ABSTRACT
The Indonesian economy collapsed brutally in 1998, shrinking by an estimated 14 percent. The speed and magnitude of the economic disintegration was stunning. The Indonesian economy had grown by an average of more than 7 percent per year between 1990 and 1996, and it grew by 5 percent in 1997. The single year turnaround of 19 percentage points in economic growth in one year is among the most dramatic economic collapses recorded anywhere in the world since the Great Depression. Both foreign and domestic investors have fled, and hundreds of corporations are bankrupt. The banking system has effectively ground to a halt, with very little new lending taking place and dozens of banks insolvent. Imports during the first 11 months of 1998 were 35 percent below their 1997 level (in US nominal dollar terms), indicating the extent to which domestic demand has plummeted. Thousands of Indonesians have lost their jobs, and millions more face a substantial reduction in their standard of living. There is no immediate prospect of a quick economic rebound. The government has projected zero growth for fiscal year 1999/2000, but most private sector analysts have predicted that the economy will contract in 1999 by an additional 3-4 percent.
