Since the independence of Indonesia till now, Indonesia has gone through several phases. One of which is the reign of Soeharto.Under his government, the economy of Indoensia is grew rapidly. But despite his success, it ended with the financial crisis in Indonesia in 1998. The crisis that hit Indonesia in 1997 -1998 is not the first crisis faced by Indonesia. however, the crisis is quite severe and it is caused by some cases in Indonesia. There are some causes offinancial crisis in Indonesia.
First reason istheweakening Indonesian economic growth, which was caused by American currency. This reason emerged in the trade world, in which the prises of imported goods rose up. According to Tarmidi(1999, vol.4 no.1)
“ The solution is Bank Indonesia was forced to free. The exchange rate against foreign currencies and it fluctuate, before that exchange rate used the system of managed floating adopted by the government since the devaluation in October 1978. Thus, since August 14 1997 BI will no longer intervence in foreign exchenge markets to prop uo the exchange rate. The rupiah exchange rate then decline quickly and sharply from the average of Rp 2,450 per US dollar. Then in June 1997 until Rp 13,513 end of January 1998, but later managed to stengthen to around Rp 8,000 beginning in May 1999”
Second reason is private foreign debt. According to (Investopedia, 2013)
“ Private foreign debt is The portion of a country's debt that was borrowed from foreign lenders including commercial banks, governments or international financial institutions. These loans, including interest, must usually be paid in the currency in which the loan was made. In order to earn the needed currency, the borowing country may sell and export goods to the lender's country. Private foreign debt caused bythe weakening of the rupiah and import some goods from developed countries like America. and it was resulted in the weakening of domestic revenues”.
Therefore, According to Atmadja (2000, p.89)
“ To increase domestic revenues drastically and make loans in the country (internal debt) is not possible, because the economic burden that suffered by the people had been so severely affected by the economic crisis, the alternative path that can be taken is to attempt to obtain additional loan funds from abroad , Until the end of 1998 foreign debt position of the government has been fully reached US $ 67.32 billion, which was derived from non-commercial loans and commercial loans (ODA and non-ODA), or 44.61% of the total foreign debt of Indonesia reached US $ 150.9 billion. So, the amount of such debt weighed heavily on the balance of payments and debt also led to the scarcity dollar “
The third reason is the implementation of policies that are not carried out continously. according to Tarmidi (1999, vol.4)
“Fiscal and monetary policies are not consistent in a system of exchange rate intervention with boundary tape.This system led to a real appreciation of the exchange rate and invite speculation action when the system limits of this intervention are removed on August 14, 1997. Impressed absence of clear government policies and details about how to overcome the crisis and this situation has continued until today. The inability of the government to tackle the crisis caused a crisis of confidence and reduce the willingness of foreign investors to provide financial assistance rapidly ”
The last reason is a lot of corruption that occur in Indonesia . According to investopedia (2017) “corruption is dishonest behavior by those in positions of power, such as managers or government officials”. Corruption can include giving or accepting bribes or inappropriate gifts, double dealing, manipulating elections, diverting funds, laundering money and defrauding investors. So, corruption is an action detrimental to many parties. At that time the government seemed hesitant to combat corruption, particularly to the beneficiary conglomerates. According to the PBB report, state assets stolen by Suharto and his family is estimated at 15 billion dollars to 35 billion US dollars. The figure was higher than theft committed by the Philippine dictator, Ferdinand Marcos, which ranges from 5 billion to 10 billion US dollars. As the result is corruption has not been completely eradicated and even now impressed added increased and mushroomed ( Berdikarionline.com)
Indonesia economic crisis that accured in the initial 1998 had a big impact on the country and its people. The crisis was indicated, mostly by the inflation rate which was high enough.
