The straw which possibly broke the camel's back for President Suharto was the announcement on Tuesday by the International Monetary Fund that it could no longer meet a June 4th target to pay new installments of a $10 billion (£7 billion) loan to the Indonesian government.

This was against the background of a mass exodus from Jakarta of the foreign brokers, bankers, financiers and commercial staff that integrated Indonesia with the international economy and helped make it - up to a year ago - an Asian tiger. Many said they would not be back while Mr Suharto remained in power.

One of the main challenges now facing his successor, President B.J. Habibie, is to restore confidence in the economy and stability of the world's fourth most populous country. It will be a Herculean task. He himself has a reputation for promoting the type of largescale funding of pet projects upon which the IMF frowns.

Indonesia remains committed, however, to fulfilling the conditions of the $40 billion IMF rescue package structured last November, of which the $10 billion loan was an essential part. The IMF paid Indonesia $1 billion on May 4th and had expected to pay further $1 billion installments on June 4th and July 6th.

But for 10 days the nation's financial and economic business has been at a virtual standstill. The desperate plight of the brokerage world was underlined when white-collar workers in the Jakarta stock exchange staged their own demonstration on Tuesday, urging the 76-year-old Suharto to go.

The political uncertainty and the rioting and destruction in Jakarta all but destroyed confidence in the Indonesian economy. The rupiah plunged to a low of 17,000 to the dollar on Tuesday, a 50 per cent drop inside a week. It recovered dramatically yesterday to 9,500, as currencies and stocks throughout south-east Asia celebrated the dramatic news from Jakarta.

The IMF's executive board, representing member-countries, will now reassess the situation. Its officials fled last week as Jakarta plunged into anarchy, though they will probably return quickly once social stability is re-established. The financial community will also watch to see whether retribution is extracted from big companies which benefitted from the Suharto years before reinvesting funds in Indonesia.

The IMF programme is itself designed to restore stability, open up the market and break up monopolies. But this meant cutting costly subsidies on basic goods, a huge factor in the insurrection of the poor and the frightening instability which resulted in towns and cities throughout the country last week.

The IMF now says that the Indonesian government must cut some subsidies further or faster than it had expected and Mr Suharto's panic decision to reduce oil and electricity prices on Monday was "not an alarming problem" for the IMF loan.

The IMF will want to allow Mr Habibie some leeway as he tries to calm the country down but its continued support for the Indonesian economy will depend on the composition of the new president's cabinet and what he says in the coming days.

The harsh fact is that things are going to get worse before they get better in Indonesia because of the collapse of the financial system. There is expected to be negative growth and recession for two years. Hyperinflation remains extremely likely. Inflation is currently running at 50 per cent. Interest rates have soared to 60 per cent. Most companies are technically bankrupt.

Without international bank credit a government of national reconciliation would be tempted to nationalise the vast gold, copper, nickel and coal mining operations run by foreign and local firms, many of them effectively in the hands of the first family. Others are controlled by multinationals such as Rio Tinto, the world's largest mining firm, which has $2 billion invested in Indonesia.

Economists have warned that Indonesia's economy is in danger of total collapse within two to three months, leaving foreign banks with multi-billion dollar exposures. There has been no capital inflow and no foreign reserves or direct investment, said University of Indonesia chief economist, Mr Faisal Basrie.

Central bank figures show Indonesia's private sector foreign debt at $66.27 billion with public sector external debt of $65.39 billion, of which $11.93 billion is owed to foreign creditors. Estimates place private sector debt higher at about $80 billion. Japanese lenders are the most exposed with $23.2 billion in outstanding loans. Japan has also pledged the largest contribution - $5 billion - to the IMF international bailout package.

Another major problem for the new president is the possibility of food shortages. Shipments of grain and other foodstuffs to Indonesia were severely disrupted by the unrest, with trade deals being called off and few new contracts being signed. A western trade official was quoted as saying: "There is not a foreign bank on the planet that would accept a letter of credit from an Indonesian bank at the moment." Without guarantees from financial institutions in third countries, suppliers will not send shipments to Indonesia.

The transportation and distribution system was paralysed for several days in Jakarta last week and looters destroyed businesses and warehouses, many of them owned by the Chinese minority. Many Chinese who fled may be reluctant to return, leaving a large gap in the country's business class.

Indonesia is a major rice producer but drought and a fast growing population have made it increasingly dependent on imports of several million tons of rice this year as well as soybeans, grain, beef and animal feed.

Indonesia says it has sufficient supplies of food stocks to meet basic needs.

Despite all these difficulties, the new president's first act was to announce through his spokesman that he would continue the economic reforms agreed with the IMF.

The fund was never happy with Mr Habibie's approach to economic policy when he was research and technology minister and, as IMF officials start booking air tickets back to Jakarta, they will be looking for speedy confirmation that he is fully committed to the reforms they believe are crucial to Indonesia's recovery.