This article examines the causes of the crisis in Indonesia and seeks to explain why its effects have been so much more devastating than in the other ASEAN countries. Indonesia has had financial crises before but this one had a regional character: a sudden collapse of confidence of the footloose international short-term capital that took fright. The economic fundamentals were, in retrospect, much less stronger than they seemed. The private sector had gone on an investment spending spree, abetted by foreign loans made available at minimum security and prudence. However, the depth of the Indonesian crisis was largely attributable to political factors, political instability surrounding Soeharto, the impending succession, evident corruption, and repression of all political opposition. Critics also blamed the IMF for orthodox recipes which initially worsened the situation. The Slide and Crash of the Rupiah The Indonesian crisis started as a contagion of the Thai currency crisis of early July 1997.1 Until then the Indonesian economy had been doing fine with better than 7% growth. A World Economic Forum ranking of economic competitiveness, with Prof. Jeffrey Sachs from Harvard as chief adviser, released on 30 May 1996, ranked Indonesia number 15, up from number 30 a year ago, slightly outranking China and Thailand. The series of deregulation packages since the eighties had increased Indonesia's competitiveness. Indonesia, however, scored low with respect to the quality of its institutions, politics, law and bureaucracy. In his national day speech on 16 August 1997 President Soeharto still took comfort in the strength of the economic fundamentals. In retrospect that was whistling in the dark because the speculative pressure on the rupiah had begun on 21 July, producing a fall of 7%. A few days before the national day speech, on 14 August, Bank Indonesia had abandoned the rupiah band and tightened money policy. The rate briefly strengthened, but soon the weakening force got the upper hand again. Demand for foreign exchange increased sharply as corporations scrambled for dollars to cover their unhedged exposure, while new capital flows from abroad trickled to a halt, affected by the same panic. During October and November the rate weakened to a level of about Rp3,500. Early in October 1997, the rupiah continued to weaken but reserves were still at US$10.5 billion, enough for five months of imports. The minister of finance decided to approach the IMF at the Hong Kong annual IBRD/IMF meeting to obtain long-term financial support, in the hope that the IMF good-housekeeping seal would restore confidence. By then, depreciation of the rupiah had reached 55%, while it was 41% for the Thai baht, 31% for the Malaysian ringgit, 34% for the Philippine peso and only 11% for the Singapore dollar. The fall of the rupiah became more precipitous between December 1997 and January 1998. The consecutive IMF agreements had virtually no impact. The weakness of the rupiah was further aggravated by mounting uncertainty related to President Soeharto's health (rumours circulated in early December) and his handling of the situation, that is his ambivalence about the IMF package, his determination to shield the interests of his children and his flirtation with the currency board idea of Steve Hanke. During February there was some strengthening of the rupiah, but it fell again in March, the month of the presidential election, because of increasing political uncertainty (Soeharto's succession problem and his choice of unpopular Habibie as running mate). In April 1998 there was another short-lived strengthening of the rupiah. Towards May 1998 the political situation heated up, with a students' movement gaining momentum. President Soeharto decided in early May to raise petroleum product prices and electricity rates in an effort to reduce budget deficits. He had done the same many times before without dire consequences. …