What of the short to medium run prospects? It is possible to identify at least three alternative scenarios for Indonesia over the next few years. These are:
  • “Mexico”: a quick return to positive growth, in which in retrospect 1997–98 recedes as a passing aberration.

  • “Aquino”: a “muddle through” period, which halts the economic decline and arguably lays the foundation for a more durable recovery, but in which political instability and lack of economic policy coherence deny the country a quick return to strong and sustained growth.

  • “Burma”: an awful scenario in which Indonesia closes itself off from the world, both politically and commercially, and which results in declining living standards, political brutality, and possibly ethnic and geographic fragmentation.

It is already clear that Indonesia will not be able to immediately replicate the Mexican record. Nor, fortunately, does the third scenario look all that likely. Mexico returned to positive growth within six quarters and it regained its pre-crisis per capita GDP (though not personal income) within nine quarters (see OECD 1998).


Nominal Interest Rate Asset Sale Fiscal Stimulus Crisis Economy Macroeconomic Framework 


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© Institute of Southeast Asian Studies, Singapore 1999

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  • Hal Hill

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