NBER Reporter: Fall 2000


The fifth in a series of country-specific meetings of the NBER Project on Economic and Financial Crises in Emerging Market Countries, directed by NBER President Martin Feldstein and Research Associate Jeffrey A. Frankel, both of Harvard University, took place in Cambridge on September 15. This gathering focused on Indonesia and was organized by Simon Johnson of MIT and Steven Radelet of the U.S. Department of Treasury. Like earlier NBER meetings on Mexico, Thailand, Brazil, and Korea, this occasion brought together academics, individuals representing the country, international bankers, and government officials in the hopes of developing an in-depth understanding of Indonesia's economic situation.

The day-long meeting was divided into four sessions. In Session 1, a panel consisting of Iwan Azis, Cornell University, Joseph Stern, Harvard University, Swati Ghosh, the World Bank, and Rino Effendi, Danareksa, discussed liberalization and growth in Indonesia prior to 1997. They asked, for example: What were the origins of the Indonesian economic crisis? Was Indonesia's macroeconomic policy before 1997 appropriate? Also, did Indonesia undertake international financial liberalization too soon -- that is, before trade or domestic financial liberalization, or strengthening regulations? And, was banking supervision a problem before the crisis?

In Session 2, the experts discussed Indonesian macroeconomic policy in the fall of 1997. The panelists were: J. Soedradjad Djiwandono, formerly of the Bank of Indonesia; Steven Radelet; David Lipton, Moore Capital Strategy Group; and Josh Felman, IMF. This group focused on the following questions: How appropriate was the initial macroeconomic response? Was the Indonesian rupiah initially overvalued? After the Thai crisis of July 1997, why did Indonesia widen its currency bands but still suffer a severe depreciation? And what does this say about the new conventional wisdom that narrow bands are unsustainable? Further, what was the IMF's role? Did it cause or exacerbate the crisis? Was its program well designed?

In Session 3, panelists Bambang Subianto, formerly the Indonesian Minister of Finance, Ernest Stern, JP Morgan, Lloyd Kenward, formerly of the World Bank, and Yung Chul Park, Korea University, considered the role of banking and the broader issues of institutions roles during crises. They asked such questions as: Was it appropriate to close banks in the fall of 1997? Did the IMF act appropriately in this regard? When did corporate governance problems become evident, and what could have been done to mitigate their effect? And, to what extent do institutional weaknesses explain the Indonesian crisis?

In the fourth session, Anwar Nasution, Governor of Bank Indonesia, Dennis Flannery, Lehman Brothers, Anoop Singh, IMF, and Andrew Berg, U.S. Department of Treasury, discussed attempts to recover. They asked: Why has economic recovery been slower in Indonesia than in other Asian countries? Could economic policy in 1998-2000 been designed and implemented better? And, has the crisis destabilized Indonesia in a long-lasting way, or forced needed reforms?

In addition to these sessions, there was an off-the-record after dinner presentation by Rudiger Dornbusch, NBER and MIT. A summary of the other meetings is available.

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