Indonesia’s crisis and future prospects

Abstract

In the first half of 1997, the Indonesian economy seemed to be performing very well. Growth had averaged about 8 percent per annum (p.a.) since the late 1980s, inflation had fallen from the average of 9 percent p.a. achieved over the previous sixteen years to under 6 percent, the budget continued to be conservatively managed, the exchange rate maintained its slow and controlled depreciation of about 4 percent p.a., and the balance of payments was so strong that international reserves-already high-were increasing rapidly. Although foreign debt was relatively high as well, for some time most of the growth therein had been generated by the private sector, which appeared to be having no trouble meeting its repayment commitments. At the macroeconomic level, then, there was little sign of the turmoil that was to emerge in the second half of the year. Show more