Indonesia Economic Crisis Analysis

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The current economic paradigm in Indonesia has been set after the financial crisis 1997-1998 deeply hit the social, political and economic structures of the country. Indonesia was affected by the economic crisis, and consequently many people suffered from that. The IMF and the US stepped in to support the Indonesian economy. The IMF promise to help Indonesia only that it had to adjust its economy according to the Washington Consensus criteria . However the aid from IMF is not enough and economic condition were getting worse. There are several push factors that scared Foreign Direct Investments (FDI), but there are more pull factors for FDI to invest in Jakarta. Several push factors are usually about; natural disasters which don’t happen often,…show more content…
It affects most economies of the south East Asian Nation. But the main focus is the big crisis that deeply affected the Indonesian economy and political system. The main problem that emerged in Indonesia was the drastic fall in their currency exchange rates. The national currency, the Rupiah, fell by 12% in the beginning of August, the rapid depreciation created a strong panic among people, companies, and particularly among international investors. These investors feared that the trend of exchange rate of the Rupiah to US dollar might continue depreciate leading to a fall of their value of their assets. The Indonesian Central Bank was not really aware of this situation and underestimated the negative side…show more content…
By the end of January, Rupiah drops to 17,000 to US dollar. This is the lowest point reached by the Rupiah against the USD. Effect of the crisis The most immediate effects that affected Indonesia were the inflation rate. It went from 2.6%up to 11% percent. This caused hyperinflation in the end of January 1998 with 20% inflation. Food prices, price of fuels, and other essentials have increased drastically. Food prices increased by 30%- 50%. The price of rice has increased from 1800 rupiah per kilo to 3500 rupiah. Cooking oil rise from 2000 Rupiah to 5500 rupiah per liter. This affected many people no matter how much income they have. The Indonesian population was struggling to have living on their own . The Indonesian GDP has decreased during the crisis with an inflation growth rate of 65% in 1998, compared to 6.5% 2 years

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