crisis was end-1994.<sup>23</sup> The Indonesian case, described in Box 1 illustrates the process and many of the issues discussed above.

Two final issues exist in attributing domestic debt issues to crises and analyzing differences in crisis-related debt issues across countries. First, to what extent should the financing of the interest costs of the crisis-related debt be included as part of the debt issue related to the crisis? Second it is worth noting that in many cases central governments have not compensated the central bank for losses incurred during and after the crisis, for example on liquidity credits. Hence, part of the differences across countries in the impact of the crises on government domestic debt may reflect differences in the central bank’s role in the crisis and the degree to which the government recapitalized the central bank.

**BOX 1: INDONESIA’S APPROACH TO CLEANING-UP ITS BANK CRISIS AND THE COST**

Indonesia was hit with a major financial crisis that began with pressure on the exchange rate in August 1997, after the devaluation of the Thai baht in July. In an effort to stem bank runs, the Central Bank provided massive liquidity support and the government declared a blanket deposit guarantee. The increased domestic credits of the Central Bank in the last quarter of 1997 and the first quarter of 1998 would have doubled the money base had international reserves not fallen by somewhat more (World Bank, 2000). In early 1998, the Indonesia Bank Reconstruction Agency (IBRA) was created. The bad debts of the state banks and the closed banks were transferred to IBRA for collection. Recapitalization of the state banks with government bonds was begun. Interventions in private banks continued through early 1999. Some small weak banks were merged into state banks, but the largest weak banks were taken-over by IBRA, which also took over the collection of both the obligations that various bank owners had made in exchange for liquidity support from the central bank and the bad loans that the private banks had made. The balance sheet of these banks was reconstituted with government recapitalization bonds that carried various terms. In 2002, IBRA began to sell the banks that it had taken over; by early 2004, IBRA was closed. The cost of the crisis was estimated as liquidity support equal to about 17 percent of 2001 GDP, mostly to the private banks, and recapitalization bonds equivalent to about 35 percent of 2001 GDP, the vast majority to the state banks. Some of the recapitalization bonds initially carried below-market interest rates and they had to be converted to more market indexed rates later, in order to make the IBRA-managed banks attractive to purchasers. IBRA eventually recovered some 20 percent of the face value of the bad debts it took over. These recoveries, plus the proceeds from the sales of the banks, were transferred to the government, to limit the need for additional government borrowing.

> 23 These complicated transactions also often result in a substantial lag between the crisis and the appearance of government debt obligations in bank balance sheets in the _International Financial Statistics_ . The data may also reflect other complications. For example, in Mexico for many years, some of the debt of the asset management company remained in the banking system with a government guarantee that had to be renewed annually by the congress.

12