ABSTRACT
Indonesia has emerged as the worst hit Asian crisis economy. The magnitude of Indonesia’s crisis was larger than in other countries and the crisis lasted longer there. The reason was the volatile combination of financial, economic, social and political crises which have gripped Indonesia recently. Restoring confidence is a fragile process, as evidenced by the weakening of the rupiah and the decline in the stock market composite index in the second half of 2000. Investors have identified the lack of physical security, safety, legal certainty and policy direction as factors affecting their investment decisions in Indonesia. Ethnic and religious clashes and a recent spate of bombings reflect the fluid situation of Indonesia’s newfound democracy. Law and order have not been restored and a weak and inexperienced coalition government struggles to conduct a coherent economic policy. Thus, it is not surprising that, unlike the other Asian crisis economies, in Indonesia FDI declined in the depth of the crisis and has not recovered. In contrast, Thailand and South Korea have begun to make progress in corporate debt restructuring, bank restructuring and attracting FDI.
