(3)
The 1997 economic crisis (which began in Thailand and quickly spread to Indonesia and several other East Asian economies), (4) resulted in a sharp depreciationof Indonesia's currency (the rupiah), (5) large-scalecapital flight, high inflation, widespread corporate bankruptcies (caused in part by large short-term debt ofmany companies and corrupt business practices), and a near collapse of the banking system. (6) In 1998, real GDP plunged by 13.2%; exports andimports fell by 8.6% and 34.5%, respectively, and living standards (per capita GDP on a purchasing power parity basis) droppedby nearly 13% (see Table 1 ). In addition, the stock of foreign direct investment (FDI) in Indonesia dropped each year from 1997-2002. (9) However, Indonesia faces a number of challenges that threaten to undermine long-termgrowth prospects. The bombings have had a chilling effect on Indonesia's tourism industry and raisedmajor concerns over the safety of foreigntourists and businesspeople in Indonesia.
Indonesia's economy continues to struggle against the lasting effects of the 1997-1998Asian financial crisis and thepolitical instability that resulted. Indonesia was one of the hardest hit economies in Asia; real GDP fell by 13.2 %in 1998. Indonesian-U.S. commercial tieswere sharply diminished as well, caused in part by declining Indonesia living standards and a loss of foreign investorconfidence in Indonesia (due largely topolitical instability). The Indonesian economy has improved over the past few years, however, recent activities ofterrorist elements in Indonesia and the rise ofseparatist movements threaten to undermine further an already fragile economy. This report will be updated asevents warrant.