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India and Indonesia: Lessons Learned from the 2013 Taper Tantrum

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  • M. Chatib Basri

Abstract

In May 2013, the US Federal Reserve began to talk about the possibility of ending its program of quantitative easing. This tapering talk had a significant impact on five main emerging-market countries—Brazil, India, Indonesia, South Africa, and Turkey (the ‘Fragile Five’)—whose exchange rates weakened dramatically and whose stock and bond markets were hit hard. This series of events is now known as the ‘taper tantrum’. In response to the tantrum, these five countries each took a series of macroeconomic policy measures to relieve pressure in their financial markets. Indonesia and India handled the problem in the shortest time (about seven months) and achieved macro-economic stabilisation. This article examines how Indonesia and India managed to remain relatively unscathed by the taper tantrum and escape the Fragile Five. It looks at which policies the two countries adopted at the time, and why they chose them, as well as why India's economy performed better than Indonesia's after the tantrum.

Suggested Citation

  • M. Chatib Basri, 2017. "India and Indonesia: Lessons Learned from the 2013 Taper Tantrum," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 53(2), pages 137-160, May.
    • Handle: RePEc:taf:bindes:v:53:y:2017:i:2:p:137-160
    DOI: 10.1080/00074918.2017.1392922
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    Cited by:

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    2. Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Ozdemir, Huseyin & Wohar, Mark E., 2020. "Transmission of US and EU Economic Policy Uncertainty Shock to Asian Economies in Bad and Good Times," IZA Discussion Papers 13274, Institute of Labor Economics (IZA).
    3. Verico, Kiki, 2018. "Does Indonesia’s macroeconomic work well towards the political year?," MPRA Paper 86164, University Library of Munich, Germany.
    4. Hal Hill, 2018. "Southeast Asia in the global economy: a selective analytical survey," Departmental Working Papers 2018-12, The Australian National University, Arndt-Corden Department of Economics.
    5. Wishnu Mahraddika, 2021. "How effective is capital flow management? The Indonesian experience," Departmental Working Papers 2021-15, The Australian National University, Arndt-Corden Department of Economics.
    6. Gupta, Krisna & Gretton, Paul & Patunru, Arianto, 2022. "Projecting the long run impact of an economic reform: the case of the Indonesian Omnibus Law and concurrent changes in trade policy," Conference papers 333472, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Kiki Verico, 2018. "Does Indonesia’s Macroeconomic Work Well Towards the Political Year?," LPEM FEBUI Working Papers 201819, LPEM, Faculty of Economics and Business, University of Indonesia, revised Apr 2018.
    8. Kyunghoon Kim & Andy Sumner, 2019. "De-industrialization, re-industrialization, and the resurgence of state capitalism: The case of Indonesia," WIDER Working Paper Series wp-2019-87, World Institute for Development Economic Research (UNU-WIDER).

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