The Asian financial crisis made a big impact to Indonesia, which pressure the Indonesian rupiah and lead to the inflation of rupiah currency. Rupiah depreciation became worsen and causes a lot of domestic problems in this country.So the government of Indonesia sought financial help from the international monetary fund while the government could not deal with this crisis.
First the IMF came into this country and brought USD $43 billion to restore the Indonesia rupiah.However, the IMF demanded some fundamental financial reform measures. First, they close 16 private banks then they started to reduce the subsidies of food and energy supplies and they recommended the Indonesia central bank (Bank Indonesia) to increase the interest rates. However, this problem still could not be solved so, people lost the confidence in The macroeconomic policies were established to tackle with this financial crisis.
These policies contain a short run stabilization program to cut domestic expense, particularly government spending and any kind of investment. In addition, trade and investment policies were established, the economy was opened up for foreign competition and capital and the market structure was reform in order to improve the market transparency. Fiscal Distress and Stabilization Program is a short-run fiscal consolidation program to eliminate the underlying fiscal and quasi-fiscal deficits( the deficits of central bank).
The important thing to this is to increase revenues from taxation and profits of state-owned enterprises. It involves cutting down the government expenditures, including subsidies and public investment spending. Banking RestructuringDue to the banking system was weaken so they did not had the capability to limit the extending credit and the reduction interest rates. first they merged four state-owned into one bank. Second, they strengthen the capital base by welcoming new investors, including foreigners, to inject capital. Third, they established the Indonesian Bank Restructuring Agency (IBRA), which under auspices of the Ministry of Finance to control the banks restructuring and manage the restructuring process and assets that restructuring require. Fourth, making operations of state-owned enterprises more transparent and independent by cutting their links to government.
Fifth, giving a full autonomy in formulating and implementing monetary policy to strengthen Bank Indonesia.Sixth, market infrastructure will improved along with measures to strengthen capability of Bank. Seventh, Indonesia authorities provide a full guarantee on deposits in order to restore the confidence of domestic and international communities on domestic bank. The Private Sector External DebtIn April 1988 the IMF addresses problems of the private sector’s external debt.
On 27 January, 1998 the government freeze on servicing private sector’s external debts. The government would not provide any financial resources, subsidies or guarantees to help those companies and make them solving their own problem with the customers. References:https://www.indonesia-investments.com/culture/economy/asian-financial-crisis/item246? https://www.ids.ac.uk/ids/global/Conf/pdfs/nasut.pdf