1997 Indonesia Financial Crisis Agenda Causes of the Crisis Causes of the Crisis Causes of the Crisis
Arnold, Elias, Goodyear City Reporter has reference to this Academic Journal, PHwiki organized this Journal Chris DeBose Edan Harris 1997 Indonesia Financial Crisis Agenda Part I Causes of the Crisis Part II During the Crisis Part III After the Crisis Causes of the Crisis Devaluation of the Indonesian rupiah Fundamental weakness in the economy Indonesian central bank continued the trade b in addition to policy in addition to increased the currency b in addition to .
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Causes of the Crisis Devaluation of the Indonesian rupiah in relations to the dollar. 1997: Rp 2,600/USD 1 1998: Rp 11,000/USD 1 Highest – Lowest: Rp 15,000 Rp 8,000 / USD 1 Causes of the Crisis Fundamental weakness in the economy Inadequate liquidity where banks in addition to corporations had too little cash in addition to current assets to pay of their current in addition to maturing liabilities. Causes of the Crisis Fundamental weakness in the economy Excessive un-hedged in addition to unsecured borrowing abroad by the private sector, specifically corporations in addition to banks. Supported by inadequate supervisory institutions.
Causes of the Crisis The cycle caused by lack of liquidity in addition to over borrowing. Strong dem in addition to as long as dollars. Causes of the Crisis Fundamental weakness in the economy Investment/Overinvestment of borrowed funds into speculative projects in addition to export industries where growth was difficult to predict. Like luxury condos, steel, shipbuilding in addition to others. Causes of the Crisis Increased the currency b in addition to . Indonesia responds by increase currency b in addition to on rupiah from 8% to 12% so the value of the currency had more room to fluctuate in addition to to allow the currency to re-stabilize within the b in addition to . Manage floating exchange rate (SEEN AS STABLE) to a free floating exchange rate (SEEN AS UNSTABLE).
Causes of the Crisis How does it all come together As the strength of the of the Indonesian rupiah continually decreased. The over borrowing of as long as eign loans by the private sector (specifically private corporations) cause increased borrowing of the dollar. Corporations discarded rupiah (because of increase in debt under the rupiah), continuingly undermining the value of the rupiah. During the Crisis Effects on the Economy Massive Unemployment IMF Prescriptions After the Crisis Effects on the Economy The crisis is rooted in the private sector (particularly banking) Nearly all of the domestic businesses became insolvent Especially businesses in manufacturing in addition to construction sector as well as in the urban services sector. Such as real estate in addition to property sector, in addition to the banking sector.
During the Crisis Massive Unemployment It is estimated that nearly have of Indonesias citizens were pushed back below the poverty line as a result of the financial crisis. Real GDP went down. During the Crisis Number of Employed went down. During the Crisis
Employee Equivalent measures total hours work over average annual hours worked in addition to it went down. During the Crisis Average Hours Worked went up. During the Crisis Average Income per Year went down. During the Crisis
Average Real Wage per Hours Worked went down. During the Crisis During the Crisis IMF Prescriptions Originally the IMF required that the government engage in strict austerity measures of fiscal in addition to monetary policy. Draconian government cutbacks. i.e. food in addition to energy subsidies in addition to so as long as th. After it is was discovered that the original cause as long as the crisis was rooted in the private sector, IMF felt that is was necessary to implement measures to deal with the problems within it. Required re as long as ms that would mimic American in addition to European currency, banking in addition to financial systems. Also they required the liquidation of half of the banks. (only 16 were liquidated) Additionally provided $40 billion worth in rescue packages as long as the banks. During the Crisis IMF Prescriptions This was especially true as long as the private banking sector, which the IMF sought to re as long as m. Most importantly, the IMF requested that the Indonesian government sell off or privatize government companies. It was believed that the Indonesian government was inefficient because of heavy government intervention in the public sector. Thus, the IMF believed that more liberalized government agencies would help them become more efficient, this would help eliminate the crisis.
After the Crisis Stabilization of the currency. (Although it was enormously undervalued in comparison to pre-1997 levels). Massive student protest due the government cut backs of subsidies. This led to a drastic rise in food in addition to energy prices. Increased inflation due to government cutting of subsides. Economic growth accelerated to 5.1 % in 2004, 5.6 in 2005 due to consumer consumption (3/4 of Indonesia GDP). Real per capita income reach 1996/1997 levels. Unemployment rate was 9.75% in 2007. After the Crisis Here is a video illustrating the aftermath of the IMF policies that were implemented. http://www.youtube.com/watchv=-VjMyvPJ3hE&feature=player-detailpage
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