Indonesia’s Acceptance of The International Monetary Fund’s Letter of Intent (1997-1998)

Abstract

This thesis explores why Indonesia accepted the conditions set by the International Monetary Fund (IMF) in its Letter of Intent during the 1997–1998 financial crisis. Using foreign policy theory, particularly the concepts of autonomy and welfare, this study examines the difficult choices Indonesia faced in navigating the crisis. A qualitative approach, primarily based on literature review, is used to analyze the government’s decision-making process. The findings reveal that the 1997–1998 crisis placed Indonesia in an urgent financial situation, forcing the government to seek assistance from the IMF to stabilize the economy and safeguard public welfare. However, this aid came with strict conditions, requiring Indonesia to implement economic reforms dictated by the IMF. As a result, the country had to compromise its policy autonomy, accepting external influence over key economic decisions. This study sheds light on the dilemma Indonesia faced: balancing the urgent need for economic recovery with the long-term implications of reduced sovereignty in policymaking. It also provides insights into how financial crises push nations into difficult negotiations with international institutions. By understanding Indonesia’s experience, this research contributes to broader discussions on the complex relationship between economic stability and national autonomy, particularly for developing countries in times of crisis.