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Indonesia starts to set its own course

Indonesia has at last emerged from IMF intensive care to take its own first tentative steps towards full rehabilitation. Banks looks healthier and the country is preparing to return to the international capital markets. Early signs are encouraging, but key challenges lie ahead, including the roll-over of domestic recapitalization bonds. Chris Leahy reports.

Indonesia's president,
Megawati Sukarnoputri

NO-ONE WOULD DISPUTE the progress that Indonesia has made since the dark days of Asia's financial crisis, when president Suharto's power base crumbled and the country descended into political and economic chaos. In 1998, the economy shrank by 13.1% and annual inflation soared to 77.6%. In the same year, the average exchange rate was Rp10,088 to the dollar, compared with Rp2,205 between 1990 and 1997, and interbank overnight interest rates hit 41.42%.  Bolstered by an IMF bailout of some $40 billion, Indonesia has gradually clawed its way back. GDP growth in 2003 was 4%, inflation 6.4%, and interbank rates 6.44%. Only the exchange rate has stayed stubbornly weak at an average of Rp8,389 to the dollar.

Nothing demonstrates the scale of the comeback better than last year's $300 million IPO of Bank Mandiri, created from a restructuring of several hitherto bankrupt institutions under the auspices of the Indonesian Bank Restructuring Agency (IBRA). The deal would have been unthinkable just 12 months earlier.

Farewell to the IMF programme

In July 2003, as the macroeconomic picture improved, the Indonesian government took the locally popular decision to exit the IMF programme with effect from January 1 2004.

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