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The Indonesian Economic Crisis of 1997

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The Indonesian Economic Crisis of 1997 was a result of many forces that collapsed; however, I believe that these causes can be traced back to two main forces: bad economic policy and corruption within the government. This economic crisis was not restricted to just Indonesia, this was felt throughout the Asian-Pacific community, some weathered the storm better than others, but everyone still felt the winds of economic disaster. After the economic crisis of 1997 had ended, years later, investors and economic advisors were still paranoid of the events that had past transpired; this crisis was the perfect economic storm that no market is free from, the big worry is when will the next one hit? The Suharto family was not concerned about the wellbeing of the country, only the wellbeing of themselves and their bank accounts. Such visions of greed and not progress is a major part of what brought this nation to its knees, the corrupt did not see these problems coming from ahead because they were never looking ahead, only looking at what they had and that they wanted more for themselves. Pre-1997 the Asian markets that would soon be hit by the crisis were booming economically, countries like Indonesia, South Korea, and Thailand were experiencing great market output. They were dubbed the “Tiger” economies of Southeast-Asia. They were a prime target for foreign outside investment and this is one of the things that helped build them up, also later was one of the legs they stood on so heavily that once removed it tore everything down. These countries were experiencing unbelievable growth, over 6% per year in many cases, thus providing such a great investment opportunity for others. In Indonesia’s case they were experiencing a GDP growth rate of 8% in 1996, a year before the crash, during 1997 it would fall to 4.7% and tumble to -13.6% in 1998 (post-crash). However, we must not just evaluate GDP, but also inflation growth: 1996 it was sitting at 6.5%, 1997 it rose to 11.6 (doubled) and in 1998 it skyrocketed to 65% (x6 times higher compared to the previous year). There were very clear signs this particular economy was struggling and that is why during the time of decline foreign investors dumped their share in this “Tiger” economic, thus removing the stilts supporting the whole economic foundation of Indonesia (and other Asian-Pacific countries). Indonesia was a dominate force in creating an export-driven-economy model. They followed similar suit to other nations in their sphere like Malaysia, it was a newly formed industrial powerhouse and was a proud “Asian Tiger” economy (Dick, Houben, Lindblad and Wie). The President shifted the focus of the country during the oil crisis of the 1970s and 1980s to a more profitable (and stable) sector of work which was manufacturing. Since Indonesia was a prime location to manufacture goods, due to low wages for workers, it became an opportunity for companies to expand. The whole model was supported by vast capital investment which only helped the country’s three main sectors (agriculture, services and manufacturing) grow beyond projections. New tax law created in 1960s (The Foreign Investment Law and Domestic Investment Law) created new opportunities for external/internal investment by creating tax incentives to invest with Indonesian companies over other country’s companies. However, Indonesia was considered a country with a “high cost of doing business” because of the amount of bribes that you needed to pay in order to receive the speedy service from the governmental agencies to process your business (will elaborate in the corruption section later). (Dick, Houben, Lindblad and Wie) President Suharto saw possibility with new economic ideals, instead of being very anti-western/anti-capitalistic, there was more ability in wealth creation if they opened up to the world economy. There is more money for political elites in these countries to be globalized, because they have the power to create policy which is friendly to foreign business/investment and they have the cheap labor to supply the demand. The new favorite word of the President was now “deregulation” so that he could create pathways for his future family’s economic monopoly within the country. Indonesia’s agricultural sector o

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