Effects Of Financial Crisis In East Asia

Published Date: 02 Nov 2017

FINANCIAL CRISIS IN INDONESIA

Hello everyone

First all I would like to be grateful to my beloved teacher who gave me this opportunity to stimulate the factors of financial crisis in Indonesia. It was such an interesting as well as important topic as regard the economy for all of us.

Slide 2: Questions Resulting from Research

Under the extensive research and study about the economy of Indonesia and its continuous economic slowdown have led me to raise three major questions which are as follow;

Were the economic achievements of Indonesian government real?

Why the financial crises affected the most of Indonesia?

What was the strategy of the Indonesian government to come out of this crisis?

Slide 3: History of Indonesia

Indonesia is a high populated country in East Asia and therefore it is used to have economic problems at large scale.

Indonesian economy has also passed many ups and downs experiences.

Historical growth of Indonesia had been 7% per annum in mid of 1990s.

However the Indonesia also has experience of economic slowdown in the 1970s and 1980s.

But the positive sign is that the Indonesian government always took the steps and reforms the strategies to successfully come out of these crises

Slide 4: Effects of Financial Crisis in East Asia and Indonesia

The East Asian financial crisis has already a material effect over the developing countries specifically Indonesia and affected more Indonesia in the region due to the following factors:

Market rates continue to be violated and uncertainty remains high in the Indonesia with the worst of the downturn in the real sector.

The system of administrative guidance failed in the industry department because it became apparent that fair deals can not be reached.

Korea and Thailand got success to post surplus in their current account of $ 1-2 billion a month and this was due to decrease in imports and increase in exports

Slide 5: Key statistics of Indonesia

As described before that the Indonesia is the most affected by this financial crisis the key effects in Indonesia of such crisis have been below

After the 1980s the crisis again took the way to Indonesia in 1997/98 which is still going on and such continuous deficit have arisen the questions for economic achievements.

Contraction of the economy has reached up to 15% or more and inflation had increased in the first 8 months in 1998.

Number of the people living under the poverty line has now achieved 40% of the total population.

Slide 6: Economic Reforms by Government

In April 1998 there were demonstrations and they demanded the president of the Indonesia eliminate the corruption, collusion and nepotism that are considered as main factors of the crisis.

The challenge for Indonesia in such crises is to maintain the effective open economic policies and good governance.

Indonesian began with liberalization of its economy about thirty years ago due to change of government in 1966.

The wave of competitive liberalization that has emerged in East Asia has also been a positive factor in the adoption of open economic policies of countries in the region, including Indonesia .

Slide 7: Liberalization of Economy

Throughout the thirty years, there were major three periods of liberalization.

First period was between 1966-1972 in which the measures of liberalization were introduced to rehabilitate the economy and reforms the policies of the previous governments.

In the second period from 1882 to 1991, the decrease in oil prices emphasis the government to restructure the economy while taking away its dependence over oil revenue toward a broad range of non oil manufacturing products.

The third period from 1994 onwards reveals dynamic regional environment that is attributed by competitive liberalization.

Slide 8: Were the economic achievements of Indonesia real?

The economic achievements were absolutely real because in the mid of 1990s this country had a growth rate of 7% per annum. But in order to sustain the country’s economic growth the Indonesian government reformed its development strategies.

Sustainable development in Indonesia is not only considered as economic growth but few major elements are also included in it such as

High economic growth

Improved distribution of income and

National stability

Distribution and equity issues shall not be considered in that way that may cause the economic stagnation.

National stability is important but it should not be at the expense of growth and welfare.

Slide 9: Why the financial crises affected the most of Indonesia?

The Asian financial crisis began in Indonesia affecting in mid 1997 and political and economical issues were emerged in that period.

Financial crises were getting sever in November 1997 because unrealistic devaluation of rupiah currency and the public debts also touched the figure of $ 60 billion

During this crisis the oil prices were also decreased in the international market more than the budget and then budget entered into the phase of deficit.

After that GDP rate materially contracted by 13.7% in mid of 1998 along with that the inflation in 1999 had reached to hyper inflation rate at the rate of 77%.

Slide 10: What was the strategy of the Indonesian government to come out of this crisis?

The Indonesian government entered into an agreement with the IMF for rehabilitation of a sinking economy and then government stimulated the public enterprises to make investments in various sectors.

The government also reformed the macroeconomic strategies that included that the deficit in the current account balance shall not be more than 2% of the total gross domestic product.

Government ensures the availability of resources; public enterprises began to make heavy investments in various industries, pharmaceuticals and mining.

Boom in oil prices heavily increased the reserves of the Indonesia and there were used to finance the development of heavy industries, air transport, hotels and motels and other large scale projects.

Slide 11: Recommendations

There may be several recommendations but the issue is its implementation way which may vary from time to time.

Risk of huge dependence on oil based economy should be mitigated;

Reduce the imports at the minimum level and increase the exports at maximum level so that the ratio of foreign reserve could be maintained at an appropriate level;

Obtain financing from world bank and international mutual fund

Slide 12: Conclusion

Indonesia has potential to grow materially and substantially increase the progress of the economy by adopting following

Move from oil based products towards other manufacturing products and raise the expertise in those industries;

Enhance the education at a suitable rate at the national level;

Provide the opportunities to the youth and support them for inventions.

Slide 13: References