GROUP 4

1. Aing Fnu
2. Andry Sjamsu
3. Ari Mulyono
4. Ivan Edgar
5. Karly Mulyadi
6. Mikhael SP Butar Butar
7. Ridwan T Lembong

BACKGROUND

Prior to the 1997, Indonesia was in its best financial condition. Indonesian economy represented one of East Asia’s major success stories of economic structural transformation. The economy grew on average by 7.6 percent from 1967 to 1996. Structural transformation took place in agriculture, manufacturing, utilities, and services. In line with high economic growth and structural transformation in several sectors, the poverty rate declined from around 40 percent (54.2 million people) in 1976 to 17.5 percent (34 million people) in 1996. Together with Malaysia and Thailand, Indonesia was classified as a member of the second tier of Newly Industrialized Economies (NIEs).

However, the Asian Financial Crisis in 1997/1998 reversed the situation completely. Indonesia experienced its worst financial period during the Asian Financial Crisis. Many banks were very weak and had made bad loans. Indonesia consequently saw a massive lending boom in the run-up to the 1997 crisis. The Loan-to-Deposit Ratio (LDR) was more than 100 percent in 1997, and the ratio of non-performing loans (NPL) to total credit was around 27 percent in September 1997. The Asian Financial Crisis started on 2 July 1997 when the goverment of Thailand, burdened with a huge foreign debt, decided to float its baht after currency speculators had been attacking the country’s foreign exchange reserves. The pressures then continued to other Asian countries as well.