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Indonesia: Long Road to Recovery

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  • Radelet, S.

Abstract

This paper examines the collapse of the Indonesian economy in late 1997 and 1998, and analyses the most pressing economic problems inhibiting its recovery. It explores several weaknesses that emerged in the economy in the early 1990s, including a high dependence on short-term foreign borrowing, a weak banking system, a modestly overvalued exchange rate, and the seemingly unbridled growth of the business interests of the family and associates of President Suharto. These problems were serious, and they made the economy vulnerable to a significant slowdown. However, on their own, they cannot explain the magnitude and speed of the Indonesian collapse. Mismanagement of the crisis by the Indonesian government, especially President Suharto, and by the International Monetary Fund made the contraction much deeper than was necessary or inevitable. Looking ahead, the major ingredient necessary for economic recovery is a political stability, which depends on smooth parliamentary and presidential elections in 1999. On the economic front, the main challenges that lie ahead are the reorganization and recapitalization of the banking system, restructuring of corporate debt, stimulating exports, and containing the budget deficit.

Suggested Citation

  • Radelet, S., 1999. "Indonesia: Long Road to Recovery," Papers 722, Harvard - Institute for International Development.
  • Handle: RePEc:fth:harvid:722
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    Cited by:

    1. Ali Al-Eyd, 2006. "Financial Crisis, Effective Policy Rules and Bounded Rationality in a New Keynesian Framework," National Institute of Economic and Social Research (NIESR) Discussion Papers 272, National Institute of Economic and Social Research.
    2. Block, Steven A. & Kiess, Lynnda & Webb, Patrick & Kosen, Soewarta & Moench-Pfanner, Regina & Bloem, Martin W. & Peter Timmer, C., 2004. "Macro shocks and micro outcomes: child nutrition during Indonesia's crisis," Economics & Human Biology, Elsevier, vol. 2(1), pages 21-44, March.
    3. Rungrudee Suetorsak, 2006. "Banking crisis in east asia: A micro/macro perspective," Review of Quantitative Finance and Accounting, Springer, vol. 26(3), pages 219-248, May.
    4. Ali Al-Eyd & Stephen Hall, 2012. "Financial crisis, effective policy rules and bounded rationality in a New Keynesian framework," Economic Change and Restructuring, Springer, vol. 45(1), pages 25-44, February.
    5. Steven A. Block & Lynnda Keiss & Patrick Webb & S. Kosen & Regina Moench-Pfanner & Martin W. Bloem & C. Peter Timmer, 2002. "Did Indonesia's Crises of 1997/98 Affect Child Nutrition? A Cohort Decomposition Analysis of National Nutrition Surveillance Data," CID Working Papers 90, Center for International Development at Harvard University.

    More about this item

    Keywords

    FINANCIAL CRISIS ; EXCHANGE RATE;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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