Asian Economic Crisis: The Asian Financial Crisis In Indonesia

Asian Financial Crisis in Indonesia

Indonesia was one of the countries affected most by Asian Financial Crisis 1997. President Suharato was the leader in Indonesia during that time. The Asian Financial Crisis began on 2nd July 1997 when the Thai government saddled with a huge foreign debt after the decision to float the baht currency speculators had violated the country’s foreign exchange reserves. The purpose of monetary shift was to motivate export revenues but proved to be futile. It soon led to other Asian countries as foreign investors’ contagions who have invested large sums of money into the ‘Asian Economic Miracle countries’ since a decade prior to 1997 and soon they lost confidence in Asian markets and dumped Asian currencies and

It requires some basic financial reform measures such as the closure of 16 private banks, the winding down of food and energy subsidies and advice the Indonesian central bank (Bank Indonesia) to increase the interest rates in return. However this reform plan turned out to be a failure. 16 banks in Indonesia which some controlled by Suharto’s cronies closed down and initiation a run to other banks. Billions of rupiah were withdrawn from saving accounts, limiting the bank’s lending capacity and forcing the Central Bank to provide a large number of bank credits to the remaining banks to prevent a complete banking crisis was withdrawn. In addition, IMF did not try to curb Suharto’s system of patronage that was destroying the economy of the country and decline the IMF agreement. This patronage system was used by Suharto to preserve power in exchange for political and financial support. He gave strong positions to his family members, friends and enemies that becoming cronies later. Towards the end of 1997, other development that were negatively influence on Indonesia were a serious El-Dino drought, lead to forest on fires and bad harvests of crops and speculation increases in concerning to Suharto’s worsen health lead to political doubts. Gradually, Indonesia is moving towards a political

The Indonesian economy and social indicators were still showing worrying signs. But this time, IMF is more flexible than its previous requirements. For example, large food subsidies for low-income families were granted and budget deficits were allowed to expand. But the IMF also requires bank restructuring state-owned enterprises, the new bankruptcy law and the new court to deal with privatization of insolvency cases to make action rapid. It also insisted on the closer monitoring of their implementation as recent experience shows, the Indonesian government has not fully committed to reform