Indonesia fielded shocks due to the Asian financial crisis (AFC) and the global financial crisis (GFC) quite differently. Financial contagion, policy misdirection, panic and political upheaval saw the AFC bring economic collapse. The decade-later GFC, however, brought real growth of 6.1% (2008) and 4.5% (2009), amongst the world's best performances at the time. This paper reviews these events and employs numerical modelling of stylized AFC and GFC shocks to show that some of the contrast stems from differences in the shocks and intervening changes in economic structure. Critically, IMF conditionality during the AFC required unsustainably contractionary reforms. Capital flight elements were present in both crises, however, and exchange rate depreciations and money-financed fiscal expansions are shown to have contributed significantly to resolution.

This study examines the early warning indicators of crises and the optimal policies for mitigating economic crises. Based on meta-analysis of 72 studies, we find that the exchange rate is the most used indicator in detecting crises, and the optimal policies for mitigating crises are monetary and fiscal policies. We further find that besides the exchange rate, the interest rate is a dominant indicator of crises in developed countries.Moreover, the foreign exchange, international reserves and current account are the dominant indicators in developing countries. The evidence for developing countries aligns with the finding that policies addressing external sector performance are preferable to mitigate crises in these countries.

Indonesia fielded shocks due to the Asian financial crisis (AFC) and the global financial crisis (GFC) quite differently. Financial contagion, policy misdirection, panic and political upheaval saw the AFC bring economic collapse. The decade-later GFC, however, brought real growth of 6.1% ( 2008) and 4.5% ( 2009), amongst the world's best performances at the time. This paper reviews these events and employs numerical modelling of stylized AFC and GFC shocks to show that some of the contrast stems from differences in the shocks and intervening changes in economic structure. Critically, IMF conditionality during the AFC required unsustainably contractionary reforms. Capital flight elements were present in both crises, however, and exchange rate depreciations and money-financed fiscal expansions are shown to have contributed significantly to resolution.

The post-GFC era sees slower global growth and a substantial Chinese slowdown, unusually combined with lower investment financing costs, and with the eventual prospect of a US-led re-tightening of global financial markets. For Indonesia in the medium term, these developments imply a slowing of export growth and a temporary surge in net inward investment incentives. These changes are examined here using a numerical macro model. The results suggest that recent fiscal reform is long-run beneficial and that it will moderate the negative effects of expectations linked to these global events, the formation of which is shown to be an important determinant of performance. Finally, a sensitivity analysis is conducted, mainly on parameters indicating Indonesian openness to trade and finance. Liberal product markets and home investment are shown to offer unambiguous gains in the face of negative external shocks, while openness to external financial flows does not.