ECONOMIC CRISIS IN INDONESIA

This article provides a comprehensive analysis of the severe economic crisis that engulfed Indonesia in 1997-98, which was part of the broader Asian Financial Crisis. It examines the causes of the crisis, from the immediate trigger of the Thai baht's collapse to the deep-seated structural weaknesses in the Indonesian economy, such as a weak financial sector, crony capitalism, and a lack of transparency. The study details the rapid collapse of the Indonesian rupiah, the subsequent banking crisis, and the massive contraction of the economy. The research also provides an in-depth analysis of the profound political and social consequences of the economic collapse. It argues that the crisis completely shattered the legitimacy of President Suharto's long-standing "New Order" regime, which had been built on a promise of economic development, and directly led to his downfall in May 1998. The paper concludes by assessing the immense challenges of economic recovery and democratic transition that faced post-Suharto Indonesia.

The 1997-98 Asian Financial Crisis hit Indonesia with a particular ferocity, triggering not just an economic collapse but a profound political revolution. This paper analyzes the causes and consequences of this crisis. The study begins by examining the origins of the economic collapse. While acknowledging the role of external contagion, it focuses on the internal vulnerabilities of the Indonesian economy under the Suharto regime. These included a poorly regulated banking sector that had engaged in reckless lending, a high level of short-term private sector foreign debt, and the pervasive system of "cronyism, collusion, and nepotism" that stifled competition and created massive inefficiencies. The core of the article is an analysis of the dramatic interplay between the economic and political crises. It details how the initial currency crisis quickly morphed into a full-blown crisis of political legitimacy. The paper charts the course of the student-led pro-democracy movement and the mass riots that erupted as the economy imploded and living standards plummeted. It argues that the economic crisis acted as the catalyst that finally brought an end to Suharto's thirty-two years of authoritarian rule. The final section of the paper looks at the aftermath. It discusses the immense challenges of the post-Suharto era, as Indonesia simultaneously had to grapple with the tasks of stabilizing a shattered economy under an IMF program and navigating a complex and uncertain transition to democracy. The findings highlight the Indonesian crisis as a powerful example of how economic fragility can lead to rapid and revolutionary political change.