ABSTRACT
The monetary policy regime in Indonesia has been signifi cantly affected by rapid changes in the macroeconomic environment, structural adjustments, and a dynamic political climate over the last four decades. As we know, Indonesia has undergone a number of far-reaching structural adjustments in all economic sectors since the early 1970s. These adjustments, which were fostered by accelerating globalization and two major fi nancial crises in 1997-8 and 2008-9, have had major implications for monetary management. Before the fi nancial crisis of 1997-8, monetary policy in Indonesia was characterized by a shift from one regime to another. It started with the credit and interest rate control policy, coupled with the exchange rate and capital fl ow management, which were relatively restrained in the 1970s. Monetary targeting was sequentially implemented in the era of fi nancial sector deregulation, with a more market mechanism-based monetary management approach in operation from the early 1980s through the fi rst half of the 1990s. During this period, the Indonesian economy was in a boom phase with ample foreign capital fl ows.
