Abstract
The financial liberalization that Indonesia has undergone since 1983 has resulted in some successes, among others in financial deepening (M2/GDP), the availability of credit, more effective open market operation, and the growth of private banking. It is suggested that financial liberalization may play an important role in attaining the high economic growth. By using the cointegration method, this article shows the significance of positive interest rates in increasing savings and credit availability. However, this study finds the problems of moral hazard and inadequate bank supervision have become serious obstacles for maintain ing that success. Also using the cointegration method, this study shows that the narrower spread leads to higher deposit rates.
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