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A Tale of Two Crises: Indonesia’s Political Economy

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  • Basri, Muhammad Chatib

Abstract

The global financial crisis caused major economic problems in many countries. Indonesia was obviously affected by this crisis; its export growth declined significantly. Nevertheless, the impact of the crisis on the Indonesian economy was relatively limited compared to other countries in the region, including Singapore, Malaysia and Thailand. This situation leads to the question of why was the impact of the global crisis on the Indonesian economy relatively limited? This was, after all, not the first time that Indonesia had experienced a financial crisis. In 1998, the Asian financial crisis had a very bad effect on Indonesia. An interesting question to ask is why the effects of the 2008 global financial crisis, which in terms of magnitude was much larger than the 1998 crisis, were relatively limited? This paper argues there are, at least, four differences between the 1998 crisis and the 2008 crisis: the origin of the crisis, the exchange rate regime, policy responses and the overall political economy situation. In addition, this paper argues that the structure of trade played an important role in the 2008 crisis. Indonesia survived the global financial crisis thanks to two factors: good policy and good luck. While highlighting these factors, this paper focuses primarily on the role of Indonesia’s domestic political economy during these two crises. Lest it leaves an unduly optimistic picture of Indonesia’s economic future, the paper closes with an assessment of several major hurdles that Indonesia must deal with in the coming years.

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File URL: http://hdl.handle.net/10685/91
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File URL: http://repository.ri.jica.go.jp/dspace/bitstream/10685/91/1/JICA-RI_WP_No.57_2013.pdf
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Bibliographic Info

Paper provided by JICA Research Institute in its series Working Papers with number 57.

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Date of creation: 25 Mar 2013
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Handle: RePEc:jic:wpaper:57

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Keywords: Indonesia ; Asian Financial Crisis ; Global Financial Crisis;

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References

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  1. M. Chatib Basri & Arianto Patunru, 2006. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(3), pages 295-319.
  2. Wing Thye Woo & Chang Hong, 2010. "Indonesia's economic performance in comparative perspective and a new policy framework for 2049," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 46(1), pages 33-64.
  3. Hal Hill, 1999. "Indonesia : The Strange and Sudden Death of a Tiger Economy," UP School of Economics Discussion Papers 199913, University of the Philippines School of Economics.
  4. Hadi Soesastro & M. Chatib Basri, 2005. "The Political Economy of Trade Policy in Indonesia," Trade Working Papers 22033, East Asian Bureau of Economic Research.
  5. Simon Butt, 2009. "'Unlawfulness' and corruption under Indonesian law," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 45(2), pages 179-198.
  6. H. Aswicahyono & H. Hill, 2002. "'Perspiration' vs 'Inspiration' in Asian Industrialisation: Indonesia Before the Crisis," Journal of Development Studies, Taylor & Francis Journals, vol. 38(3), pages 138-163.
  7. Chris Manning & Kurnya Roesad, 2006. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(2), pages 143-170.
  8. M Chatib Basri & Hal Hill, 2010. "Indonesian Growth Dynamics," Departmental Working Papers 2010-10, The Australian National University, Arndt-Corden Department of Economics.
  9. Muhammad Chatib Basri & Reza Yamora Siregar, 2009. "Navigating Policy Responses at the National Level in the Midst of the Global Financial Crisis: The Experience of Indonesia," Asian Economic Papers, MIT Press, vol. 8(3), pages 1-35, October.
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