1 This is the pre-copyedited version. To cite: Edwards Jr., D.B. & Storen, I. (2023). “The Asian Financial Crisis: Entrenching and scaling-up community-driven development reforms,” in D.B. Edwards Jr., Rethinking World Bank influence: Governance reforms and the ritual aid dance in Indonesia. Routledge. CHAPTER FIVE The Asian Financial Crisis: Entrenching and Scaling-up Community-Driven Development Reforms D. Brent Edwards Jr. Inga Storen At the brink of the Asian Financial Crisis (AFC) in July-August 1997, the World Bank was involved in the funding and support of several projects in Indonesia, as discussed in the previous chapter. Decentralization and block-grant funding strategies were central, having been popularized through the urban and rural models. And with the prominence of the post-Washington consensus in international development, the interest in social capital for development was increasing. When the economic crisis finally arrived, Indonesia was hit hard. Worsened by the El Niño drought and the drastic drop in rice production, the time period of 1997-98 exacerbated poverty and hunger. Economic growth dropped from a promising +7% in early 1997 to -15% the following year. The year 1998 brought about political crisis, which, after a “leaderless” revolution 1 and pressure from the US, eventually resulted in Suharto’s resignation in May 1998. Although the US had suffered criticism for having supported Suharto’s dictatorship through continued economic aid, Suharto’s fall now “offered a new beginning for US policy in Indonesia” (Bresnan, 1999, p. 105). Only five months after Suharto’s resignation, the World Bank published a report titled “Education in Indonesia: From Crisis to Recovery” (World Bank, 1998a). Following the report, the Ministry of Education and Culture (MOEC) and the National Development Planning Agency of the Republic of Indonesia (Badan Perencanaan dan Pembangunan Nasional, BAPPENAS) came together to set up numerous task forces to find ways to improve Indonesia’s education (Sumintono, 2009). The United States and the International Monetary Fund (IMF) offered bailouts to Indonesia, but, after controversial bailouts in Mexico 2 in 1994, the offers made to Indonesia came with a high level of conditionality. Conditionalities included closing heavily indebted banks and cutting government spending. In addition, under the interim presidency of Bacharuddin Jusuf Habibie (May 1998- October 1999), decentralization was pushed in all development reforms. Beyond World Bank pressure, decentralization was also of interest to the central government in order to reduce tensions between itself and the provincial level governments, some of which were interested in seceding from Indonesia.