It was very difficult for the government to improve the economy. The situation in 1998 had been worse by a drought in much of the country and by the effects of the currency's devaluation. The arm forces became thinly stretched. .
As 1998 progressed, the economy became worse. The first response of Indonesia was to raise the rupiah, raise key domestic interest rates, and tighten fiscal policy. At that time, president Soeharto made the agreement with the International Monetary fund (IMF) on an economic reform program to solve the economy. The currency crisis began by the rupiah lost seventy-five percent of its value. This made all Indonesian companies bankrupt because they could not pay their foreign debts. Accordingly, the millions of workers were laid off. This was the worst economy in thirty years. Unemployment was very high. .
The Chinese-Indonesians, who made up only four percent of the population, possessed about seventy-five percent of the economy. (Hong Ji Qu, www.apecsec.org.sg). There was perception among Indonesians that Chinese occupied a position in economy not good or suitable with their numbers. Indonesia has the population about two hundred million. Ethnic Chinese are estimated to form about three percent of the population, or about six million people. Among the ethnic Indonesians, people viewed that the Chinese occupied a position in the economy that was not appropriate with their population size. This is "The Chinese Problem." But, again, this does not mean that most ethnic Chinese are entrepreneurs from the total population. However, the Chinese's positions in Indonesia society were because historically they were barred from being servants and farmers, they then had to engage in trade and business. (Diao and Tan, 125).
In 1998, Chinese dominated retail trade in small towns. Chinese sold goods that people needed on a daily basis. Ethnic Indonesians were not good in doing business.