Communiqué: The Center’s New Collaborative Research with Indonesia

December 8, 2011
Communiqué: The Center’s New Collaborative Research with Indonesia
Jay Rosengard, Lecturer in Public Policy

A forthcoming article in an international peer-reviewed journal from Jay Rosengard and A. Prasetyantoko marks a new era of collaboration between the Center’s faculty and their counterparts in Indonesia. Rosengard is a lecturer in public policy and director of the Financial Sector Program at HKS. Prasetyantoko is head of the Institute for Research and Social Service at Atma Jaya Catholic University in Jakarta. Core to the mission of the Center’s HKS Indonesia Program is building capacity to undertake applied policy research in Indonesia. Currently, it is not the norm for academics in the country to pursue publication in a peer-reviewed journal. Because compensation for their academic positions is low, faculty often devote their energy to outside consulting work, leaving little time or impetus to engage in the rigorous process of producing peer-reviewed research.

So, how did this unusual collaboration come about? Prasetyantoko first worked with the Ash Center by contributing background research to the Indonesia Program’s first report, “From Reformasi to Institutional Transformation: A Strategic Assessment of Indonesia's Prospects for Growth, Equity, and Democratic Governance.” Prasetyantoko then had an idea for an article on financial inclusion and reached out to Rosengard to collaborate. Serendipitously, Rosengard had just been approached by the Asian Economic Policy Review to contribute an article to a special themed issue on developments in Asian finance. By encouraging Prasetyantoko to modify his original idea to better fit with the journal’s theme and to meet its academic standards, and by convincing the journal to allow Prasetyantoko to be a coauthor for their invitation-only issue, Rosengard was able to create an opportunity for intellectual collaboration between the Center and Indonesia. Rosengard mentored Prasetyantoko through the process of drafting and presenting the article to the journal’s conference in May. Then, based on feedback from colleagues at the conference, Rosengard and Prasetyantoko worked together to revise the article. This was an entirely new experience for Prasetyantoko, who like many of his fellow academics in Indonesia, had never gone through the process of preparing an article for publication in a peer-reviewed journal.

The resulting article, “If The Banks Are Doing So Well, Why Can’t I Get A Loan?: Regulatory Constraints to Financial Inclusion in Indonesia,” will be published in the December 2011 issue of the Asian Economic Policy Review (Vol. 6, No. 2). The authors argue that Indonesia’s financial sector has two paradoxes: 1) Indonesia has been a global leader in microfinance for the past 25 years, but access to microfinance services is declining; and 2) Indonesia’s commercial banks are liquid, solvent, and profitable, and the Indonesian economy has been doing well over the past decade, but small- and medium-sized enterprises are facing a credit crunch. Although Indonesia is underbanked, most commercial banks have been unresponsive to unmet effective demand. The behavior of banks has been in their own short-term best interests, primarily because of the unintended consequences of Indonesia’s financial sector reregulation after the East Asian crisis and contradictory monetary policies, which have produced a prudentially sound but inefficient, narrow, and homogenized banking oligopoly. The article concludes that Indonesia should not respond to financial exclusion by artificially pumping out and administratively allocating more credit. Instead, it should promulgate smart regulation so that banks maintain their sound risk management without pursuing non-competitive and non-inclusive business practices.