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The Asian Financial Crisis: Indonesia and the Currency Board Proposal  
 
Product Ref: 98/12C Company: N/A

Product Type: Case Industry: Public Policy & Strategy

Related Product(s): Teaching Note
Indonesia was hit hard by the Asian economic crisis. By 8 October, 1997, its currency, the rupiah, was down 60 per cent from its pre-floatation value. The rupiah fell to an historic low of 16,500 against the dollar on 23 January, 1998. Capital flight accelerated and social unrest was widespread. On 4 February, Professor Steve Hanke proposed to Suharto that a currency board system could stabilise the currency. While Suharto was highly receptive to the idea, the IMF was not. It threatened to withdraw all its support to Indonesia. It was up to Suharto to decide which way to go. This case allows students to explore the general issues surrounding the choice of a fixed or a floating exchange rate arrangement, the potential advantages of each arrangement as well as considering the specific mechanism of a currency board, and to discuss the monetary, economic and political conditions that resulted in the crisis in Indonesia.
Functional Area : Economics & Business Policy

Issues: Financial Crisis, Exchange Rate System
Length: Text: 13 pages
Exhibits: 13 pages
Country: Indonesia

Pub. Year: 2000 Level of Difficulty: 2
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
This case is UGC funded.
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