In May 2013, Ben Bernanke, the then-United States Federal Reserve (Fed) chairman, testified to the US Congress about the possibility of slowing down the pace of the Fed’s quantitative easing (QE) policy as the US economy continued to improve.
QE, which injected billions of dollars into the economy, provided a boost to the global economy and capital markets around the world. But what happened then was extraordinary, because mere talk of tapering QE by the Fed’s chairman resulted in disastrous effects on emerging economies.
This episode, which was dubbed the “taper tantrum”, generated turmoil in the Indonesian economy. There was a huge capital outflow, with foreign direct investment plunging from US$5.3 billion in the third quarter of 2013 to just $500 million in the fourth quarter of that year.
Over the same period,...
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