On 21 May 1998 Soeharto announced that he was unable to continue leading the nation and had decided to step down: this dramatic three-minute announcement ended the Soeharto era. His deputy, B. J. Habibie, was immediately sworn in as the new President. This chapter gives an overview of the problems faced by Soeharto in the last six months prior to his stepping down, the crucial developments in the last weeks of his rule, and the “showdown” which eventually ended it all. This chapter also briefly evaluates Habibie's rule and the problems encountered.

Corruption and the Economic Crisis

The Indonesian economy deteriorated rapidly in the wake of the financial crisis that began first in Thailand in the middle of 1997, followed by Malaysia, the Philippines, and Indonesia. Indonesia was the hardest hit. The value of the rupiah dropped from Rp2,350 per U.S. dollar in June 1997 to Rp16,500 in January 1998. By early April 1999 it had somewhat stabilized at Rp9,000 per U.S. dollar. However, the low value of the rupiah made it impossible for Indonesian companies to import goods and to pay debts. Prices of imported and domestic products rose dramatically and many companies faced bankruptcy. Unemployment rates jumped. These developments affected Indonesian politics. The presidential election, which took place after the general election, in March 1998 was thus conducted under the shadow of economic turmoil and increasing discontent, after Indonesia was compelled to ask for help from the International Monetary Fund (IMF).