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% High school enrollment increased from less than 10% to nearly 50% Life expectancy increased from 45 to 61 years

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

Empirical Evidence on Impacts: IFLS2+ The Indonesia Family Life Survey collected longitudinal data on individuals, households, and communities in 1993 and 1997 The Philippines Pacific Ocean Thailand Brunei IFLS1 and IFLS2 Provinces IFLS2+ Provinces M a l a y s i a Singapore Papua New Guinea Jakarta N Indian Ocean East Timor I n d o n e s i a 600 km

The Indonesian Economic Crisis Presented an Opportunity and a Challenge for the IFLS Rupiah/US$ IFLS2

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

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% 1997 estimate 1998 1998 ILO 1998 IFLS2+ government estimate estimate estimate In February 1999, President Habibie said poverty had risen to 19%

Households Shifted Spending to Staples and 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

What Were Expectations About 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

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 Urban Rural Bottom Middle Top 25% 25% half Per capita household expenditures

Before IFLS2+, Only Limited Evidence Was 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)

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

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

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

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

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

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)