Oil-windfalls have been more of a bane than a boon. Indonesia is a rare outlier in this list and, despite external shocks and unfavourable exchange movements, has maintained creditworthiness through swift adjustment. Moreover, despite heavy adjustment, important social gains were achieved, as reflected in a substantial reduction in the incidence of poverty. This paper sets out a framework to analyze Indonesia’s adjustment policies quantitatively. Starting with a discussion of the analytics of open-economy adjustment, in particular the interaction between the exchange rate, the interest rate, growth and debt, the implications of the open capital account for Indonesia’s adjustment are analyzed. Empirical estimates of the macroeconomic model are derived; the key parameters are the interest and exchange rate sensitivity of private consumption and investment, and the elasticity of exports and imports to the real exchange rate. The model is then used to illustrate the nature of external adjustment necessary to ensure the consistency of growth with external balance and the implications for exchange rate management. The internal adjustment that must accompany the required external adjustment, how much of it occurs in the public versus the private sector and the role of fiscal policy in effecting this adjustment is also examined.