CBS(Commercial Board Sytem) was ineligible to apply in Indonesia during the monetary crisis of the 1990’s. Why we should turn out to accept IMF (International Monetary Fund) package rather than CBS? This is one of the topic of Macroeconomic subject for management economic student in one of the most biggest and luxurious campus in Tangerang. The crisis itself at the time was sponsored by Thailand. Thailand currency exchange rate to USD hasplunged down. Suddenly, the new chapter of crisis began especially the countries lied in south east. According to economic watcher and also lecture said that former president Soeharto at the time choose to accept IMF package rather than CBS offered by his one economic council Steve H. Hanke was we dont have fresh cash to repay the maturity debt in 1998. Our balance of payment was in highly deficit.
IMF offered fresh cash with about 100 terms and condition we should obey. One of the points is the privatization of our country’s own firm. Even though the IMF is an international company, more than 6 % of contributions come from America, and American designed the terms and conditions. One of them is firm privatization and also unconditional competition for foreigner firms in Indonesia in the future aftermath.
Few important point triggered the economic crisis in Indonesia were:
1. Highly inflation
2. Weakened domestic currency rate to USD
3. Deficit which mean the foreign balance of payment in minus
4. Highly unemployment rate
5. Lower Purchase Point of Parity
Foreign balance of payment is the international payment which relate to foreign exchange currency. For Indonesia the time, the fresh cash from IMF could neutralize deficit account in the report. This fresh cash in those account is called as SDR (Special Drawing Rights).
Actually we do suffer from multiplier effect. Because of our currency get stornger to the US currency, our export demand both product and service reducing in fast. Many exporter firm unable to sustain from this condition and turn to bankruptcy. Import rate became greater than our export. At the time, Indonesia was using fixed exchange rate but looks like after the final chapter of the crisis, one of the term and condition from IMF for the fresh cash is we can’t any longer using the fixed exchange rate system but to floating exchange rate system. Because of this new exchange rate system, our currency suddenly boost up without control. It also affected to our import products especially consuming products.
Jobless and the need to survive which caused the riot in May 1998. Before, student of Trisakti University, Jakarta made a peace demonstrate and request allowance to have long march to house of representatives. At the time, the former president Soeharto was in Cairo, Egypt attending meeting. 2 or more students were shot to killed by sniper just outside their own Campus. And the days after, the riot took place everywhere. Thousand of students hostile took over to called Soeharto to retreat as a president.
In the years of 2008/2009, there is also a concern that the same social riot could brake out because the commodity price of food is launching like a rocket. Meanwhile the income rate remain the same. Just few days ago, students made a peaceful demonstration in front of the House of Representatives building requesting to reduce the food price. I am very concerned about size of our deficit this year. The amount is the highest in this past 8 years.
Next year, Indonesia will enter the president and vice president election, we should not focus on investing in fixed asset instruments instead of liquid asset. And for the next 6 months, there is prediction that US economic will begin a new chapter of recession which will highly impact to the world. Let’s hope and pray that this is not going to happened.