Vice chair, Board of Trustees, CSIS Foundation
I was with Dato Sri Tahir at Airlangga University in Surabaya, East Java, last year for his doctor honoris causa conferral. It was one of many degrees that he has already received in appreciation of his social and philanthropic work. At the time he personally informed me that he was working on his dissertation in political economy at Gadjah Mada University (UGM), Yogyakarta.
While I was impressed by his intention, I thought it was a very ambitious objective and that it would need a lot of effort and determination to earn the doctoral degree from a reputable university like UGM.
But he really made it after three years of studies and hard work, and he successfully defended his dissertation on leadership and innovation policies at the end of August, and passed cum laude. So incredible, but true.
Titled “New Institution and Leadership Economy”, the dissertation examined the policies behind rescuing the banking system during the monetary crisis of 1997 and 1998.
Tahir presents a theoretical analysis of the new institutional economics; he states that the main source of problems arose from the policies designed to save the banking system through the Bank Indonesia liquidity support (BLBI) funding, the weakness of which ensured that the rescue policies were ineffective.
First, he argued that informal institutions had a negative impact on the effectiveness of formal institutions.
Results showed that Bank Indonesia, the central bank, could not work independently because of the many interventions by the government to protect families or cronies.
Second, the banking system did not provide strong authority for monetary and banking governance, resulting in the creation of a moral hazard.
Third, poor management obscured the contracts between the principal (the government) and agents (banks), and that created more costs.
Fourth, the incentive factor in the allocation of the BLBI funds led to a lack of discipline among borrowers.
These points are important findings for future reference so as to prevent another major banking crisis.
Stating the problems so plainly in a dissertation is to be welcomed, as there are things that many people have to understand in a democracy. It would be good if the results of the study could be disseminated so that bankers and industry players may learn from and emulate what Tahir has discerned. Such a thesis based on qualitative research is excellent as it produces an important case study for Indonesia’s future development.
During the 1997-1998 financial crisis that swept across Asia, the government, through the central bank, provided liquidity support totalling Rp 144.5 trillion to assist 48 commercial banks in coping with massive runs, but it turned out that 95 percent of the money was misappropriated. The Corruption Eradication Commission (KPK) has been going after some of the alleged embezzlers.
Being present on the occasion of Tahir’s defense session that day, I could not help being impressed by the capabilities of the promovendus in defending his thesis. He certainly merited the cum laude award. Congratulations Professor Dr. Dato Sri Tahir for a job well done.
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.