Issues and Aspects of Development, Growth, Trade and Investment
Edited by Tran Van Hoa
Chapter 4: Indonesia: charting the road to recovery
Charles Harvie 1 INTRODUCTION The Indonesian economy experienced a dramatic economic collapse in 1998 after the financial convulsions in the second half of 1997 and the early part of 1998, with GDP declining by some 13·7 per cent. The speed and intensity of this economic and social collapse surprised many, particularly given the economy’s impressive pre-crisis economic and social outcomes. GDP grew by an average of more than 7 per cent per year between 1990 and 1996, and even during 1997 the overall growth rate was 5 per cent. This 19 per cent turnaround in economic growth in a single year represented one of the most dramatic economic collapses recorded anywhere in the world since the Great Depression. During this period foreign and domestic investors fled the country; hundreds of non-bank corporations became effectively bankrupt; the banking system effectively ground to a halt, with very little new lending taking place and dozens of banks becoming insolvent; imports fell by 34·4 per cent in 1998, reflecting a collapse of domestic demand, and in particular that of investment expenditure; thousands of Indonesians lost their jobs in the formal sector and sought employment in the informal sector; and millions faced a substantial reduction in their standard of living. There is no quick fix to the country’s plight,1 and it will take many years before the country can hope to regain pre-crisis rates of economic growth. However, a glimmer of hope occurred during 1999, when there were signs that the economy...
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