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The IMF and the Indonesian crisis

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  • Stephen Grenville

Abstract

Given the strong performance and resilience of the Indonesian economy over the previous three decades, the depth and duration of the 1997-98 crisis was unexpected. The IMF's initial policy prescription was in keeping with the nature of the crisis—characterised by a reversal of foreign capital inflows, interacting with a weak domestic financial sector. But this prescription would work only if there was a quick restoration of market confidence. This was not achieved, and indeed public disputation over the elements of policy undermined confidence. Additional policy elements were needed that would address the capital outflows more directly and resolve the banking collapse. There was a loss of policy cohesion between the Fund and the Indonesian authorities, and among the authorities themselves. Before alternative policies could be put in place, the political dimension became paramount.

Suggested Citation

  • Stephen Grenville, 2004. "The IMF and the Indonesian crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(1), pages 77-94.
    • Handle: RePEc:taf:bindes:v:40:y:2004:i:1:p:77-94
    DOI: 10.1080/0007491042000205213
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    1. Boorman, Jack & Lane, Timothy & Schulze-Ghattas, Marianne & Bulir, Ales & Ghosh, Atish R. & Hamann, Javier & Mourmouras, Alex & Phillips, Steven, 2000. "Managing financial crises: the experience in East Asia," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 1-67, December.
    2. David Cole & Betty Slade, 1998. "Why Has Indonesia's Financial Crisis Been so Bad?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(2), pages 61-66.
    3. Mr. Mari Pangestu & Mr. Manggi Habir, 2002. "The Boom, Bust and Restructuring of Indonesian Banks," IMF Working Papers 2002/066, International Monetary Fund.
    4. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
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    Cited by:

    1. Evrensel, Ayse & Kutan, Ali M., 2008. "How do IMF announcements affect financial markets in crises?: Evidence from forward exchange markets," Journal of Financial Stability, Elsevier, vol. 4(2), pages 121-134, June.
    2. ORASTEAN Ramona, 2014. "The Lending Arrangements Of The Imf In European Union In Times Of Crisis – Characteristics And Evolutions," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 9(1), pages 134-141, April.
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    4. Takatoshi Ito, 2012. "Can Asia Overcome the IMF Stigma?," American Economic Review, American Economic Association, vol. 102(3), pages 198-202, May.
    5. Stephen Grenville, 2004. "What sort of financial sector should Indonesia have?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 40(3), pages 307-327.

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