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Policy assignment on money supply: the case of Indonesia in the 1980s

Taguchi, Hiroyuki (1995): Policy assignment on money supply: the case of Indonesia in the 1980s. Published in: ASEAN Economic Bulletin , Vol. 12, No. 1 (July 1995): pp. 64-79.

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Indonesia has taken a series of the most drastic deregulatory steps on the financial sector among Asian developing countries since the 1980s. The financial deregulation has contributed to the accommodation of the loanable funds necessary for its intensive investment. Indonesia, on the other hand, has managed to curb inflation at the annual rate below double digits by controlling money supply. When we focus on the stance of monetary policy in the long-run view, investment requires the expansion of money supply, and price stability requires its contraction. Thus, the monetary policy in Indonesia has been on a double-edged sword. This article describes how Indonesia has struggled with "double-track" targets on monetary policy, and evaluates its policy performance from the viewpoint of its workability and consistency.

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