The INDONE51AN ECONOMY

Transcription

1 The INDONE51AN ECONOMY In

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3 The INDONE51AN ECONOMY Causes, Consequences and Lessons HAL HILL M Palgmve Macmillan

4 Published by Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Road Singapore Internet World Wide Web: First published in the United States of America in 1999 by St Martin's Press Scholarly and Reference Division 175 Fifth Avenue New York, N.Y All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photoeopying, reeording or otherwise, without the prior permission of the Institute of Southeast Asian Studies Institute of Southeast Asian Studies, Singapore Softcover reprint ofthe hardcover 1 st edition Library of Congress Cataloguing-in-Publication Data Hili, Hai, The Indonesian eeonomy in crisis: eauses, eonsequenees and lessons / HaI Hili. p. em. Includes bibliographical referenees and index. 1. Indonesia-Economie poliey. 2. Indonesia-Economie conditions Indonesia-Soeial eonditions. I. Tide. HC447.H dc CIP ISBN ISBN (ebook) DOI / For the USA and Canada, this hardcover edition is published by St. Martin's Press, New York. Typeset by Superskill Graphies

5 CONTENTS Tables Figures Acknowledgements I. Introduction 11. Prelude to the Crisis III. The Course of the Crisis vii Vlll IX IV. Socio-Economic Impacts Eeonomie Indieators Finaneial Indieators Soeial Indieators v. Causes of the Crisis Pre-Crisis Vulnerability Factors External debt and eapital mobility Poor macroeeonomie management Poor finaneial regulation Corruption and governanee Management oj the Crisis A ehronicle of poliey errors KKN again The role of the IMF Additional adverse faetors A Summing Up v

6 VI CONTENTS VI. The Way Ahead 85 Monetary and exchange rate poliey 91 Fiseal poliey 92 Banking reform and eorporate debt restrueturing 94 Mieroeeonomie and seetoral reform 97 Soeial Poliey 101 VII. Broader Analytical Issues 107 Capital Controls (and Sequencing)? 108 What Sort of Exchange Rate Poliey? 110 Finaneial Reform and Regulation 113 Endnotes 117 References 129 Index 137 About the A uthor 153

7 TABLES 1 Chronology of Major Events, July 1997-May Southeast Asian Economic Indicators, GDP Growth by Sector, Growth of Expenditure on GDP, Indonesia's Balance of Payments, 1995/ / Comparative Financial Data, FDI Flows to the Asian Crisis Economies, Labour Market Adjustment, Estimates of Poverty Incidence Southeast Asia: Pre-Crisis Indicators Indonesia's External Debt, Indonesia's External Debt, Southeast Asian Stock Market Performance pre-crisis Pre-Crisis Corporate Performance, Indonesia: and 1997 Compared Financial Crises Compared 95 VB

8 FIGURES 1 The Crisis in Summary 16 2 Exchange Rate Movements in Southeast Asia, Inflation and Money Supply, 199~ Interest Rates, 199~ Prime Office Rentals in Four East Asian Cities, Vlll

9 ACKNOWLEDGEMENTS Many people have kindly assisted with comments, advice, information and encouragement. Three good friends, Heinz Arndt, Sisira Jayasuriya, and Chris Manning, read an earlier version and provided very detailed comments. I am especially grateful to Chris Manning, who has in some respects been a "silent partner" throughout this enterprise (though not so silent on the Law School courts, Coombs tea room and cellar bar!), in the course of also producing his own analysis of the crisis (forthcoming as Manning, 1999). Others who have helped with ideas and discussions include Ross McLeod, Anwar Nasution, Thee Kian Wie (I'm not so optimistic this time, Bung!), Mohammad Sadli (your daily messages are indispensable, Pak!), Hadi Soesastro, Chandra Athukorala, Peter McCawley, Colin Johnson, Mari Pangestu, Ross Garnaut, Anggito Abimanyu, Mayling Oey, Peter Gardiner, George Fane, and Jamie Mackie. Chatib Basri, Kelly Bird, Colin Johnson, and Bijit Bora kindly assisted with some data reguests. Seminar participants over the past 18 months in Canberra, Jakarta, Singapore, Auckland, Seoul, Kita Kyushu, Hanoi, Sydney, Brisbane, Adelaide, and Melbourne have helped develop my ideas. I leamed much from participating in the highly stimulating Canberra workshop ofnovember 1998 on "Indonesia's Economic Crisis", while the weekly seminar programme at the ANU Division of Economics has been a constant source of intellectual enrichment. I also benefited greatly through interacting with the group of contributors to the Arndt & Hill (1999) edited volume on the crisis in Southeast Asia. IX

10 x CONTENTS As always, I am very pleased to be associated with Triena Ong and her highly efficient and pleasant publications team at ISEAS. A first draft of this volume was completed in April 1999, and the revised version a month later, just prior to the holding of Indonesia's first reasonably free and fair election in 44 years. Events there are chan ging exceptionally quickly, and the outlook remains extremely uncertain. Readers are asked to keep these caveats in mind. May 1999