Abstract
Abstract. In February 1998 Indonesia toyed briefly with the idea of introducing a currency board system as a means of extricating itself from the Asian financial crisis. Although the then president Soeharto announced his government’s intention to implement such a system, international and domestic opposition was so vociferous that he aborted the plan. In my view this opposition was ill-informed. Moreover, it was motivated, to a considerable extent, by a desire to use the crisis to force a president widely disliked among the urban intelligentsia to discontinue some of his favoured economic policies—if not to bring about an end to his presidency—rather than giving top priority to dealing with the crisis itself. The nature of the crisis as it played out in Indonesia remains poorly understood, such that an analysis of the currency board proposal provides an opportunity to correct some misunderstandings and dispel some of the myths about this major episode in Indonesia’s modern history. In this paper I argue that in fact Soeharto’s embrace of the proposal was sensible, and that it was motivated by the desire to restore macroeconomic stability—which would have been not only to his own benefit but also that of Indonesia’s citizens.
Keywords. Currency board; Proposal; Indonesia.
JEL. F11; F12; F13.
References
Blustein, P. (2001).The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF, Public Affairs, New York.
Cole, D.C. & B.F. Slade, (1998). Why Has Indonesia’s Financial Crisis Been So Bad?, Bulletin of Indonesian Economic Studies, 34(2), 61–66. doi. 10.1080/00074919812331337330
Collins, E.F. (2007). Indonesia Betrayed: How Development Fails, University of Hawaii Press.
Djiwandono, J.S (2004). Liquidity Support to Banks During Indonesia’s Financial Crisis, Bulletin of Indonesian Economic Studies, 40(1), 59–75. doi. 10.1080/0007491042000205204
Djiwandono, J.S. (2005). Bank Indonesia and the Crisis: An Insider's View, Institute of Southeast Asian Studies, Singapore.
Dow Jones International News (1998). U.S. Economist Krugman Pans Indonesia Currency Bd Plans, 24 March.
Fane, G. & R.H. McLeod (2002). Banking collapse and restructuring in Indonesia, 1997–2001, Cato Journal, 22(2), 277¬– 295.
Frécaut, O. (2004). Indonesia’s banking crisis: a new perspective on $50 billion of losses, Bulletin of Indonesian Economic Studies, 40(1), 37–57. doi. 10.1080/0007491042000205196
Hanke, S.H. (1998). How to Establish Monetary Stability in Asia, Cato Journal, 17 (3), 295–301.
Hanke, S.H. (2002). On Dollarization and Currency Boards: Error and Deception, The Journal of Policy Reform, 5(4), 203–222. doi. 10.1080/1384128032000096814
Hanke, S.H. & K. Schuler (1994). Currency boards for developing countries: a handbook, International Center for Economic Growth, San Francisco.
Johnson, C. (1998). Survey of Recent Developments, Bulletin of Indonesian Economic Studies, 34(2), 3–60.
King, M.R. (2001). Who triggered the Asian Financial crisis?, Review of International Political Economy, 8(3), 438–466. doi. 10.1177/0192512103024003004
Lakshmanan, I.A.R. (1998). For Indonesia, a big gamble: Stability of nation at stake in plan to fix exchange rate of rupiah to another currency, The Boston Globe, 12 February.
Lindblad, J.T. (1997). Survey of Recent Developments, Bulletin of Indonesian Economic Studies, 33 (3), December: 3–33. doi. 10.1080/00074919712331337165
McLeod, R.H. (1993). Analysis and Management of Indonesian Money Supply Growth, Bulletin of Indonesian Economic Studies, 29(2), 97–128. doi. 10.1080/00074919312331336411
McLeod, R.H. (1998a). Indonesia’, in Ross H. McLeod and Ross Garnaut (eds), East Asia in Crisis: From Being a Miracle to Needing One?, Routledge, London and New York: pp.31–48.
McLeod, R.H. (1998b). From Crisis to Cataclysm? The Mismanagement of Indonesia’s Economic Ailments, The World Economy 21(7), 913–930. doi. 10.1111/1467-9701.00172
McLeod, R.H. (2000). Soeharto’s Indonesia: A Better Class of Corruption, Agenda, 7 (2), 99–112. doi. 10.22459/AG.07.02.2000.01
Nasution, A. (1998). The meltdown of the Indonesian economy in 1997-1998: Causes and responses, Seoul Journal of Economics, 11(4), 447–482. doi. 10.1355/AE17-2D
Sadli, M. (1998). The Indonesian crisis, ASEAN Economic Bulletin, 15(3), 272¬¬–280.
Sanger, D.E. (1999). Longtime I.M.F. Director Resigns in Midterm, The New York Times, November 10.
Schuler, K. (1998). Sistem dewan mata uang’, Media Indonesia, 7, 8, 10, 11, 12 and 13 February [translated from ‘Stabilizing the Indonesian Rupiah Through a Currency Board’ by Armida Alisjahbana], [Retrieved from].
Singal, V. (1999). Floating Currencies, Capital Controls, or Currency Boards: What’s the Best Remedy for the Currency Crises?, Journal of Applied Corporate Finance, 11(4), 49–56. doi. 10.1111/j.1745-6622.1999.tb00513.x
Solomon, J. & K. Linebaugh (1998). Indonesia Entertains U.S Economist’s Currency Board Plan, Dow Jones International News, 3 February.
The Asian Wall Street Journal (1998). A Case for a Currency Board, 11 February.
Torchia, C. (1998). U.S. economist has ear of Suharto, USA Today, 20 February
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.