Corporate governance, economic crisis and the Indonesian banking sector

As with most emerging markets, Indonesia has adopted western-style laws and institutions to promote better corporate governance. But these laws and institutions conspicuously failed to prevent the corporate opacity and crony capitalism that contributed to its economic crisis. This article seeks answers for this phenomenon in the Indonesian banking sector. In particular, it argues that orthodox corporate governance analysis overlooks the central agency cost issue of patronage-based economics. Hence economic reform in post-Soeharto Indonesia is incomplete without a de-linking of the banking system from conglomerate and political elite control.