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The Real Costs of Indonesia’s Economic Crisis: Short-Run Impacts

The Real Costs of Indonesia’s Economic Crisis: Short-Run Impacts . February 2008. Indonesia Was a Development Success Story From 1967 to 1997. Gross domestic product grew at an average annual rate of 4.5% Poverty rate declined from 40% to 11%

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The Real Costs of Indonesia’s Economic Crisis: Short-Run Impacts

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  1. The Real Costs ofIndonesia’s Economic Crisis: Short-Run Impacts February 2008

  2. Indonesia Was a Development SuccessStory From 1967 to 1997 • Gross domestic product grew at an average annual rate of 4.5% • Poverty rate declined from 40% to 11% • High school enrollment increased from less than 10% to nearly 50% • Life expectancy increased from 45 to 61 years

  3. Indonesia 1998: A Year of Living Differently Rupiah/US$ Thai currency collapses July 1997 • The inflation rate grew to 80% • The gross domestic product contracted 12% to 15% • Suharto, president of Indonesia for 32 years, was forced to resign • Violent riots and demonstrations occurred throughout the country

  4. Empirical Evidence on Impacts: IFLS2+ The Indonesia Family Life Survey collected longitudinal data on individuals, households, and communities in 1993 and 1997 PacificOcean The Philippines Thailand Brunei IFLS1 andIFLS2 Provinces IFLS2+ Provinces M a l a y s i a Singapore PapuaNewGuinea Jakarta N IndianOcean EastTimor I n d o n e s i a 0 600 km

  5. The Indonesian Economic Crisis Presentedan Opportunity and a Challenge for the IFLS Rupiah/US$ IFLS2

  6. IFLS2+ Design and pretests Preliminary results Fieldwork To Measure the Effects of the Crisis, RANDResponded Quickly to Field IFLS2+ IFLS2 Design and pretests Fieldwork January 1996 January 1997 January 1998 January 1999

  7. The IFLS Found the Increase of Poverty, While Large, Was Not As Bad As Feared % of persons in poverty 50% 40% 30% 20% 10% 0% 1997estimate 1998 1998 ILO 1998 IFLS2+ government estimate estimate estimate In February 1999, President Habibie said poverty had risen to 19%

  8. Households Shifted Spending to Staplesand Away From Education and Health % of household expenditures 35% 1997 30% 1998 25% 20% 15% 10% 5% 0% Rice and Vegetables Meats Household Education Health other goods staples

  9. What Were ExpectationsAbout Education? • There were early fears that enrollment rates would fall, but the Central Bureau of Statistics reported enrollment growth • Enrollment “growth,” however, was from flawed methodology comparing different points of school year

  10. IFLS Found Dropout Rates Increased,Particularly for Poor and Rural Students % of students 7 to 12 years of age dropping out 8 7 1997 6 1998 5 4 3 2 1 0 Urban Rural Bottom Middle Top 25% 25% half Per capita household expenditures

  11. Before IFLS2+, Only Limited EvidenceWas Available on Health Care Effects • Anecdotal reports suggested big increases in use of subsidized public care, particularly by middle class • Little attention was given to effects on vulnerable populations (e.g., children)

  12. Crisis Saw Fewer, Not More, IndonesiansUse Public Health Care Facilities % using public health clinic 8% 1997 7% 1998 6% 5% 4% 3% 2% 1% 0% Adult 15+ Child 0-14

  13. Prices of Public Health ServicesIncreased Greatly Cost in rupiah for service 8,000 1997 7,000 1998 6,000 5,000 4,000 3,000 2,000 1,000 0 Child immunizations Contraceptive injection

  14. Quality of Public Health Services Declined % of public health facilities 1997 40% 1998 30% 20% 10% 0% Stock outage of antibiotics in past six months Inadequate bandage stock at time of survey

  15. Use of Preventive Health Care by Young Children Dropped Sharply % of children 0-4 60% 1997 50% 1998 40% 30% 20% 10% 0% Use health post Receive Vitamin A

  16. Incorporating Results into Policy • Initial government lump-sum transfer programs were scaled back after IFLS results became available • IFLS helped refocus attention away from urban businesses and toward poorest households slipping through safety net • IFLS results helped spur efforts to revitalize the health post program, which had been allowed to atrophy

  17. Monitoring the Crisis: Beyond 1998 • Studies of specific programs, including the set of programs introduced in mid-1998 to address crisis (JPS -Jaringan Pengaman Social – programs) • Scholarships (Sparrow, 2004) • Health Cards (Pradhan et al 2004) • Studies of overall performance/poverty, general trends in SES outcomes • Strauss et al. (2004) • Ravallion and Lokshin (2005)

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