Economic crisis and Suharto's resignation

Economic crisis and Suharto's resignation
In 1997 and 1998, Indonesia was the country hardest hit by the East Asian Financial Crisis,[39] which had dire consequences for the Indonesian economy and society, and Suharto's presidency. At the same time, the country suffered a severe drought and some of the largest forest fires in history burned in Kalimantan and Sumatra. The rupiah, the Indonesian currency, took a sharp dive in value. Suharto came under scrutiny from international lending institutions, chiefly the World Bank, International Monetary Fund (IMF) and the United States, over longtime embezzlement of funds and some protectionist policies. In December, Suharto's government signed a letter of intent to the IMF, pledging to enact austerity measures, including cuts to public services and removal of subsidies, in return for receiving the aid of the IMF and other donors. Prices for goods such as kerosene and rice, and fees for public services including education rose dramatically. The effects were exacerbated by widespread corruption. The austerity measures approved by Suharto had started to erode domestic confidence with the New Order[40] and led to popular protests.

Suharto stood for re-election by parliament for the seventh time in March 1998, justifying it on the grounds of the necessity of his leadership during the crisis. The parliament approved a new term. This sparked protests and riots throughout the country, now termed the Indonesian 1998 Revolution. Dissent within the ranks of his own Golkar party and the military finally weakened Suharto, and on May 21 he stood down from power.[41] He was replaced by his deputy Jusuf Habibie.

President Habibie quickly assembled a cabinet. One of its main tasks was to re-establish International Monetary Fund and donor community support for an economic stabilization program. He moved quickly to release political prisoners and lift some controls on freedom of speech and association. Elections for the national, provincial, and sub-provincial parliaments were held on June 7, 1999. For the national parliament, Indonesian Democratic Party-Struggle (PDI-P, led by Sukarno's daughter Megawati Sukarnoputri) won 34% of the vote; Golkar (Suharto's party; formerly the only legal party of government) 22%; United Development Party (PPP, led by Hamzah Haz) 12%; and National Awakening Party (PKB, led by Abdurrahman Wahid) 10%.