Beginning in mid-1997, Asian currencies lost value against the U.S.dollar, leading to an unprecedented regionwide economic crisis. Amongall the Asian countries affected, none fared worse than Indonesia. As explained by the World Bank (1998, 1), “No country in recent history, let alone one the size of Indonesia, has ever suffered such a dramatic reversal of fortune.”1 In the period 1967-1997, Indonesia had experienced average annual economic growth of 6.5%; in 1998, the economy contracted 13.6%. This was by far the biggest setback among Southeast Asian countries, and Indonesia was the only country in the region to experience serious inflation in 1998 (Hill 1999, 23-4). A study for the World Bank (Poppele et al. 1999, 14)

showed the aggregate poverty rate in Indonesia increased from 11% in 1996 to 14-20% in 1998.2 Assessments of why the crisis was so bad in Indonesia focus on the fact that a high degree of corruption during Soeharto’s administration had allowed dollar-denominated private sector debts to proliferate with little monitoring and control (Sadli 1999, 16; Cole and Slade 1998; see Chapter 12 in this book).