Assessing The IMF Funding Program in Indonesia with Reference to 1997’s Asian Financial Crisis

Abstract

Asian Financial crisis of 1997 started from Thailand and violently spread to Indonesia. As a result foreign speculative investors pulled out their investments fully from the country and sucked US dollar liquidity by causing severe depreciation of the Indonesian currency ‘Rupiah’. Private sectors, however, where most of the domestic borrowings were in the low interest rates and their profits were in Rupiah-their debts suddenly increased as per the US dollar get valued quickly, thus, heavy Rupiah depreciation leaved many companies virtually bankrupt. For the short term relief, these companies desperately sold Rupiah and buy US dollar, this caused Rupiah value to drop-out more from RP 2,600 per US $ in 1997 to RP 14,800 per US $ in January 1998. Efforts made by the central bank to defend Rupiah floating by selling Dollar in International market had not much result oriented, but, at other side the drained Indonesian foreign exchange reserves and enforcing government to free-float the currency sought liquidity from the International Monetary Fund (IMF). This paper attempts to present an overview that caused Indonesia to get economically hit by the 1997’s Asian Financial Crisis, its drawbacks and shortcomings under the International Monetary Funds’ prescribed policies that further may or may not influence the Indonesian economy. The aim of this paper is to clearly focus on the role of International Monetary Fund in 1997’s financial crisis towards Indonesia. This would also be taken in to consideration that as the study focused Asian Financial Crisis, statistical data has been calculated about crisis and post crisis period i-e from 1997 up to 2003. For Indonesia, 2003 is that year where she had been repaid its entire external loan outstanding to IMF. No any loan disbursements have been found from IMF to Indonesia the year after.