2. Causes of the Crisis
โข Earlier financed by hot money flows (on capital account). Hot
money flows were accumulated because of higher interest rates
in the East.
โข In the late 1990s, the US increased interest rates to reduce
inflationary pressures. Higher interest rates in the US, made the
East less attractive as a place to move hot money flows. As hot
money flows into the east dried up, currencies started to fall.
โข Financial deregulation encouraged more loans and helped to
create asset bubbles.
โข Booming economy and booming property markets encouraged
expansive borrowing by firms.
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3. Causes of the Crisis
โข The IMF insisted on fiscal restraint โ lower spending, higher
taxes and privatization. This contractionary fiscal policy
caused the economic downturn to exacerbate and the
economy plunged into recession. Bankruptcies increased
and there was a flight of capital.
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6. 1. Change in Imports and Exports volume -> Poverty.
2. Increase burden of Foreign Debt -> Foreign Debt Cost Effect
of a national currency depreciation.
3. Changes in Employment/ Income.
4. Inflation
5. Import Substitution New Order (1966-98);
price depreciation -> closing of manufacturing industries ->
fail to compete one - one hand with other markets.
6. The capital flight caused the currency to drop dramatically,
causing businesses with foreign loans to have to payback
more money.
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โขCauses of 1997/98 Crisis
7. โข Increase in Poverty.
โข Increase in Interest rate -> National Banking sector was
collapsed.
โข Before crisis 1USD cost 2600 rupiah but during crisis it
reached historic low of 11000 rupiah for 1USD.
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โข Effects of 1997/98 Crisis
8. โข Decrease in GDP growth rate.
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โข Effects of 1997/98 Crisis
9. 9
โข Effects of 1997/98 Crisis
โข Decrease in Indonesian Income per capita.
12. Key learnings from the Data
โข How international political economies affects the
regional countries.
โข Many Monetary reasons were at the fore front of it
โข How IMF, World Bank and other international
institutions play their role.
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13. 13
โข As noted in the chart, it varies from 70 percent to
120 percent, and most provinces are in the 80โ100
percent range.
14. If a poor person has rice as his staple than he is in
trouble
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16. Microfinance Success Amidst Macroeconomic
Failure!!!!
Any guesses???????????????
Any inferences?????????????
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17. Experience of Bank Rakyat Indonesia (BRI)
The monetary crises of the BRI had three reasons
๏1. Onset
โข Rice crop was totally lost created a sever drought.
โข โHOTโ short-term money, forced bank of Indonesia to
let market set the exchange rate.
โข Largest Indonesian conglomerate had borrowed
dollars abroad more than twice the total foreign
exchange debt of the government.
๏2. Effects on Interest Rates
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18. Experience of Bank Rakyat Indonesia (BRI)
๏3. Bank Liquidity and Solvency
โข Bank Indonesia gave unlimited guarantee of all
deposits in all banks.
โข Hence there were runs on several private banks:
โข 2 of them taken by (IBRA)
โข From Nov 1997 to March 1999, 61 banks were closed
โข Another 11 banks were nationalized
โข 4 of 7 state banks were being merged
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