FINANCIAL CRISIS IN INDONESIA: Problem, Solutions, and Lessons. FISKARA INDAWAN Econ 522, Spring 2007 May 1, 2007 University of Illinois, Urbana-Champaign. Outline. The root of financial crisis in Indonesia Why Indonesia had the worst crisis? What was the policy response for the crisis?
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Problem, Solutions, and Lessons
Econ 522, Spring 2007
May 1, 2007
University of Illinois, Urbana-Champaign
“the enormous depreciation of the rupiah did not seem to stem from macroeconomic imbalances, which remained quite modest. Instead, the large depreciation reflected a severe loss of confidence in the currency, the financial sector, and the overall economy” (LOI 01/15/98).
- increasing the revenue and reducing the spending.
- target: budget surplus 1% of GDP.
- Liquidate more insolvent banks.
- Merger and acquisition among banks.
- Strict rules on prudential banking (CAR, risk-based supervision).