This chapter argues that a more nuanced understanding of Indonesia's economic crisis can be gained by differentiating between the sources of 'vulnerability' and the 'precipitating' factors. The roots of the crisis can be traced back to the mid-1980s, when Indonesia embarked on an ambitious economic reform program. On January 27, 1998, with their backs against the wall, both the International Monetary Fund (IMF) and the Indonesian government took steps to deal with the banking sector problems. In the ensuing weeks, as the embattled Suharto vacillated and stalled, the economic downturn deepened and the Indonesian economy was brought to the brink of total collapse. Liquidity support to the banking sector continued to increase in large part to meet the continuing deposit withdrawals. Moreover, as part of Indonesia's commitments to the IMF, the government took steps to review and strengthen the prudential and regulatory framework of the banking system.
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This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book presents the case studies of the individual countries: Thailand, Indonesia, South Korea and the People's Republic of China (PRC). It examines the factors behind the financial crisis and highlights the underlying similarities and the fundamental differences between the individual cases. The book provides a review of the competing perspectives on the new international financial architecture. It explains a number of fundamental issues and its implications for the emerging market economies. The book also presents a more nuanced picture of the International Monetary Fund's (IMF) policies and its socioeconomic impact. It assesses the IMF's efforts to reduce moral hazard. The book also examines the reasons behind Asia's remarkable economic recovery and the challenges that lie ahead.