Essays on How Indonesia and Singapore Were Affected by and Confronted the Asian Financial Crisis Case Study

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The paper 'How Indonesia and Singapore Were Affected by and Confronted the Asian Financial Crisis ' is a wonderful example of a Macro and Microeconomics Case Study. The Asian financial crisis of 1997 unfolded in various overlapping phases, starting in Thailand on 2 July 1997 when the Thai baht was allowed to float, and spreading to other Southeast Asian nations (Haggard 2000, p. 4). Many countries including Thailand, Indonesia, and Korea experienced a harsh economic downturn throughout 1998. Others like Singapore were however able to recover quickly following policy responses adopted to deal with the crisis.

This paper compares the experiences of two nations – Indonesia and Singapore during the 1997 crisis and also discusses the countries’ situation during the 2008 global financial crisis (GFC) and thereafter. It is noted that during the GFC, Indonesia was again affected because of its open economy. However, it is revealed that the impact of this crisis was not as pronounced in Indonesia as it was in Singapore because of Indonesia’ s strong economic fundamentals. However, the 2008 crisis resulted in negative growth in many advanced Asian economies including Japan and Singapore.

The discussion also touches on how Indonesia and Singapore dealt with the GFC and the situation thereafter. Experiences of Indonesia and Singapore during the 1997 Asian financial crisis Indonesia’ s experience Indonesia is one of the countries that were hardest hit by the 1997 Asian financial crisis. By mid-1997, Indonesia, Korea, and Thailand were the three nations most severely troubled by the crisis, and it is the same countries which experienced a harsh economic downturn throughout 1998 (Radelet & Sachs, 2000, p. 131; Corsetti, Pesenti & Roubini 1999, p.

69). This point is reiterated by Martinez-Diaz (2006, p. 395), who notes that Indonesia ‘ suffered by far the most traumatic experience of all countries affected by the regional shock’ , and Ginting and Aji (2012, p. 149) who note that ‘ Indonesia was the most affected economy in the Asian region’ . During the crisis, Indonesia underwent the most severe economic contraction and was forced to engage the International Monetary Fund (IMF) for the longest period compared with other countries affected by the crisis as the IMF programs were not terminated until 2003 (Martinez-Diaz 2006, p.

395). As a result of the crisis, the Indonesian rupiah depreciated approximately 80 percent between July and November 1997. Nevertheless, the impact of the depreciation did not confer an advantage in international markets because Indonesia’ s major trading partners such as Japan also suffered from the financial crisis (Gautam et al. 2000, p. 44). Because of the recession, many corporations in the countries that were immensely affected such as Indonesia had little access to working capital and were weighed down by massive liabilities. In addition, short-term debt in Indonesia, Korea, and Thailand exceeded available foreign exchange reserves (Radelet & Sachs 2000, p.

131), thus making these countries more vulnerable to financial panic. Company debt-to-equity ratios that were already high before the crisis increased, up to levels that could barely be deemed sustainable. Notably, Thailand’ s ratio was 400 percent, Korea’ s was 500 percent, and Indonesia had an even higher ratio (Corsetti, Pesenti & Roubini 1999, p. 69). Additionally, banks also came under extreme stress and several financial institutions effectively became bankrupt. Because of the high-interest rates and the attempt to recapitalize financial intermediaries at a fast pace, the net worth of the bank system of Indonesia, Thailand, and Korea deteriorated rapidly.

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