SOAS Research Online

Abstract

To many people, both in South-East Asia and elsewhere, the crisis which struck a group of South-East Asian economies (Thailand, Indonesia, Malaysia and the Philippines), as well as South Korea, in mid-1997 appeared to arrive like a meteor from outer space, crashing onto what had been some of the ost dynamic economies in the world. More than three years later, it was very clear that the legacy of the crisis would be lasting and serious, especially in Indonesia. Not only did the crisis result in a devastated banking system and a heavily indebted non-banking corporate sector but also in a severe contraction in real GDP. In 1998, GDP contracted by over 13 per cent, and in 1999 there was an increase of under 1 per cent (Bank Indonesia 2000. Table 1). For an economy which grow at 6 per cent in terms of per capita GNP in the decade from 1985 to 1995, a contraction of this magnitude posed enormous problems of adjustment. These problems were exacerbated by the after-effects of a very serious drought, which ravaged parts of the country in 1997–8.