Indonesia Economy - overview

Economy - overview: The Indonesian economy stabilized in 1999, following the sharp contraction and high inflation of 1998. By following tight monetary policy, the government reduced inflation from over 70% in 1998 to 2% in 1999. Although interest rates spiked as high as 70% in response to the monetary contraction, they fell rapidly to the 10% to 15% range. The economy stopped its free-fall as GDP showed some growth in the second half of 1999, although GDP for the year as a whole showed no growth. The government managed to recapitalize a handful of private banks and has begun recapitalizing the state-owned banking sector. New lending, however, remains almost unavailable as banks continue to be wary of issuing new debt in an environment where little progress has been made in restructuring the huge burden of outstanding debts. IMF payments were suspended late in 1999 as the result of evidence that a private bank had illegally funneled payments it received from the government to one of the political parties. The government has forecast growth of 3.8% for FY00/01. The spread of sectarian violence and continuing dissatisfaction with the pace of bank and debt restructuring will make it difficult for Indonesia to attract the private investment necessary to achieve this goal.

Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of April 17, 2000