1. “Development Experiences in Developing Countries”
-A Case Study on Indonesia
Presentation :
Presented By:
MD. ARMAN HOSSAIN A.B. (30006)
NABED PARVEZ (30002)
MD. ANWAR HOSSAIN (29087)

2. 16th- 17th Century 18th Century 19th Century 20th Century
Agriculture & Local
Regional Trade
Coffee & Sugar
Production
Started the
Growth of Private
Entrepreneurship
Oil Boom, Rapid
Growth, FDI
21st
Chronological Survey of Indonesian Economy..:

3. Growing
Industry
Introduced
with Modern
Technology
Production of
steel, and
cement got
momentum
Increased the
Crossed
Border Trade
Change of
Economic
Policies
The First
Deregulation
Policies
Devaluation
of Rupiah by
10% against
USD
Political Reformation of Indonesia..:
President
Suharto came
Power in 1966

4. Oil Embargo by OPEC…….
0.966
1.56
5.08
7.15
9.02
15.73
11
7.16
5.27
0 2 4 6 8 10 12 14 16 18
1972
1973
1974
1977
1979
1981
1983
1985
1990
Crude Petroleum Export of Indonesia (1972-1990 in
USD Billion)
Oil Price
Rose to $12
from $3 per
Barrel
Reshaped
the Fortune
of Indonesia
Reshaped the
International
Position of
Indonesia
Exported 1+
Million Barrels
per Day
Oil Revenue
Contributed to
70% of Budget
in 1980s
Oil Boom also Led to
Corruption, Political
Repression &
Inflation

5. Inflation of Indonesia after 1970s:
The New Order
Government
Successfully
Reduced it
Because of Oil
Boom it hiked
33.3%
Government’s
great efforts
reduced the
inflation to single
digit
During the 1980s, Government cut the deficit in its current
account balance to control the inflation.

6. Economic Reformation of Indonesia in 1980s-1990s
Oil Price Started to Fall at 1982 Devaluation of Rupiah in 1983
Export Earnings of Oil Decreased Third Deregulation Policy in 1986
2nd Deregulation
Debt Repayment Became Difficult FDI & Manufacturing Export
Foreign Direct Investment of Indonesia 1970-1992

7. THE ASIAN FINANCIAL CRISIS:
The Asian financial crisis was a period of financial crisis that gripped much of East
Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due
to financial contagion.
The crisis started in Thailand (well known in Thailand as the Tom Yum Goong crisis)
with the financial collapse of the Thai baht after the Thai government was forced
to float the baht due to lack of foreign currency to support its fixed exchange rate,
cutting its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a
severe financial over-extension that was in part real estate driven. At the time,
Thailand had acquired a burden of foreign debt that made the country
effectively bankrupt even before the collapse of its currency. As the crisis spread,
most of Southeast Asia and Japan saw slumping currencies, devalued stock markets
and other asset prices, and a precipitous rise in private debt.
Indonesia, South Korea and Thailand were the countries most affected by the
crisis. Hong Kong, Laos, Malaysia and the Philippines were also hurt by the slump.

8. THE INDONESIAN CRISIS BEGINS:
• Although the Asian region showed worrying signs, foreign investors initially kept confidence
in the Indonesian technocrats‘ ability to weather the financial storm (as they had done before
in the 1970s and 1980s). But this time, however, Indonesia would not get off scot-free. It
became the hardest-hit country because the crisis not only had economic but also significant
and far-reaching political and social implications.
• When pressures on the Indonesian rupiah became too strong, the currency was set to float
freely starting from August 1997. Soon it began depreciating significantly. By 1 January 1998,
the rupiah's nominal value was only 30 percent of what it had been in June 1997. In the years
prior to 1997 many private Indonesian companies had obtained un-hedged, short-term
offshore loans in dollars, and this enormous private-sector debt turned out to be a time
bomb waiting to explode. The continuing depreciation of the rupiah only worsened the
situation drastically. Indonesian companies rushed to buy dollars, thus putting more
downward pressure on the rupiah and exacerbating the companies' debt situation. It was
certain that Indonesian companies (including banks; some of which were known to be very
weak) would suffer huge losses. New foreign exchange supplies were scarce as new loans for
Indonesian companies were not granted by foreign creditors. As the government of Indonesia
was unable to cope with this crisis it decided to seek financial assistance from the
International Monetary Fund (IMF) in October 1997.

9. Indonesian GDP and Inflation
1996-1998:
1996 1997 1998
GDP growth
(annual percent change)
8.0 4.7 -13.6
Inflation growth
(annual percent change)
6.5 11.6 65.0

10. THE IMF ARRIVES AND CHAOS
CONTINUES:
• The IMF arrived in Indonesia with a bailout
package totaling USD $43 billion to restore
market confidence in the Indonesian rupiah.
In return it demanded some fundamental
financial reform measures:
– the closure of 16 privately-owned banks,
– the winding down of food and energy subsidies,
and
– it advised the Indonesian Central Bank (Bank
Indonesia) to raise interest rates.

11. • The second IMF agreement (January 1998): This second IMF agreement
contained a detailed 50-point reform program,
– including provisions for a social safety net,
– a gradual phasing out of certain public subsidies and
– the tackling of Suharto's patronage system by ending monopolies of a
number of his cronies.
The IMF indeed made errors in its initial approach to the Indonesian crisis but
it did come to realize that the key in overcoming this crisis was to restart
private capital flows to Indonesia. In order for this to happen the patronage
system had to be broken down.
• A third agreement with the IMF was signed in April 1998.
– large food subsidies for low-income households were granted
– The budget deficit was allowed to widen.
– The privatization of state-owned companies, faster action on bank
restructuring, a new bankruptcy law and a new court to handle
bankruptcy cases.

12. A fourth agreement with the IMF. It was signed in June 1998 and
allowed the budget deficit to widen further while new funds were
pumped into the economy. Within the time span of a couple of
months there were some signs of recovery. The rupiah began to
strengthen from mid-June 1998 (when it had fallen to 16,000 rupiah
per dollar) to 8,000 rupiah per dollar in October 1998, inflation
eased drastically, the Jakarta stock exchange started to rise and
non-oil exports started to revive towards the end of the year.
The banking sector (center of the crisis) remained fragile as the
numbers of non-performing loans were high and banks were very
hesitant to loan money. Moreover, the banking sector had caused a
sharp increase in government debt as this debt was primarily due to
the issuance of bank restructuring bonds. But, albeit fragile, the
country's economy improved gradually through 1999, partly due to
an improving international environment which caused a rise in
export revenues.