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Group 5

Indonesia After Crisis 1998, Achievement & Challenge


A review on economic condition and Indonesian labor
Module 1
Business Environment Analysis/Industry Analysis and
Scenario Planning

Group Member :
Andy Revianto
Jahja
Edi Suryanto
Stevanus Passat
Shely Meifuzi

January 2015

I. Introduction
Monetary crisis that hit Indonesia since the beginning of July 1997 has turned into an
economic crisis. This crisis paralyzed economic activities as more and more companies
are closed and the increasing number of unemployed workers. As a consequence of this
crisis, Bank Indonesia on August 14, 1997 was forced to liberate the rupiah against foreign
currencies, especially the US dollar, and let fluctuate freely (free-floating) replaces the
managed system floating government adopted since the devaluation of October 1978.
The World Bank saw the four major that cause this crisis. First is the accumulation of
private foreign debt since 1992 to 1997 and the average maturity of just 18 months. The
second is the weakness in banking system. The third is the issue of governance, including
the ability of the governmenthandle and overcome the crisis, which is then transformed
into a crisis of confidence and donor reluctance to offer financial assistance quickly. The
fourth is political uncertainty facing the last election and questions about health President
Soeharto at that time.
During the financial crisis, employers did some adjustment in their operational such as
cutting wages, employment and working hours. Because of this condition, many people
lost their job and create a huge number of unemployment. The number of open
unemployment in 1997 amounted to 4.2 million people, or 4.7 percent, rising to 5.1 million
people or 5.5 percent in 1998. The number of unemployed has increased again in 1999 to
6.0 million people or 6.3 percent. Inflation also caused a huge drop in real wages in urban
areas, pushing many workers into poverty, and forcing women to enter the labor market. In
table 1 we can see that number of poor people in 1998 is increase almost 45% compare to
number of poor people in 1996.

II. Achievement
After the economic crisis in 1998, Indonesia did reformation in macroeconomic
stabilization program through several monetary and fiscal policy. Some area that becoming
focus for improvement are :
1. The Anti-Monopoly Law was created in 1999 to promote competition and enhance
market efficiency.
2. Amandment of Indonesias bankruptcy law in 1998.
3. Anti corruption campaign and transparency about assets of public officials.
4. Create regional autonomy law so every region can develop their own province.
Some of the result of this reformation program, GDP grew to 0.9 per cent in 1999 after
decline to 13.7 per cent in 1998. In 2000, GDP recovered much better to 4.8 per cent.
III. Challenge
The challenge upfront after the recovery from 1998 economic crisis is that the struggles
that we will face to maintain good GDP growth, good economic growth, and low poverty
index. We will also face the challenge from Economic Asean Community in 2015 which will
test the quality of our human capital and labor skills.
Our GDP growth from 1997-2015 shows escalation, shown from the table below :

Even though Indonesia GDP makes escalation every year, this still shows slow economic
growth because the escalation is oriented to high capital business only, such as
manufacture industry sector, not labor intensive business sector such as agricultural and
construction field. Therefore the challenge faced by Indonesian government is to create
stimulus and opportunity enhancement for agricultural and construction field.
Facing the commitment to reduce extreme poverty with a deadline of 2015 that have
become one of the 8 Millenium Development Goals, Indonesian Government will make
effort to prioritize these area :
1. Improving and enhancing the quality of family based protection programs. Such as
Jamkesnas (scholarship assistance for children from poor families), Raskin (provision of
subsidized rice for poor families) , conditional cash assistance (BLT).
2. Improving access of micro and small enterprises to productive resources by the
Peoples Small Enterprises Credit Program (KUR), including to increase the capacity
and services of non-bank financial institutions, through revitalization of the cooperative
education and training system.
IV. Conclusion
The Indonesian economy has recorded relatively
strong average growth over a number of decades.
Considerable structural change has taken place over
this time, with Indonesia becoming increasingly
industrialised and integrated into the global
economy. With plans for substantial infrastructure
spending over the next several years and favourable
demographics, the Indonesian economy is widely
expected to continue to grow at a strong pace over
the next decade. Nevertheless, as elsewhere in the
emerging world, policy implementation will be a key
challenge in realising the countrys growth plans.

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