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Sunday, May 29, 2011



Economic Crisis of 1998, not Forgotten Tragedy

"Miracle of the lost". That is the most appropriate term given to the Indonesian economy through 1998. After decades swayed by such amazing growth, in 1998 Indonesia's economy contracted so great. Year-end economic report will reveal all the matter and try to describe the situation for the coming year. The report will set forth two consecutive days, Monday (21/12) and Tuesday, in the Rubric and Rubric MAIN OPINION. All are written by economic journalist Compass, Andi Suruji, Banu Astono, Dedi Muhtadi, Ferry Irwanto, Ninuk M Pambudy, Pieter P Gero, Simon Saragih, Sri Hartati Samhadi, Subur Tjahjono, Tjahja Gunawan, Joseph Umar Hadi, and Yovita Arika.

IN 1998 a witness to the tragedy of the nation's economy. His condition was very tragic and recorded as the most dismal period in the history of the Indonesian economy. Maybe she will always be remembered, as we always remember the black Monday which marked the beginning of the world economic recession October 29, 1929 which is also referred to as the malaise.

Only in a year, dramatic changes occur. Economic accomplishments achieved in two decades, so it sinks. He also once turned all shadows beautiful and sunny in sight to welcome the third millennium.

During the first nine months of 1998, no doubt is the most frenzied period in the economy. The crisis that has been running six months during 1997, grew even worse in a faster tempo. The impact of the crisis began to be felt obviously by the public, the business world.

The International Monetary Fund (IMF) began to lend a hand since October 1997, but proved unable to immediately improve the economic stability and the rupiah. Even such a situation out of control, like a broken kite string. Indonesia's economic crisis even recorded as the worst in Southeast Asia.

Like a snowball effect, the crisis that was originally only started from the baht exchange rate crisis in Thailand July 2, 1997, in 1998 quickly developed into an economic crisis, social crisis and then continued again to the political crisis.

Finally, he also developed into a total crisis that crippled almost all the joints of the nation's life. Tell me, what sectors in this country who does not waver. Even the seat or throne of former President Suharto was shaky, and eventually he left. Maybe Soeharto, for the rest of his life would condemn the devaluation of the baht, which triggered all this.

Snowball effect

The factors that accelerate this snowball effect is menguapnya rapidly public confidence, worsening health condition of President Suharto entered the year 1998, the uncertainty of succession of leadership, wishy-washy attitude of the government in making policies, the magnitude of foreign debt immediately due, the international trade situation is less profitable, and La Nina natural disaster that brought the worst drought in 50 years.

Of the total foreign debt as of March 1998 which reached 138 billion U.S. dollars, about 72.5 billion U.S. dollars of private debt is two-thirds of short-term, in which about 20 billion U.S. dollars will be due in 1998. While at that time lived reserves of about 14.44 billion U.S. dollars.

Confidence collapsed to zero makes the rupiah closed at Rp 4.850/dollar U.S. in 1997, slid quickly to a level of approximately USD 17.000/dollar the U.S. on January 22, 1998, or depreciate more than 80 percent since the currency diambangkan August 14, 1997 .

Amount of drift, other than due to increased demand for dollars to pay debts, as well as a reaction to the draft budget figures 1998 / 1999 which was announced January 6, 1998 and considered not realistic.

The crisis that open ulcers fragility of the economic fundamentals of this rapidly expanded to all sectors. Rupiah drop dramatically, causing the money market and capital markets also fell, national banks in big trouble and the international ranking of the major banks and even government bonds continued to fall to levels below junk or a junk.

Dozens, even hundreds of companies, ranging from small scale up to a conglomerate, collapsed. About 70 percent of companies listed on the stock market was also insolvent or bankrupt postscript.

The sectors hardest hit are mainly the construction sector, manufacturing, and banking, so that gave birth to a big wave of layoffs (layoffs). Unemployment soared to levels not seen since the late 1960's, which is about 20 million people or 20 percent more of the workforce.

As a result of layoffs and rising prices quickly, the number of people below the poverty line also increased to about 50 percent of the total population. While busy invade the rich food stores in an atmosphere of panic, worried that prices will continue to soar.

Income per capita reaches 1155 dollars per capita in 1996 and 1088 dollars per capita in 1997, shrank to 610 dollars per capita in 1998, and two of the three population of Indonesia is called the International Labor Organization (ILO) in very poor condition in 1999 if the economy not soon improve.

Central Bureau of Statistics data also show that the economy is still recorded positive growth of 3.4 percent in the third quarter of 1997 and zero percent the last quarter of 1997, continues to shrink sharply to a contraction of 7.9 percent in the first quarter of 1998, 16.5 percent second quarter 1998 , and 17.9 percent third quarter 1998. Similarly, the rate of inflation until August 1998 was 54.54 percent, with inflation rate reached 12.67 percent in February.

In capital markets, Composite Stock Price Index (CSPI) Jakarta Stock Exchange (JSX) dropped to its lowest level, 292.12 points, on September 15, 1998, from 467.339 on July 1, 1997 start of the crisis. While the market capitalization shrank drastically from the Rp 226 trillion to Rp 196 trillion at the beginning of July 1998.

In the money market, the raising of interest rate Bank Indonesia Certificates (SBI) to 70.8 percent and Money Market Securities (SBPU) to 60 percent in July 1998 (from 10.87 per cent respectively and 14.75 percent at the beginning of the crisis) , causing difficulty rising bank. Negative spread of banking experience and was unable to perform its functions as supplier of funds to the real sector.

On the other hand, the export sector is expected to be a savior in the midst of a crisis, it turns out the same collapsed and was unable to utilize the momentum of depreciation of the rupiah, due to debt burden, large dependence on imported components, trade financing difficulties, and stiff competition in the global market.

During the period from January to June 1998, oil exports dropped about 34.1 percent compared to same period 1997, while non-oil exports grew only 5.36 percent.


The crisis of confidence this creates anomalous conditions and make monetary instruments can not work to stabilize the rupiah and the economy. While on the other hand, the fiscal sector is expected to be driving the economy, is also under pressure due to reflux of receipt.

The situation continued to deteriorate rapidly as the government lost direction and orientation in dealing with the crisis. In the middle position goyahnya, Suharto could convey the concept of "IMF Plus", namely the IMF plus CBS (Currency Board System) in front of the Assembly, before finally abandoned the idea altogether March 20, for obtaining an objection here and there could even bring up the tension with IMF, and IMF had suspended the aid.

CBS and the planned abandonment of the government's promise to return to the IMF program, making the IMF and international support to flow again. On 4 April 1998, all three signed a Letter of Intent. However kelimbungan Suharto, has had time to eliminate a variety of momentum or a chance to prevent the ongoing crisis.

Even trigger adrenali society, which previously regarded to be quiet fierce. Popular anger over the helplessness of government to control the crisis in the middle of the prices continue to soar and waves of layoffs, quickly turned into protests, rioting and bloody clashes in the capital city and other areas, which led to the downfall of Suharto on May 21, 1998.

This bloody tragedy in the scale of capital flight triggered a so-called reach 20 billion U.S. dollars, a wave of entrepreneurs leave descendants, the destruction of a national distribution network, interruption of foreign financing, and ditangguhkannya much foreign investment plan in Indonesia.

The emergence of a new government that has no legitimacy, and more busy with maneuvers to win the hearts of the people, not much help the situation. Deterioration of economic conditions, social, and political with this fast continues until at least the second quarter, even the third quarter of 1998. Thus, we have witnessed the worst episodes of the economy through 1998 .*


Bankrupt Banks Era

INDUSTRY banking during 1998 so the hustle and bustle. Long line of customers banking industry welcomes the beginning of 1998. They really have placed trust in banks under the soles of the feet. Liquidation action without taking into account customer panic, be the beginning of all banking tempest.

Fortunately there is no guarantee of customer deposits, the government issued early 1998 as well. Banking difficulties on one side can be saved because no longer have to dicecer customer panic. However, that assurance can never end the banking crisis had become chronic.

In addition to the legacy of past disease, there are some characters who massacred the banking industry during 1998. First is the legacy of the panic that resulted in customer funding sources empty. Bank Indonesia is to inject liquidity in the form of BLBI. However, the imposition of interest rate BLBI, has also made the owners face a growing burden.

There are other factors that color again, that lending rates higher than the interest rate deposits. The result is a negative spread. Expenses grew just bankers. That said, our banks have stayed buildings without content.

The economic recession has dumped all the loans extended into the garbage. Ideally, owners of the banks themselves have to inject capital to give the spirit of the banking system. However, it can not be done. The owner of the bank also went bankrupt, because loans extended to his own group, trapped in bad loans.

Moreover, some credit has evaporated and most of the savings bank owners in the international banking system. Concerns about an uncomfortable business in Indonesia, have made them run helter-skelter.

As a result, the BI must bear all the burden on the banking. De facto, majority owner of the national banking system is government through the Bank Indonesia. Even most of the private bank's shares have been gripped by the National Bank Restructuring Agency (IBRA).

But the takeover by Bank Indonesia on the shares of national banks, is also not solve the problem. Ideally, as in many countries, governments become helper majority of banking difficulties.

But the government was now like a helter-skelter, suddenly faced with the burden caused ulcers sweeping the banking industry. Ulcers, it is very clearly seen in the majority of bank ratings categorized B (capital has become a negative 25 percent of assets) and C (capital is negative below 25 percent) over the asset.

The government is planning to recapitalize by issuing bonds. It is estimated that there will be Rp 257 trillion to inject bank capital. But the figure was considered too moderate, far from adequate. Own bank nonperforming loans also reached more than Rp 300 trillion. However, Rp 257 trillion figure is also not easy to be fulfilled.

BEFORE recapitalization plan, there are a number of policies issued by the government for healthy banks. Ironically, the policies issued by any bank-to nourish the child-like play rope. Back and forth almost always color the government's policy on banking.

Policy in finance and banking are often revised. Take for example, the pattern of a refund of Bank Indonesia Liquidity Support (BLBI) changing. The government previously set a time limit BLBI return for five years, then changed again to one year.

Until finally after going through many-debate, the government set a deadline of four years for the majority share owner suspended bank (BBO) and the banks take over (BTO) to settle their obligations. However, government policy-plintut plintat can confuse market participants and reduce public confidence in the banking sector.

So, do not be surprised if people continue to confuse. Actually, confusion and panic in society are indirectly created by the government through policies that are not intact. After the return policy BLBI already somewhat bright and clear, now appear recapitalization program (additional capital) banks that are part of the national banking restructuring policy.

Policies that would be even then, not yet clear government policy direction to be taken in the banking world. With the government's bank recapitalization berobsesi create a sound banking and strong and able to compete in the global market.

IN the middle of the confusion, we asked. How healthy banking system. Until now all that remains a big question? Thus, in 1999, the banking industry can not be expected to operate as normal. They have not quite capable of giving credits.

If anyone can operate normally, it's just foreign banks or mixed, or private banks that had been careful enough to channel the funds. However, the number of banks that can act like a finger only in numbers.

Then how prospective national banking? Until now nobody could give complete answers. Various circles, both domestic and internationally in various seminars, are also very confused to see endemic disease banking. In 1999, will still be continued with a number of questions how to settle the banking system.

But clearly, a liquidation is inevitable. That is part of banking reforms, which could be said, also remains a step summary. Thus, observing the banking industry during 1999 is something they look forward.

Actually there is the most urgent thing that seems to have no correlation, but to nourish the banking industry, it is absolutely necessary. As known, in what is already integrated, the role of capital flows have become a buffer the economy, and banking as well as one country.

That capital flows, including those in the category of portfolio investment in the form of stock-bond or other money market products. Other capital flows, are also referred to as foreign direct investment (FDI flows).

For the Asia Pacific region, including Indonesia, it has happened. But the uniqueness of Indonesia, could not immediately reverse the capital flows out into capital inflows. South Korea and Thailand, are the most accurate and astute, and realize the importance of capital flows back into it.

For Indonesia, although considered attractive, but the bloody riots have made investors terrified to go to Indonesia. Let alone to berbinis, for even they are reluctant to visit. Therefore, political tranquility, is the absolute thing that must be listened to authority.


Economic Recovery Depends on the Settlement of Political Agenda

IMPLEMENTATION political agenda in a safe, smooth, orderly and in accordance with the aspirations of most people is a must, if desired economy will soon recover. Conversely, when social unrest is increasing, and elections can not be done, it is difficult to expect an economic recovery in quick time.

Admiral Sukardi rate, economic conditions in 1999 are in a critical situation. This means that the national economy at a crossroads between the possibility of recovery and destruction. Half-half chances.

Investors be waiting, whether the elections will run an honest and fair, and democratic. Both are conditional on the establishment of a credible government of the people. If so, then the Indonesian economy will quickly recover, because investors will definitely come back to Indonesia.

Therefore, the desires of the whole people of Indonesia who wants honest elections, fair, transparent, and democratic have actually implemented and not negotiable. According to him, foreign capital inflows as the best way of economic recovery can only happen if there is a clean government, supported by the people, the rule of law and independent judicial system.

The success of the elections and the General Assembly in 1999 are not necessarily just happen. Start now to be prepared. But the shadow of failure is still raging, given the intensity of violence and incidence of robbery and looting that makes people feel unsafe are still common.

SEE importance of political settlement, national dialogue pegelaran plan is very important. Through national dialogue, it is expected the figures involved the perception that elections should succeed and fit people's aspirations.

We are both willing, democratic government and supported the people. The government now dare to admit, that he is preparing for the transition and only the government that will come. Instead of national figures should also be brave to admit the current administration.

In addition to political problems, economic sectors, especially monetary reform is also very important, if we expect the economic recovery. Two fundamental problems that must be resolved, namely the restructuring of banking and foreign debt.

First, bank restructuring should be managed. Recapitalization plan probably will not work. Therefore, the government must dare to make the closure of banks that are not solvent, thus only a few banks are strong and professional.

Prior to overcome the private banking sector, state-owned banks should also be completed. If the bank issue is not resolved, then there will be no economic activity, since no Kodal employment and trade.

Second, the problem of foreign debt and private. How far this LN debt problem can be solved. Because, to end the banking crisis of international confidence in the government depends on the settlement of the debt. If default, then the credibility down and investors are reluctant to enter Indonesia.

Chairman of the Indonesian Young Entrepreneurs Association, Haryadi B Sukamdani said, as a businessman it had to be optimistic. But if you look at the field, especially the political developments there, so that there is only feeling anxious and insecure. Because the election is still far away, but the intensity of violence is quite high, especially later when approached the campaign and election.

Therefore, the attitude of employers in 1999 this is definitely going to wait. Investments will not be there. What is happening, the entrepreneurs only increase volume and sales of existing ones. Employers can not rely on the domestic market, but abroad.

If the political settlement, the people support the new government, the economy will quickly return. Of particular concern is that if there was social unrest due to failure of elections that do not accommodate people's aspirations.

With such considerations, the business community see the condition of the national economy in 1999 is like a person who was driving in the middle "thick fog". Heavy fog (socio-political situation-Red) causes the driver (read: employers) can not look far ahead. On the basis of safety considerations, then the rider had no choice but to discontinue the trip and wait until the fog was gone .*


Rupiah and stock, weaving How Snakes

RUPIAH did not want to miss the red ink has been incised in the history of the economy. Stock markets were the case, the volatile and if drawn looks like a snake winding. Still remember when the rupiah exchange rate is almost through Rp 17,000 per U.S. dollar on June 17, 1998?

Once Suharto's claim to resign as President of the 2nd RI May 21, 1998-estimated what the market and could ease the wave-stroke also helped the rupiah. Rupiah was around Rp 11,000 per U.S. dollar. The tendency of the market weakening rupiah, continued to worsen since the shootings Trisakti May 12, and acts of looting May 14 in Jakarta.

This was followed by a wave of unrest and political action that seemed inexhaustible after the resignation of Suharto. Blows insistently over the rupiah reached his gong, after the Japanese yen currency to depreciate sharply June 12, 1998. The rupiah plummeted further to Rp 17,000, the lowest level during its history.

The economic conditions that have contracted to minus 13 percent, high inflation, soaring interest rates that banks give bad impact for companies including those already listed on the stock. end the banking crisis Composite Stock Price Index (CSPI) Jakarta Stock Exchange (JSE) in September and then finally reached the lowest point of 254 points.

Towards the close of 1998, stock index climbed slightly increased beyond the level of 400 points. Interest rates began to decline due to inflation comes under control and action on foreign exchange speculation which began to subside helped. It is also experienced rupiah which tend to have improved since last September and now continue to roost at the level of Rp 7,000 to Rp 8,000.

FOLLOW trip rupiah exchange rate and stock index during 1998 is like up and down mountains with steep valleys and canyons. "The limit is the sky rupiah," said economic analyst Hartojo Wignjowijoto when the rupiah continued to weaken approaching USD 17 000 in June.

Market can not compromise with political developments. Negative condition is aggravated by global developments such as the fall of the yen exchange rate.

The rupiah a year ago is still moving between Rp 4,000 - Rp 5,000 per U.S. dollar. Not too "bad" when associated with the current state of moving between Rp 7,000 - Rp 8,000. However, domestic economic conditions were no longer able to support the rupiah is expected to remain stable since the Bank Indonesia (BI) releases the range of interventions August 14, 1997 and closed 16 private banks in November.

Political maneuvering further exacerbate the market confidence on the Indonesian economy. The presence of candidate for vice president BJ Habibie at the time, make the market believe that Indonesia will remain with a high cost economy. The attitude of the government which also tug assistance programs in reaching agreement with the International Monetary Fund (IMF) further complicate the situation.

It is also seen in stock prices on the JSE. Having had time to soar beyond 700 points in June 1997, the stock index continued to free fall nearly 300 points in December and January 1998. Luckily, the government signed a letter of intent with the IMF on January 15, making foreign exchange and stock markets reacted positively to the improving economy.

The rupiah strengthened immediately return to below USD 10,000. Even had time to be under Rp 8,000 per U.S. dollar in February. BI intervention in the foreign exchange market helped. Revision of the Draft State Budget 1998 / 1999, an act of the first revision done during this administration, also shows the serious attitude of government in a crisis.

On the stock market, stock prices also jumped back. The index continues to rise above 500 points in February 1998. According to market observers Jasso Winarto that time, foreign investors began to target the seed stocks of Indonesia when it was very cheap. The agreement with the IMF also gave positive sentiment Indonesia's economic crisis will soon improve.

AS many observers say, Indonesia's financial crisis was already widened into an economic crisis. Not only that, the crisis also began to get into politics which has practically become "taboo areas." As a result, the belief in the Indonesian economy is slowly but surely, began to disappear.

Letter of credit (L / C) from Indonesia is no longer acceptable to all parties in foreign countries. More frantic again, overseas borrowers urged the recipients of loans in the country to immediately pay its debts. At that time, an estimated 9.8 billion U.S. dollars of short-term private sector debt maturing Indonesia. As a result, pressure on the rupiah increasingly insistent.

Foreign exchange markets and stock exchanges such as have been broken charcoal against the government of Indonesia. As already stated above, since it kept the rupiah plunged to nearly USD 17 000 (in Singapore has reached USD 17 000). Stock price index also began to show declining tendency through the number 400 points to go up a little just a few times minor correction.

Since June and July 1998, the rupiah which reached the lowest rate, slowly began to improve. The pressure on the rupiah began to weaken, after some negotiations for the settlement of private foreign debt reached an agreement in Frankfurt, Germany. The IMF also began to disburse aid funds. A number of friendly countries are also beginning to show a supportive attitude of Indonesia's economic program.

Unfortunately, this recovery step has not been seen in the stock market. Stock prices kept falling. Not infrequently, the share price on the JSE was worth the price of candy. The price of cigarettes or mineral water far above the price per share. Stock index continues to fall until September to its lowest 254 points.

The question is whether the rupiah exchange rate and stock index will still be stable at this level when entering the year 1999? End of 1998, the rupiah and the stock recovered somewhat. However, as noted, the problem faced by an individual or a nation, must begin to be resolved from ourselves.

That means, since the current government should be able to solve all economic and political issues in the country. Transparent, firm, clear, and quickly needed. Do not get even cause confusion and obscurity .*

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