Indonesian financial crisis: causes and remedies
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In 1997 Indonesia experienced a severe financial crisis due to problems in its banking system. The central objective of this study is to analyze the Indonesian government's banking system policies, identify the causes of the financial crisis and analyze the government's efforts in response to the crisis. This thesis investigates the government's policies and its efforts in reviving the banking sector by using archival research, as well as a literature search of books, magazine articles, Internet articles, newspaper articles, and other library information sources. A program of recapitalization and restructurization of the banking system was a prime factor in the economic recovery in Indonesia. One lesson learned was that the central bank, as the monetary authority was not free from external pressure, especially from the government As a result, policies were adopted to respond to immediate problems as they arose, without consideration of broader economic consequences, which in turn created other unforeseen problems. When a new Indonesian government rose to power, it improved the legal foundation of the monetary authority to make decisions, by clarifying its power and duties, and protecting it from external intervention or pressures. The monetary authority now has the independence and power to implement policies based on sound economic principles.
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