| Indonesia has a market-based economy in which | | | | clove monopoly, both involving family members of |
| the government plays a significant role. It owns | | | | President Suharto. The rupiah failed to stabilize for |
| more than 164 state-owned enterprises and | | | | any significant period of time, however, and |
| administers prices on several basic goods, including | | | | President Suharto was forced to resign in May |
| fuel, rice, and electricity. In the aftermath of the | | | | 1998. In August 1998, Indonesia and the IMF |
| financial and economic crisis that began in | | | | agreed on an Extended Fund Facility (EFF) under |
| mid-1997, the government took custody of a | | | | President B.J Habibie that included significant |
| significant portion of private sector assets through | | | | structural reform targets. President Abdurrahman |
| acquisition of nonperforming bank loans and | | | | Wahid took office in October 1999, and Indonesia |
| corporate assets through the debt restructuring | | | | and the IMF signed another EFF in January 2000. |
| process. | | | | The new program also has a range of economic, |
| Current GDP per capita grew an astonishing | | | | structural reform, and governance targets. |
| 545% in the Seventies fuelled by oil demand. But | | | | The effects of the financial and economic crisis |
| this proved unsustainable and growth fell sharply | | | | were severe. In 1998, real GDP contracted by an |
| to a manageable 20% in the Eighties and 13% in | | | | estimated 13.7%. The economy bottomed out in |
| the Nineties. | | | | mid-1999, and real GDP growth for the year was |
| During the 30 years of president Suharto's "New | | | | an anemic 0.3%. Inflation reached 77%in 1998 but |
| Order" government, Indonesia's economy grew | | | | slowed to 2% in 1999. The rupiah, which had been |
| from a per capita GDP of $70 to more than | | | | in the Rp 2,400/USD1 range in 1997 reached Rp |
| $1,000 by 1996. Through prudent monetary and | | | | 17,000/USD1 at the height of the 1998 violence, |
| fiscal policies, inflation was held in the 5%-10% | | | | returned to the Rp 6,500-8,000/USD1 range in |
| range, the rupiah was stable and predictable, and | | | | late 1998. It has traded in the Rp 6,500-9,000 |
| the government avoided domestic financing of | | | | USD1 range since, with significant volatility. |
| budget deficits. Much of the development budget | | | | Although a severe drought in 1997-1998 forced |
| was financed by concessional foreign aid. | | | | Indonesia to import record amounts of rice, |
| In the mid-1980s, the government began | | | | overall imports dropped precipitously in the early |
| eliminating regulatory obstacles to economic | | | | stage of the crisis in response to the unfavorable |
| activity. The steps were aimed primarily at the | | | | exchange rate, reduced domestic demand, and |
| external and financial sectors and were designed | | | | absence of new investment. Although reliable |
| to stimulate employment and growth in the non-oil | | | | unemployment data are not available, formal |
| export sector. Annual real GDP growth averaged | | | | sector employment contracted significantly. |
| nearly 7% from 1987-1997, and most analysts | | | | In late 2005 Indonesia faced a 'mini-crisis' due to |
| recognized Indonesia as a newly industrializing | | | | rising oil prices and imports. The currency reached |
| economy and emerging major market. | | | | Rp 12,000/USD1 before stabilizing. The |
| High levels of economic growth from 1987-1997 | | | | government was forced to cut its massive fuel |
| masked a number of structural weaknesses in | | | | subsidies, which were to cost $14 billion for 2005, |
| Indonesia's economy. The legal system was very | | | | in October. This led to a more than doubling in the |
| weak, and there was and is no effective way to | | | | price of consumer fuels, resulting in double-digit |
| enforce contracts, collect debts, or sue for | | | | inflation. The situation has stabilized, but the |
| bankruptcy. Banking practices were very | | | | economy continues to struggle with inflation at |
| unsophisticated, with collateral-based lending the | | | | 17% in January 2006. |
| norm and widespread violation of prudential | | | | As of early 2006, Indonesia's economic outlook is |
| regulations, including limits on connected lending. | | | | more positive. Economic growth accelerated to |
| Non-tariff barriers, rent-seeking by state-owned | | | | 5.1% in 2004 and reached 5.6% in 2005. Real per |
| enterprises, domestic subsidies, barriers to | | | | capita income has reached pre-crisis levels. |
| domestic trade, and export restrictions all created | | | | Growth is driven primarily by domestic |
| economic distortions. | | | | consumption, which accounts for roughly |
| The regional financial problems that swept into | | | | three-fourths of Indonesia's gross domestic |
| Indonesia in late 1997 quickly became an | | | | product. The Jakarta Stock Exchange was the |
| economic and political crisis. Indonesia's initial | | | | best performing market in Asia in 2004, up some |
| response was to float the rupiah, raise key | | | | 42%. Problems that continue to put a drag on |
| domestic interest rates, and tighten fiscal policy. In | | | | growth include low foreign investment levels, |
| October 1997, Indonesia and the International | | | | bureaucratic red tape, and widespread corruption. |
| Monetary Fund (IMF) reached agreement on an | | | | However, there is very strong optimism with the |
| economic reform program aimed at | | | | conclusion of peaceful elections during the year |
| macroeconomic stabilization and elimination of | | | | 2004 and the election of the reformist president |
| some of the country's most damaging economic | | | | Susilo Bambang Yudhoyono. |
| policies, such as the National Car Program and the | | | | |