Indonesia: from showcase to basket case

Abstract

The repercussions of the East Asian financial crisis have been the most severe in Indonesia, a country long regarded as one of the developing world's greatest success stories. Although triggered by external factors, the roots of the economic collapse can be traced to a series of policy errors and to the nature of economic policy-making under Suharto. The article reviews the factors leading to the intensification of the crisis, including the attempt of a weak, ‘patrimonial’ Indonesian state to carry out a wide-ranging programme of financial liberalisation. The reforms failed to dismantle the patron-client system and increased the risks of financial crash.