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Twenty years after the year of meltdown
Indonesia experienced a meltdown in its financial system. Indonesia also endured the crisis longer than other countries.
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Unsightly, unsafe: A passerby examines a partially collapsed building in Bintaro, South Tangerang, Banten, on Thursday. Construction of the building began in 1995, but came to a halt during the 1998 economic crisis. (JP/Dhoni Setiawan)
I
t started with an obscure incident in Thailand in July 1997 when the baht, the Thai currency, sharply depreciated. This was unprecedented, since the baht’s exchange rate against the US dollar had not changed for the previous 30 years.
Fears started to spread among investors who then raised the question: Could other currencies in Asia that have been pegged to the US dollar sustain their exchange rates? The economic data that they dug out of these countries were not reassuring.
As investors started to panic, market sentiment turned negative, capital started flowing out and the currencies of those countries sharply depreciated. Indonesia was not spared from the contagion. The economic storm hit Indonesia with much ferocity and the impact was the most devastating compared with the impacts suffered by Thailand, Korea and Malaysia.
Indonesia experienced a meltdown in its financial system. The cost borne by the Indonesian government and its taxpayers was the highest ever recorded. Indonesia also endured the crisis longer than other countries.
The crisis started with the steep fall of the rupiah. Between July 1997 and January 1998, the value of the rupiah dropped from Rp 2,400 per US dollar to Rp 10, 000 per US dollar. It plunged further to Rp 14,000 per US dollar in May 1998 and to Rp 16,000 to the dollar at the end of the month.
With the rupiah losing value on such a magnitude, the devastation was severe. Many companies went bankrupt, especially those that had large foreign debts. Factories were closed and millions of people lost their jobs. As the economy shrank by 15 percent, the unemployment rate soared to 13.2 percent.
Twenty million more people slipped into poverty, making the total number of people who lived below poverty line at least 40 million, although other estimates put the number at 100 million. An estimated 7 million Indonesians suffered severe food shortages and hunger.
