A Brief about the crisis The crisis resulted from a collapse of confidence in the ability of a number of Southeast Asian

countries to maintain their fixed exchange rates while continuing to allow the free movement of foreign finance capital at a time of increasing current account deficits. First stage of the crisis - limited initial falls In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $900 million, huge foreign exchange reserves of more than $20 billion, and a good banking sector. But a large number of Indonesian corporations had been borrowing in U.S. dollars. During the preceding years, as the rupiah had strengthened respective to the dollar, this practice had worked well for these corporations; their effective levels of debt and financing costs had decreased as the local currency's value rose. But in July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened the rupiah trading band from 8% to 12%. Indonesia had taken similar actions previously, in December 1995 from 2 to 3%, in response to the Mexican financial crisis, and in June and September 1996 from 3 to 5% and then 5 to 8%. These actions had been successful in the past in defending the rupiah, but on this occasion there was a more serious crisis of confidence. The rupiah fell 7% immediately, with foreign money quick to leave the country, with investor confidence in Indonesia shaken. Local confidence in the currency was also undermined as the population decided to follow suit, selling rupiah for dollars. The spot rate soon fell below the selling rate (i.e. outside the 12% exchange rate band), and despite Bank Indonesia's attempts to intervene, it soon abandoned the managed float, leaving the rupiah to float freely on August 14, 1997. The rupiah dropped further. The IMF came forward with a rescue package of $23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and the Jakarta Stock Exchange touched a historic low in September. Moody's eventually downgraded Indonesia's long-term debt to 'junk bond'.

Second Stage Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. In February 1998, President Suharto sacked Bank Indonesia Governor J. Soedradjad Djiwandono, but this proved insufficient. Suharto resigned under public pressure in May 1998 and Vice President B. J. Habibie was elevated in his place. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 USD.[25] The rate plunged to over 11,000 rupiah to 1 USD on 9 January 1998, with spot rates over 14,000 during January 2326 and trading again over 14,000 for about six weeks during JuneJuly 1998. In Indonesia, it is very common to find control by families or by limited number of shareholders in the corporate sector. In many instances, these controlling families had political connections that allowed their companies to enjoy special privileges, particularly in gaining easy access to credit. Ownership concentration in Indonesia is highest in the region. It is demonstrated by the fact that the top five largest shareholders controlled between 57 and 65% of company shares. Indonesia has the largest number of companies owned by a single family. In terms of capitalization, the top family controlled 17% of total market capitalization while the top 15 families controlled 62% of the market. Third Stage -Corporate Reforms 1) Disclosure requirements rule have tightened and accounting standards have improved after the crisis, although from a low base. In 1999, a code for good governance was introduced, which guided subsequent reforms. All companies were required to provide annual reports with audited and annotated financial statements and consolidated reporting has become mandatory. In order to improve the quality of reporting, a Guidelines for the Financial Reporting Systems of Listed Companies was jointly prepared by the Indonesia Institute of Accountants, the Indonesian Issuers Association and the Faculty of Economics of the University of Indonesia. 2) By 2001, the Jakarta Stock Exchange (JSX) has tightened listing rules especially disclosure and liquidity rules. It required listed companies to form audit committees, appoint independent directors comprising at least 20% of the board and strengthen the company secretarys function. 3) Major initiatives have been taken to harmonize Indonesias Financial Accounting standards with International Accounting Standards. By the end of 2001, 247 listed companies have appointed independent directors and 168 have established audit committees.

4) The government raised creditor protection by amending its bankruptcy laws, establishing a new commercial court and introducing an out of-court framework for restructuring nonperforming loans. In January 1998, the Indonesian government established the Indonesian Bank Restructuring Authority (IBRA) to restructure troubled banks while the Indonesian Debt Restructuring Agency (IDRA) was established to restructure foreign debt in July. In my view, Indonesia has initiated many small corrective steps, yet firm, towards fortifying its financial system. Also, the crisis in a way instigated it to break the shackles of red tape and come up with a