DIGIVESTASI - Rupiah Weakens: Reflecting on BJ Habibie's Measures During the 1998 Crisis, The Indonesian rupiah has been depreciating against the US dollar in recent weeks. On Thursday, November 21, 2024, the rupiah nearly hit IDR 16,000 per USD, evoking memories of the 1998 economic crisis when the currency plummeted to IDR 16,800 in a short span.

This situation parallels the final days of President Soeharto’s rule, which coincided with the monetary crisis that gripped Indonesia. BJ Habibie, who succeeded Soeharto, faced daunting challenges at the start of his administration. However, his strategic measures managed to stabilize the rupiah relatively quickly.

Banking Restructuring: The First Step to Address the Crisis

One of Habibie’s key initiatives was banking restructuring. The banking crisis at the time was triggered by the Paket Oktober 1988 (October Package) policy during the New Order era, which eased the establishment of banks without stringent oversight. Consequently, many banks were unable to withstand the crisis, leading to massive withdrawals by depositors.

To address this, Habibie revoked the lax bank establishment policy and strengthened state-owned banks. Four government-owned banks were merged into a new entity now known as Bank Mandiri.

He also ensured the independence of Bank Indonesia (BI) through Law No. 23 of 1999, separating it from government control. In his autobiography, B.J. Habibie: Detik-detik yang Menentukan (2006), Habibie emphasized that this step was crucial for stabilizing the rupiah, as BI needed to be free from political interference and remain objective.

Restoring Confidence with Bank Indonesia Certificates (SBI)

Habibie also introduced high-yield Bank Indonesia Certificates (SBI) to rebuild public trust in the banking system. This policy aimed to attract funds back into banks, helping to control the amount of money in circulation.

The initiative proved effective. Interest rates, which had soared to 60%, were eventually reduced to more manageable levels in the teens. Public confidence in banks was restored, marking the beginning of economic stabilization.

Stabilizing Essential Commodity Prices

In addition to banking reforms, Habibie focused on controlling the prices of essential goods. He maintained subsidies for electricity and fuel to keep basic necessities affordable during the crisis.

Although effective, this policy sparked some controversy. In one of his speeches, Habibie urged the public to save money, even suggesting fasting during the crisis, which drew mixed reactions from the public.

Outcome: Rupiah Recovery

Habibie’s combined policies succeeded in restoring market confidence in Indonesia’s economy. Investor funds began to flow back, and the rupiah, initially at rock bottom, gradually strengthened to IDR 6,550 per USD.

These measures remain a crucial lesson in managing economic pressures, illustrating the importance of strategic policies to maintain monetary and economic stability at the national level.

Find more news and articles on Google News