Economic crisis of 1997 destroyed the global economy. Not view the economy of developing countries or developed countries. Although this crisis is more popular known as “CRISIS ASIA”, but not only Asian countries are affected. All have been affected by this crisis. Which in turn affects the quality decline in the welfare of every citizen. This is due to the monetary sector is never, and will never, loose connection with the real sector. Since, however, the existence of the monetary sector with all policies and other financial institutions that sustain it can not stand alone. As good and clever as any of this sector, is essentially a facilitator for the real sector. Next, we will conduct an analysis of the impact of economic crisis for Indonesia.
CAUSE OF ECONOMIC CRISIS BY THE EXPERT IDENTIFICATION:
- Fenomena productivity gap (the gap productivity) are closely related to the weak or the asset allocation of production factors.
- Fenomena diequilibrium traps (traps imbalance) associated with the production ketidakseimbanagan intersectoral structure
- Fenomena Loan addiction (dependence on foreign debt) associated with the behavior of business actors who tend to mobilize funds in the form of foreign currency (foreign currency)
In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, trade surplus of more than 900 million dollars, foreign currency supply a large, more than 20 billion dollars, and a good banking sector.
But many Indonesian companies borrowed a lot of U.S. dollars. In the following year, when the rupiah strengthened against the dollar, these practitioners have worked well for the company – the level and effectiveness of their debt financing costs have been reduced at the time of the local currency price increases.
In July, Thailand develop baht, Indonesian monetary authorities widened the trade route from 8 percent to 12 percent. Began suffering from a strong rupiah in August. On August 14, 1997, floating exchange regularly exchanged with the floating exchange-free. Rupiah falls more deeply. IMF aid package comes with 23 billion dollars, but the rupiah to fall deeper into debt because of fears of the company, sales dollars, a strong dollar demand. Rupiah and the Jakarta Stock Exchange touched the lowest point in Septemer. Moody’s lowered the long-term debt Indonesia to “junk bond”.
Although the rupiah crisis began in July and August, the crisis was strengthened in November when the effects of devaluation in the summer appeared in corporate balance sheets. Companies that borrowed in dollars have to face greater costs caused by the decrease in the rupiah, and many reacted by buying dollars, that is: sell dollars, lowering prices even further rupiah.
Inflation of the rupiah and the increase in food prices caused confusion in this country. In February 1998, President Suharto sacked the governor of Bank Indonesia, but this is not enough. Suharto was forced to resign in mid 1998 and BJ Habibie became president.
VALUABLE LESSON to be drawn from ECONOMIC CRISIS
- Need to reform governance and development management. For example, How can vulnerability Indonesia fee structure focused only on one side of the problem is with the establishment of Export team. Fitting, the government reviewed deeper problem, namely on the production and distribution.
- Reform the system of decision-making. If governments want to intervene, its effectiveness is determined by the precise timing and adequate magnitut.
- Institutional development needed to sustain the increased dynamics of the healthy economy that could reduce the cost of transactions (transaction cost).