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Financial Crisis:
Indonesia and
the Currency MM5006 Business Economics
Board Proposal
SYNDICATE 10
Anthony 291 17 005
Sofia Pujiasti 291 17 053
Afriska Yuni Anggraini 291 17 238
Arfan Nur Akbar 291 17 246
How did the Indonesia 1998’s Crisis happen?
2nd July 1997 Thai government floated baht with the exchange rate dropped sharply
The central bank announced that exchange rate was widening the band
Mid July 1997
to +/- 6% to increase the risks faced by currency speculators.
Indonesia’s central bank entered foreign exchange market, spend US$1
End July 1997
billion to defend the currency
14th August 1997 Defense failed, currency continued to decline, in two days it drop of 15%
The actual dimensions of the debt problem began to emerge, then the
6th October 1997 International confidence waned, thus Rupiah fell to a new low of 3.846 to
the US dollar
Rupiah fell 60% and the local banking system on the verge of collapse a
8th October 1997
nd Indonesian companies defaulting on their loans
November 1997 Two-thirds of the country’s banks had experienced runs.
Soeharto presented 1998 budget which breached the IMF conditions and
6th January 1998 Indonesia’s pledges, by failing to end subsidies, failing to end monopoly,
and failing to run a surplus
How did the Indonesia 1998’s Crisis happen?
But with implementing the IMF formula also come some criticisms from
the experts, with differing points of view, that its recommendations are
inappropriate for Indonesia's economic circumstances.
Should Indonesia accept the IMF’s reform
programs?
Currency boards systems are attractive alternatives because
they eliminate the inherent conflict in pegged systems between
exchange rate and monetary policies. They also can serve as an
important source of discipline on otherwise uncontrolled fiscal
and monetary policies.