Part 2 : Monetary - Bank Sentral Republik Indonesia
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July 11, 2020

Upon the establishment of Bank Indonesia, the monetary policies in Indonesia in general were formulated by the Monetary Board and the government was accountable for them. Given the poor economic condition after the war, the first monetary policy taken was improving the position of the foreign exchange reserve through export and import activities. During the period of the guided economy, the deficit of the government spending kept rising, particularly in financing the government’s political projects. Inflation rate continued to soar and this forced the government to introduce two monetary tightening policies, namely in 1959 and 1965. Afterwards, the government entered the economic recovery period through stabilization and rehabilitation programs which was followed by deregulation policies in financial and monetary sectors in early 1980s. Amid the fluctuating economic conditions, the government launched an economic policy package aimed to strengthen the Indonesian economic structure.

In mid 1997, Indonesia was hit by an acute economic crisis. Rupiah conversion rate weakened, the payment system was stalled, much of the offshore loans turned bad and unsettled. A number of measures had to be taken, from monetary tightening to a series of IMF’s sponsored recovery programs based on the Letter of Intent (LoI) signed on 1998. Fortunately, Indonesia managed to pass through this turbulence. The economy was slowly recovering coupled with improving political conditions during the reformation period. In line with this, the year 1999 served as landmark for Bank Indonesia following the enactment of Act No. 23 of 1999 on Bank Indonesia which was later amended with Act No. 3 of 2004. Through this act, Bank Indonesia was turned into an independent state bank in carrying out its duties and authorities. Pursuant to this act, Bank Indonesia is obligated to project the inflation rate as the basis and planning and monetary control. In addition, Bank Indonesia managed to reschedule the loans and the cooperation with IMF was ended through the Post Program Monitoring (PPM) in 2004.



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