The crisis in Asia has entered its third year. While neighbouring East Asian economies such as Korea and Thailand are showing signs of significant economic recovery, the prospects of the Indonesian economy in the near term remain a subject of conjecture and controversy. The uncertainty with respect to Indonesian economic prospects seems to influence not only the business community engaged in assessing specific business risks and opportunities but large multilateral lenders as well. It was not very long ago that we were all, encouraged by good macroeconomic numbers, waiting anxiously for the contagion of economic recovery from Indonesia's neighbours. This was in part supported by the resumption of regional trade among the crisis affected countries. It was also in part supported by the feeling that market confidence was beginning to return to Asia. Moreover, the strong Korean recovery, followed by Thailand and even Malaysia seemed to point to a similar process underway in Indonesia.

Not every one is bullish about the Indonesian market. Powerful multilateral lenders, with an insider's access to comprehensive economic data, have tended to characterise the Indonesian economic situation as "fragile". The IMF recently went as far as to say that one shoudl interpret the projected over 3% GDP growth with caution. Anticipated GDP growth was based on a consumption driven recovery. There was as yet little sign of a turnaround in investment.

The uncertainty about the strength of the economic recovery in Indonesia, as we find ourselves midway into the third year of the present crisis, raises some important questions. First, why were almost all economists and business rating agencies so wrong about the onset and the severity of the crisis, and why does this uncertainty persist even as we try to forecast the magnitude and the depth of the recovery? Second, given that economic recovery is directly linked to the restoration of "confidence", whose confidence should we trying to target? Third, in the Indonesian context, what is the consequence and impact on business confidence of the dramatic shift in the composition of external capital flows, from private to official development assistance? Fourth, how should the long-term investor examine Indonesian economic prospectsand assess country risk over the medium term?