From crisis to cataclysm? The mismanagement of Indonesia's economic ailments

Abstract

Discussion of the East Asian economies in 1998 is dominated by the currency crisis afflicting most countries in the region. This paper does not consider the crisis from any general perspective but rather examines the background and chronology of Indonesia's experience. While commentators typically refer to an 'East Asian Crisis', the factors and experiences are quite different for each affected economy. Consequently, we make no attempt to generalise from the Indonesian case. On the contrary, we will illustrate how difficult it can be to explain the sudden severity of the crisis even when considering one economy closely. After describing the chronology to the crisis in Section 2, we address the background factors in Section 3, especially over-borrowing and exchange rate policy. The management of the crisis is considered in Section 4, with particular attention to fiscal policy and banking reform. Section 5 addresses the role of the IMF, and Section 6 concludes.