Indonesia was the country worst affected by the East Asian crisis; its real GDP fell by 13.1% in 1998, more than any of the other crisis countries. During the crisis, Indonesia's exchange rate depreciated by 80%, which quintupled the value of foreign currency denominated debt and caused the prices of most assets used as collateral to collapse. In addition, local interest rates were raised to levels of more than 50% to maintain the exchange rate. As a result of these factors, 72 banks collapsed and around 300,000 companies defaulted on their debt. Total bailout costs of banks during the crisis amounted to 60% of GDP, which, along with the plummeting exchange rate, significantly inflated the government's debt. Following the crisis, and after adopting IMF stabilization and structural adjustment recommendations, Indonesia's recovery was considerably slower than in other East Asian economies. It averaged an annual growth rate of only 3.5% from 1998 to 2003.

By the end of 2003, Indonesia decided to end its program with the IMF, and replaced it with the "Economic Policy Package Pre and Post-IMF," commonly referred to as Indonesia's White Paper, a publication that outlaid economic policy goals for the time after the IMF package. This program set forth three major goals: (i) maintaining macroeconomic stability, (ii) continuing to restructure and reform the financial sector, and (iii) increasing investment, exports, and employment. The White Paper was implemented by September 2004, 70% of the planned issues had been realized. In general, the implementation of the White Paper has received excellent reviews by the international community, including the IMF, and fulfilled the goal of maintaining confidence in the government's economic policies.

In September 2004 Indonesia elected a new president, Susilo Bambang Yudhoyono, who appointed a cabinet containing a mix of members of different political parties and experienced professionals. The new government announced a 100 day-action plan, which contained many promising reform proposals. The government was also working on a new 5 year-development plan.

At this time of political change, IPD was invited to host a Country Dialogue with politicians, the central bank, members of civil society, and international organizations active in Indonesia. The Country Dialogue, held December 10th through 16th, was organized in conjunction with the United Nations Support Facility for Indonesian Recovery (UNSFIR) and the UNDP. IPD helped participants explore alternative policy options for the country beyond the prescriptions offered by the Bretton Woods institutions. The IPD team evaluated a selection of issues in economic policy confronting Indonesia, identified where the debate on these issues stood, and provided alternative ideas.