 ha he pread of lending and depoi rae reurned o poiive level Cenral Bank Policy of January 2001 For abou hree decade prior o he 1997 financial crii, Bank Indoneia had o coordinae boh role of being he moneary policy maker and he agen of developmen. Under he Ac of Bank Indoneia, No. 13/1968, Bank Indoneia direcly

12 10 involved in formulaing credi policy o mall enerprie, providing direc capial aiance and alo echnical aiance. In i January 1990 policy package, he cenral bank impoed a mandaory requiremen for he commercial bank (ae and privae) o allocae 20 percen of heir oal ouanding loan o mall-cale buinee. To puh furher he reform in he banking ecor and he independence of he cenral bank a argeed by he Cenral Bank aw no.23/1999, he eer of Inen (OI) beween IMF and he governmen of Indoneia igned in January 2000 ipulae a fuure plan o phae ou mandaory requiremen on he commercial bank lending o SME. 15 Following hrough wih i commimen, Bank Indoneia iued i regulaion in January 2001 which officially abolihed any requiremen for commercial bank (ae and privae) o place a lea around 20 percen of i oal credi ouanding o he mall enerprie. 16 I i imporan o noe here however ha he cenral bank remain acive in providing funding and echnical uppor o he mall buinee hrough he wo ae bank (BRI and BTN) and a newly eablihed iniuion (PT PMN) Baic Theoreical Framework The objecive of hi ecion i o inroduce a heoreical framework ha incorporae hree key poenial deerminan of he upply of bank loan o he mall enerprie. In a compeiive model, bank are expeced o maximize heir profi a each period (Π ). We acknowledge ha he baic underlying aumpion of compeiive and profi maximizaion iniuion may no be necearily fully applicable o our group of bank. In paricular, he ae bank in Indoneia are ofen involved 15 Thi eer of Inen can be downloaded from hp://www.imf.org/exernal/np/loi/2000/idn/01/index.hm. 16 Bank Indoneia Regulaion No. 3/2/PBI/ Thee commimen of Bank Indoneia were emphaized alo by one of he Depuy Governor of Bank Indoneia, Maulana Ibrahim (BISNIS INDONESIA (a daily local Newpaper), June 17, 2001). For more inigh o he operaion of he BRI (Bank Rakya Indoneia), refer o Paen, e.al (2001).

13 11 in aciviie ha may no necearily be profiable, uch a financing poorly performed ae owned enerprie and variou governmen policie. To keep he model imple and o focu on objecive aed in he inroducion, our model will mainly incorporae he hree poible deerminan of he upply of bank loan (he inere pread and he mandaory credi allocaion). A will be elaboraed in he empirical ecion, he eing reul on hee hree deerminan are able o capure evidence of non-profi maximizing characeriic of he ae bank. Bank aborb depoi from he local economy, and hey hold wo form of ae: loan (mall enerprie loan ( ) and medium and large enerprie loan ( ml ) ), and cenral bank ecuriie (CBS). 18 Toal loan can be expreed a ml ( = + ). A price aker, each bank ake a given he rae of loan r ), he rae of depoi ( r D ), and he rae of cenral bank ecuriie ( r G ) (. Noe here, he loan rae for mall and medium o large enerprie for each group of he bank in Indoneia are relaively he ame and equal o ( r ). Hence, he choice beween exending he loan o he mall or he medium-large enerprie will depend on he co aociaed wih each ype of loan. We aume ha he only ource of fund o be channelled ino lending, reerve, and governmen ecuriy i he depoi ha hey aborb from he public. Depoi (D) = loan () + reerve (R) + cenral bank ecuriie (CBS). Bank mu keep a (re) percenage of i depoi in i reerve, and will exend a (l) percenage of i depoi a loan. Hence; R = re. D, = l. D, and CBS = [( 1 re). D]. The oal co of he bank ( C(, CBS, D)) cover all he expene aociaed wih he managemen and he rik/uncerainie of i ae (he co of mall enerprie loan ( C( )) plu he co of he medium and large enerprie loan 18 Since we are no inereed on looking a he loan o medium and large enerprie in hi udy, we lump hem ino one caegory.

14 12 ml ( C ( )) ; he governmen ecuriie ( C ( CBS)) ); and i liabiliie ( C (D) ). Incorporaing all of he key facor, we can expre he profi funcion of he bank a: 19 Π = r + ( CBS ) r ( D) r C(, CBS, D) (1) G D A dicued, prior o January 2001, he cenral bank of Indoneia require he privae commercial bank o channel a percenage of heir oal loan (gg) o he mall enerprie. Failure o mee he e hare will reul in a penaly. On he oher hand, if he bank uccefully exend a (ga) percenage of i oal loan o mall enerprie, where ( ga > gg), he bank will receive a reward from he cenral bank. We can expre he co (reward) of no following (adoping) he credi mandaory policy a: CP(( gg ga) ). If ( gg > ga) hen CP (( gg ga) ) > 0, and vice vera. CP < 0, ha i a he realized oal upply of mall loan ( ga. ) increae, he ( ga. ) penaly co will decline. Adding he policy co funcion (CP(.)) and expreing depoi (D) a ( + RES + CBS) and governmen ecuriy (CBS) a CBS = [( 1 re ).( + RES + CBS )], he profi equaion (Equaion 1) can be furher modified a follow (Equaion 2): Π = r + [( 1 re)( + RES + CBS) ] r ( + RES + CBS) r C(, CBS, D) CP(( gg ga) ) G D 3.1 Inere Spread and Small Enerprie oan 19 For a comprehenive analyi on he economic heory of banking, refer o Freixa and Roche (1997).

15 13 To generae he profi-maximizing amoun of loan ha he bank hould upply o he mall enerprie, he fir order condiion (F.O.C) of he profi funcion wih repec o ( ) i derived: Π dco(.) dcp(.) = 0 = ( 1 re)( ( r rd )) + ( re) [ r rg ] d d (3) Noe: 0 < re < 1; and ( 1 re ) > 0. The F.O.C denoe ha a compeiive bank will adju i volume of mall buine loan in uch a way ha he correponding marginal revenue ( re)( ( r r )) + ( re) [ r r ] 1 equal o he marginal managemen co of D G he loan o he mall enerprie [ dco ] plu he marginal policy co d dcp(.). d We can derive he analye on he wo inere rae pread and upply of loan from Equaion (3). a). A rie in he pread beween he lending rae ( r ) and he depoi rae ( r D ) enail an increae in he upply of loan. b). A rie in he pread beween he lending rae ( r ) and he governmen ecuriy rae ( r G ) i going o increae he upply of loan. 3.2 Mandaory Credi Allocaion and Supply of Small Enerprie oan Nex, we need o derive he implicaion of mandaory credi policy on he upply of mall buine loan. To do o, we need o carry ou a comparaive analyi beween he F.O.C of he profi funcion wih he credi policy (Equaion 3) and wihou he credi policy Π NP (Equaion 4).

16 14 Π NP dco(.) = 0 = ( 1 re)( ( r rd )) re[ r rg ] d (4) dcp Wih (.) < 0 d (i.e. an increae in he upply of mall loan hould reduce (increae) he penaly (reward) ha he bank will receive), we can argue for he following. (i). For he cae wih credi policy: dco(.) dcp(.) re D G (5) d d ( 1 )(( r r )) re[ r r ] = < 0 The marginal revenue minu he marginal co of managemen i negaive. (ii). For he cae wihou credi policy: dco(.) re D G (6) d ( 1 )(( r r )) re[ r r ] = 0 The marginal revenue minu he marginal co of managemen equal o zero. Given he andard aumpion of diminihing marginal profi, Equaion (5 and 6) imply ha he upply of mall loan wih he preence of credi policy i larger han he level wihou he policy. In anoher word, he enforcemen (he abolihmen) of he credi mandaory policy will lead o a larger (maller) amoun of loan o he mall enerprie by he commercial bank. 4. Empiric 4.1 Working Model and Daa 20 Baed on he heoreical framework in ecion 2, he following regreion of he emi-log equaion will be eed: 20 The auhor wihe o hank Sau Simanjunak of Bank Indoneia for providing mo of he key daa erie for hi ecion of he paper.

17 15 P i = 0 + β1 r rd ) i + β 2 ( r rg ) i + β 3gg + β 4 β ( crii + ε (7) The crii dummy variable ( crii ) i added o capure he change in he overall domeic economic condiion due o he 1997 financial crii in Indoneia. ( β 0 ) and ( ε ) are he conan parameer and he error erm, repecively. () denoe he ime, and (i) repreen he hree group of mall credi hare for: ae and privae bank combined; ae bank only; and privae bank only. The e will cover he period from quarer 1, 1993 o quarer 2, The availabiliy of quarerly erie on he loan o mall enerprie dicae our choice of eing period. ( P i ) are he percenage hare of loan allocaed o he mall enerprie a ime () by boh ae and privae bank combined and by each group of bank individually. The daa are ourced from he Bank Indoneia Daa Bae. Variable P i are in he log-form. ( r ) i he pread beween he lending and he depoi rae a ime. 21 r D i The lending rae for he privae and he ae bank are he average working capial for 12 monh offered by each group of bank. The depoi rae are he average of he annual 3, 6 and 12 monh ime depoi rae for boh he ae and he privae bank. The daa e are aken from he Bank of Indoneia Daa Bae. A for he cae of he oal mall enerprie loan of he privae and ae bank combined, we conruc he following weighed inere rae index: T priv P a S ( r rd ) = ( r rd ) + ( r rd ) (8) priv + a priv + a 21 Given he negaive inere pread for ome period, he log-form of he variable canno be calculaed.

18 16 Where: (priv) and (a) are he oal credi ouanding o he mall enerprie by he privae and ae bank, repecively. ( r ) and r D P ( r ) are he lending r D S and depoi pread rae for privae and ae bank, repecively. From he heoreical framework (ecion 2), we herefore expec ha ( β 1 > 0). ( r ) repreen he pread beween he inere reurn of he loan and r G i ha of he cenral bank ecuriy a ime. 22 The rae of cenral bank ecuriy i he average of 1 monh and 3 monh Bank Indoneia Securiy (SBI) rae. Boh of hee erie are adoped from he Bank of Indoneia Daa Bae. β 2 i expeced o be poiive. For he cae of privae and ae bank combined, we conruc he following weighed inere rae index: T priv P a S ( r rg ) = ( r rg ) + ( r rg ) (9) priv + a priv + a The definiion of (priv) and (a) are he ame a before. ( r ) and r G P ( r ) are he lending and SBI pread rae for privae and ae bank, r G S repecively. ( gg ) repreen he mandaory mall buine credi allocaion policy impoed by he cenral bank on he domeic commercial bank. To capure hi change in policy, we inroduce a dummy variable for ( gg ) where i i equal o one prior o quarer 1, 2001 and equal o zero oherwie. Baed on our heoreical analyi, β 3 i poiive. ( crii ) i he dummy variable. I i equal o zero for quarer 1, 1993 o quarer 1, 1997, and equal o one, oherwie. Given he poliical uncerainy and he 22 See foonoe #12.

19 17 fragiliy of economic recovery in he counry, we can confidenly argue ha he impac of he 1997 financial crii coninue o be fel in Higher invemen rik are expeced during he crii period, and will herefore likely o deer any expanion of he upply of loan ino he economy. We herefore expec β 4 o be negaive. 4.2 Te Reul We perform hree equenial e of eing: a) he uni roo e; b) he Johanen coinegraion e; and c) he auoregreive diribued lag (ARD) error correcion model e. Thi ub-ecion will focu mainly on highlighing key empirical finding. A for furher inerpreaion and policy relaed analyi, ecion 5 of he paper will cover hem The Uni Roo Te The commonly ued Augmened Dickey Fuller (ADF) eing i fir carried ou. The reul confirm ha all relevan erie are aionary a fir differenced --- Inegraed of Order (1), excep for variable ( r ) of he privae bank, an I(0) erie r G (Table 2). However, given he poenial preence of rucural break aociaed wih he 1997 financial crii, he low power of he ADF e may no be ufficienly eniive o differeniae a aionary erie from one ha i non-aionary, epecially a he level. In order o evaluae he uni roo propery more rucurally for each variable a i level, we apply he nex e of e inroduced by Banerjee, umdaine and Sock (1992) ---henceforh BS. The BS e provide a more in-deph inveigaion of he poibiliy ha aggregae economic ime erie can be characeried a being aionary around a ingle or muliple rucural break. The BS e exend he Dickey-Fuller -e by conrucing he ime erie of rollingly compued eimaor

20 18 and heir -aiic. Following he BS, we can compue he malle (minimal) and he large (maximal) Dickey-Fuller -e aiic from he rolling e, boh of which are compared o heir repecive criical value (Table 2B). The e reul confirm he finding of he ADF e. I alo find ha he null hypohei of non-aionary a he 5 percen criical value canno be rejeced for ( r ) of he privae bank a he r G i level. Overall, we can herefore conclude ha all variable are inegraed of order The ong-run Deerminan of Small Enerprie oan Given he uni-roo properie of he relevan erie, he preence of a longrun relaionhip among he variable in Equaion 7 for each group (oal, ae and privae) will have o be evaluaed. For each eing, he ime rend variable i added ino he regreion equaion. If he variable i found o be inignifican, hen i will be excluded from he final eing. The Johanen Coinegraion e reul are repored in (Table 3-5). In all hree cae, we find one coinegraing relaionhip a 1 percen ignifican level for boh he oal regreion and he ae bank; and a 5 percen level for boh regreion of he privae bank. Due o heir ignifican Chi-quare 2 aiic ( χ (1)) a 1 percen, he ime rend () i included only for he ae bank cae. A for he oal and he privae bank regreion, he ime rend variable i inignifican, hence i i dropped from he final eing. In all hree regreion, he 2 crii dummy variable i excluded due o i inignifican ( χ (1)) aiic. The ign of he coefficien eimae of all key variable for boh group of bank are conien wih he heoreical framework, wih he excepion of he ( r ) for he r D i ae bank regreion (Table 4). The reul alo ugge ha he long-run coefficien eimae for he pread rae beween he loan and he SBI are ignifican a 1 percen level of χ 2 (1) for boh

21 19 he privae and ae bank individually, and a 5 percen for he oal regreion. A for he pread rae beween he loan and depoi, he coefficien are ignifican a 1 percen level for he ae, bu only a 5 percen for he privae bank and a 10 percen for he oal cae. Conflicing reul are repored from he coinegraion eing on he policy requiremen ( gg ) variable. For he oal regreion, hi variable i found o be heoreically conien and ignifican in explaining he long-run upply of he loan o he mall enerprie a 1 percen level (Table 3). When we regre he individual group of bank, he variable ( gg ) i found o be inignifican for he ae bank, bu i i ignifican a 5 percen level of χ 2 (1) aiic for he privae bank (Table 4 5) The Auoregreive Diribued ag Error Correcion Model Nex, he ARD Error Correcion Model eing i conduced o analye he hor-run deerminan of he upply of mall enerprie loan for all hree cae. Thi approach i adoped o allow u o evaluae no only he ignificance of he deerminan facor, bu equally imporan, he iming of he impac. We follow he general o pecific approach of Hendry (1974 and 1977) by aring wih four lag and dropping he inignifican lag. 23 The ARD error correcion model can be expreed a he following: (Equaion 10): P = c i 0 + i( k) Pi ( k) + β i( k) ( r rd ) i( k) + δ i( k) ( r rg ) i( k) + ϕ i( k) gg( k) + crii γ + λecm 1 k= 0 k= 0 k= 0 k= 0 α + ε We add he lag of he dependen variable ( P i( k ) ) o capure he impac of he previou quarer of loan ---he adjumen componen. The coefficien eimae for 23 Given he number of obervaion and he degree of freedom, we only include four lag. A he e reul how ha a mo only up o hree lag are found o be ignifican for boh e of regreion eimae (Table 5 and 6).

22 20 hi lagged dependen variable i expeced o be negaive, a a ubanial growh in he upply of loan a (-1) will likely o be followed by a leer amoun a ime (). A for he re of he explanaory variable, he coefficien eimae are expeced o be conien wih he heoreical framework dicued in ecion 3. The error correcion componen ( ecm 1 ) repreen a long-run relaionhip, and i expeced o have a ignifican and negaive coefficien eimae. k= 0 α 0, β, δ > 0, ϕ > 0, γ < 0, and λ < 0. i( k) < k= 0 i( k) > 0 i( k) i( k) k= 0 ki= 0 Confirming he fundamenal role of he key explanaory variable, Table (6 8) repor ignifican and heoreically conien coefficien eimae for he lending and he SBI pread rae variable and ( gg ) a 1 percen o 10 percen criical level. The coefficien eimae for (gg) i ignifican a ime () and a ( 2) for he cae of privae and ae bank, repecively. A for he pread beween he lending rae and depoi rae, he coefficien are all ignifican a eiher 1 percen or 5 percen, bu coefficien for he oal loan (Table 6) and he ae bank (Table 7) are negaive, inconien wih he prior heoreical expecaion. The ignificance and negaive coefficien (λ) for all hree regreion confirm he preence of a long-run relaionhip beween he relevan variable. The ize of he coefficien indicae ha he convergence o he long-run rend i more rapid in he cae of he privae naional bank han ha of he ae bank. For he lagged variable of loan ouanding P ) and he crii dummy, we find a ( i( k )

23 21 ignifican cae only for he privae naional bank and for he ae bank, repecively. 24 Several key diagnoic aiic, including he Durbin-Waon (DW), he jung-box Q aiic, he adjued R-quared, he F-aiic (and i probabiliy), he Engle ARCH e for heerocedaiciy and he Jarque-Bera normaliy e, are preened for each regreion. The adjued R-quared ugge ha he change in he independen variable explained a lea around 65 percen of he flucuaion in he mall loan, arguably a repecably high R-quared for a hor-run analyi. Similarly, he F-aiic indicae ha he probabiliy i a lea 95 percen ha one or more of he independen variable are non-zero. The Durbin-Waon aiic and he Q-aiic indicae ha he erial correlaion are no a problem in any of he regreion reul. The ARCH reul conclude he abence of heerocedaiciy in general. aly, he Jarque-Bera e aiic confirm he normaliy of he diurbance Teing he Implici Aumpion of Exogeneiy The validiy of he economeric e reul poed in able (6-8) crucially depend on he implici aumpion ha he righ-hand ide variable in Equaion (10) are aiically exogenou o upply of credi for each of he group of bank. To e for he aiical exogeneiy, we employ he one-ided procedure o e for caualiy in he ene of Granger (1969). Thi one-ided Granger caualiy e i choen here from a number of alernaive caualiy echnique in he ligh of he Mone Carlo evidence repored by Geweke, Meee, and Den (1983). 25 To be conien wih he ARD error-correcion model e, we conider only he ignifican variable poed in Table 6-8. Furhermore, ince he Granger 24 When we include ( P i( k ) ) for he ae bank regreion, he overall reul of he e acually worened. So we oped no o include hi variable, and only focued on he primary explanaory variable. 25 The ame procedure wa alo employed by Darra and Arize (1990).

24 22 e i narrowly inerpreed here a a e for aiical exogeneiy of paricular variable wihin a given model, i eemed more pruden o mainain he ame lag pecificaion a in he early reul hown in Table 6-8 when applying he Granger e. 26 From he e reul, we can conclude ha he implici aumpion of exogeneiy for he explanaory variable i generally found o be applicable in all cae. For he ake of breviy, we do no repor he e reul. Bu he reul can be made available upon reque. 5. Policy Implicaion 5.1 The oan and SBI Spread Rae Given high uncerainie facing he local indurie, epecially a he peak of he crii in 1998 and 1999, he availabiliy of he Cerificae of Bank Indoneia, a relaively ecure invemen inrumen wih repecably high inere reurn ha araced bank o accumulae a raher generou proporion of heir ae in erm of he SBI. In 1999, he raio of ouanding SBI o oal bank credi reached well above 40 percen (Bank Indoneia (2000)). The daabae of Bank Indoneia alo how ha by he end of November 2002, around 23 percen and 45 percen of he ouanding SBI in he domeic economy are being held by he ae and he privae commercial bank, repecively. The large holding of cenral bank cerificae confirm he preence of a fligh o qualiy, hifing ae oward le riky one (Ding, Domac and Ferri (1998) and Bernanke, Gerler and Gilchri (1996). The poiive coefficien eimae for variable ( r ) in all hree regreion r G ugge ha he high holding of SBI, paricularly by he privae commercial bank, reduce he pool of loan o local indurie, including hoe for he mall buinee. Thee finding undercore he advere conequence of he igh moneary policy 26 We experimened wih differen lag rucure, and conien overall reul were obained.

25 23 adoped by he cenral bank on he upply of credi o he mall enerprie a he early age of he crii in paricular. They alo confirm he finding of early udie on hee iue uch a Greenwald and Sigliz (1993), Mankiw (1996), Kahyap, Sein and Wilcox (1993) and Bank Indoneia (2000). 5.2 The oan and Depoi Spread Rae The poiive and ignifican coefficien eimae for ( r ) for privae r D bank ugge he undeirable conequence of he much harper increae in he rae of he depoi han hoe of he lending rae on he level and hare of he mall buine lending (Table 8). Our e reul uppor he claim of Cameron (1999) and Siregar (2004). 27 However, for he ae bank, he coefficien for ( r ) i found o be r D ignifican and negaive (Table 7). Given he hare of he ae bank loan o mall enerprie in average larger han ha of he privae bank, he coefficien for he pread beween lending and depoi i alo ignifican and negaive for he oal cae (Table 6). The finding for he ae bank i heoreically inconien, and more imporanly, i ugge ha he ae bank in Indoneia do no necearily behave like a profi-maximizing bank. Afer experiencing a harp drop a he early age of he crii (he la wo quarer of 1997 and fir quarer of 1998), he hare of he mall buine loan of he ae bank immediaely grew poiively (Figure 2). Thi wa depie he much more evere and laing negaive pread beween he loan and depoi rae experienced by he ae bank han hoe repored for he privae bank (Figure 5). 27 Thee wo udie, paricularly Cameron (1999), do no provide much of empirical eing o uppor heir finding.

26 24 Arguably given he full uppor of he governmen and he increae of public depoi in he ae bank, paricularly a he early age of 1997 financial crii, he ae bank were able o endure he heavy co of he negaive pread and became he main ource of loan o he domeic indurie in general, and o he mall buinee in paricular. Even wih he cenral bank guaranee on all depoi of he commercial bank (privae and ae), aver appeared o wan o avoid he poenially long delayed on he wihdrawal of he aving when a privae bank wa being rerucured (Paen e.al (2001)). Thi explain he maive ranfer of depoi from he privae o he ae bank, epecially a he heigh of he crii. 28 A hown in Figure 2, he hare of he mall enerprie credi by he privae bank, on he oher hand, did no repor any poiive growh unil early 1999 when he pread rae have reurned o poiive level. By end of December 1997, he oal ouanding credi exended by he privae bank in Indoneia wa abou 169 rillion rupiah compared o around 132 rillion rupiah of he ae bank. A he end of December 1999, he ouanding loan of he privae bank dropped everely o around 56 rillion rupiah, while he number of he ae bank dropped a a much le ignifican rae o around 112 rillion rupiah Wih he cloure of key privae bank, leading o bank run on he privae bank a he early age of he crii, and under he wide percepion ha he ae bank would be proeced by he governmen, a large hare of bank depoi in he counry moved from he privae o he ae bank. Paen e.al (2001) how ha oal aving a he Bank Rakya Indoneia (a ae bank) increaed from 8.3 rillion rupiah a he end of Ocober 1997 o 17.9 rillion rupiah a he end of Ocober The daa on demand, aving and ime depoi for differen group of bank can be downloaded from he web-ie of Bank Indoneia (www.bi.go.id). 29 Subequenly, he much harper rie in he hor-erm depoi (uch a one monh rae) han he longer erm (uch a one year) had creaed a ubanial and deabiliing hif in he ime depoi. 29 Beween lae 1996 o July 1997, he proporion of longer-erm depoi (6 monh or 12 monh) in he domeic banking ecor wa around percen of he oal ime depoi, wih one-monh depoi coniuing le han 30 percen (Evan (1998)). By July 1998, he hare of one-monh depoi reached almo 70 percen of he oal depoi, while he 6 and 12 monh depoi dropped o le han 15 percen. The dominance of very hor-erm depoi add furher elemen of inabiliy o bank operaion, hrough mimach beween hor-erm fund and long-erm loan. Thi unfavourable poiion largely conribue o he worening of he level of non-performance loan and negaive profi experienced by he domeic banking indury in 1998 and 1999 (Siregar (2003)). Overall, he banking indury in Indoneia had experienced a oal gro lo of a much a Rp178 rillion by December Coincide wih he end of negaive pread rae in early 2000, he banking indury ared o po poiive gro profi in 2000 and Reflecing he improvemen in

27 Bank Indoneia Policy of January 2001 Baed on he ignifican and poiive coefficien eimae of variable gg of he Johanen e for he privae bank, he cenral bank policy of January 2001 will likely o have long-run unfavourable conequence on he hare of he ouanding credi o mall enerprie by he naional privae bank, bu no for he ae bank (Table 3 and 5). Furhermore, he advere long-run implicaion of he abolihmen of any mandaory credi allocaion o he mall enerprie by he privae bank eem o have generaed he unfavourable conequence of he January 2001 policy on he oal credi ouanding exended by he ae and he privae bank combined (Table 3). We recognize however he reul for he long-run cae may no be robu due o he available hor ample period. Anoher inereing analye can be drawn from he hor-run flow. The coefficien eimae of variable ( gg ) of Table 7 ugge ha he abolihmen of he mandaory credi allocaion policy did no have an immediae impac on he upply of mall enerprie loan by he ae bank. The e reul indicae ha here are ix monh (wo quarer) lag. A for he privae bank, an immediae implicaion i repored, wih none of he lagged variable ( gg ) i found o be ignifican. The le evere impac of he abolihmen of credi mandaory allocaion policy o mall enerprie on he ae bank han on he privae bank can be aribued o he role of wo ae bank (BRI and BTN) and alo he indirec uppor by he cenral bank o hoe wo ae bank. The empirical finding for he hor-run cae are conien wih he ylied fac. The percenage hare of credi ouanding o he mall buinee by he privae bank ared o fall in he fir quarer of 2001, while hoe of he ae bank he profiabiliy of he banking indury, he percenage of he gro non-performing loan over he oal loan of he group of privae naional bank under he Indoneian Bank Rerucuring Agency improved o he level of 18 percen a he end of 2000 from he wor level of 50 percen repored beween December 1998 and March 1999.

28 26 only repored ubanial decline aring he hird quarer of 2001 (Figure 2). By he end of he hird quarer of 2001, he average hare of he loan ouanding o mall buinee by he privae bank ha dropped o around 12 percen, while ha of he ae bank ill hovered around 27 percen, ignificanly higher han he abolihed 20 percen requiremen. Our overall e reul in general, and for he privae ecor in paricular, validae he concern hared by he parliamen member on he need o reinroduce he mandaory loan requiremen for he mall enerprie. In fac, he parliamenary debae in lae 2002 and early 2003 had even brough up he poibiliy of 40 percen allocaion of commercial bank loan o he mall - and medium-cale enerprie Fuure Challenge and Concluding Remark Thi udy inroduce a profi-maximizaion model ha capure hree primary deerminan of he upply of bank loan o he mall enerprie by he privae and he ae bank in Indoneia. The empiric confirmed he conequence of negaive pread of key inere rae pread on he upply of he mall enerprie loan. Wih he more moderae moneary policy ance aring lae 1999, hee key inere pread have reurned o poiive number. The e reul alo ugge ha he abolihmen of he mandaory credi allocaion ha been reponible for he decline in he hare of mall enerprie loan by he privae and ae ince fir quarer Debae have emerged on hi iue, boh in parliamen and variou minirie. Should Indoneia reinae he policy of mandaory credi allocaion o mall enerprie on all commercial bank (privae and ae)? Recen udie have reed a number of advere implicaion of governmen inervenion, conneced lending, and lack of prudenial regulaion and uperviion on he performance of domeic bank and in explaining epiode of 30 BISNIS INDONESIA Daily Newpaper, November 15, 2002.

29 27 banking crii in 1980 and 1990 (Goldein and Turner (1996) and Demirguc-Kun and Deragiache (1997)). In paricular, here i widepread agreemen ha governmen direced lending conribued o he banking ecor problem uch a dioriion in credi allocaion and pricing in Japan, Korea, Turkey, China and oher counrie over he pa wo decade. 31 Furhermore, which iniuion hould be reponible for monioring he implemenaion of he policy? Wih he lack of any oher legiimae and independen auhoriy o aume hi role, Bank Indoneia eem o be he only naural candidae. 32 Depie, he ranfer of reponibiliy from he cenral bank o BRI, BTN and a new iniuion o monior and o enure adequae upply of loan o he mall and medium enerprie, he indirec role of Bank Indoneia remain arguably ignifican. Will hi creae hindrance o he on-going effor of creaing an independen cenral bank? From he pa experience of Bank Indoneia, he reponibiliy of adminiering credi for domeic indurie in general have ofen clahed wih he conduc and arge of he moneary policy. To deign appropriae meaure o deal wih he mall buine loan, furher reearche cerainly have o be performed. Ju looking a he preen rend, i i clear however ha he role of regional developmen bank hould be enhanced. A he end of December 1997, he mall buine loan of he regional bank only conribued le han 7 percen of he oal mall loan by he banking ecor. During he crii, heir hare had eadily increaed and reached around 20 percen by June 2002, only few percenage poin lower han he hare of he privae naional bank. The local naure of mall buine lending require local experie for monioring borrower-pecific rik, ec., and hence, appear o ui he inherenly more local 31 See for example: Borenzein and ee (1999), indgren e.al (1999) and Huh and Kim (1993). 32 Saring May 2003, here have been inenive dicuion in he counry on iniiaive o creae an independen iniuion ha ha he full reponibiliie of monioring he operaion of he domeic financial iniuion. Mo agree ha here i a need for hi ype of iniuion. Bu many alo acknowledge ha he eablihmen of hi ype of iniuion will require a good number of year.

30 28 focu of he regional developmen bank. Furhermore, a privae bank ge larger hrough merger and conolidaion, heir buine focu i expeced o hif oward larger commercial cuomer. 33 The commimen by he local and cenral governmen in Indoneia o puh for he decenralizaion proce, hrough delegaion of much larger auonomie from he cenral governmen o he provincial governmen, hould largely hape he role of he regional developmen bank a a provider of financial ervice o he local indurie in each province, including he mall buinee in he near fuure The ongoing conolidaion of he banking indury in he Unied Sae for inance ha hown evidence ha a banking organizaion grow in ize; he need of maller buine cuomer may no be me (Peek and Roengren (1996), Samolyk (1997), Srahan and Weon (1998), and Avery and Samolyk (2000). Berger e.al (1998) find ha mall buine lending increae following mall bank merger bu fall following large bank merger. 34 In general he implemenaion of regional auonomy i regulaed by aw No. 22, 1999 on ocal Governmen and aw No. 25, 1999 on The Fical Balance Beween he Cenral Governmen and he Region. The iniial age of he implemenaion of he regional auonomy ared in January 2001.

31 29 Reference: Agenor, P.R., Aizenman, J., and Hoffmaier, A. (2000) The Credi Crunch in Ea Aia: Wha Can Bank Exce iquid Ae Tell U?, NBER Working Paper, No. W7951, Ocober. Agung, J., Kumiaro, B., Pramono, B., Huapea, G., Pramuko, A., and Praowo, NJ. (2001), Credi Crunch in Indoneia in he Afermah of he Crii: Fac, Caue and Policy Implicaion, March (mimeo). Avery, R. and Samolyk, K. (2000), Bank Conolidaion and he Proviion of Banking Service: The Cae of Small Commercial oan, December (mimeo). Azi, I. J. and Thorbecke, W. (2002), Macroeconomic Shock and Bank ending in Indoneia, mimeo. Banerjee, A., umdaine, R. and Sock, J. (1992), Recurive and Sequenial Te of he Uni Roo and Trend- Break Hypohee: Theory and Inernaional Evidence, Journal of Buine Economic Saiic, vol. 10, pp Bank Indoneia (2000), The Developmen on Moneary Paymen Syem, and Banking, Quarerly Repor, No. III. Bank Indoneia (2001), Bank Rerucuring: Progre and Oulook, (March). Berger, A.N., Kahyap, A.K., and Scalie, J.M. (1995), The Tranformaion of he US Banking Indury: Wha a ong, Srange Trip I Been, Brooking Paper on Economic Aciviy (2), pp Berger, A.N. and Udell, G.F. (1996), Univeral Banking and he Fuure of Small Buine ending, in Klauner, M., and Whie,. J. (Ed), Srucural Change in Banking, Irwin, Homewood, I, pp Berger, A.N., Saunder, A., Scalie, J.M., and Udell, G.F. (1998), The Effec of Merger and Acquiiion on Small Buine edning, Journal of Financial Economic, Vol. 50, pp

32 30 Bernanke, B.S., and Gerler, M (1995), Inide he Black Box: The Credi Channel of Moneary Policy Tranmiion, Journal of Economic Perpecive, Vol. 9, Auumn, pp Bernanke, B.S., Gerler, M., and Gilchri, S (1996), The Fligh o Qualiy and he Financial Acceleraor, Review of Economic and Saiic, Vol. 78(1), pp Borenzein, E. and ee, J.W.(1999), Credi Allocaion and Financial Crii in Korea, IMF Working Paper 99/20 (Wahingon: Inernaional Moneary Fund). Borenzein, E. and ee, J.W.(2002), Financial Crii and Credi Crunch: Evidence From he Korean Firm evel Daa, Journal of Moneary Economie, Vol. 14(2). Brewer III, Genay, H., Jackon III, W., and Worhingon, P.R. (1996), How Are Small Firm Financed? Evidence from Small Buine Invemen Companie, Economic Perpecive, Federal Reerve Bank of Chicago, Chicago, I, November- December, pp Cameron,. (1999), Survey of Recen Developmen, Bullein of Indoneian Economic Sudie, Vol. 35, No.1 (April), pp Darra, A.F. and Arize, A.C. (1990), Domeic and Inernaional Source of Inflaion in Developing Counrie: Some Evidence from he Moneary Approach, Inernaional Economic Journal, Vol.4, Number 4, pp Demirguc_Kun, A., and Deragiache, E. (1997), The Deerminan of Banking Crie: Evidence from Developing and Developed Counrie, IMF Working Paper 97/106 (Wahingon: Inernaional Moneary Fund). Ding, W., Domac, I., and Ferri, G. (1998), I There a Credi Crunch in Ea Aia?, (Augu) mimeo. Effendy, A. (2001), Small and Medium Enerprie Financing in Indoneia, Paper preened a he Keio Univeriy, Japan (Ocober). Evan, K. (1998), Survey of Recen Developmen, Bullein of Indoneian Economic Sudie, Vol. 34, No.3 (December), pp

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