Effects of the Indonesian Crisis

The dramatic economic and political upheaval in Indonesia over the past two years has left few Indonesians untouched. Although anecdotal information has been marshaled to claim that the changes are devastating, our evidence, based on survey data, suggests that many of the claims are exaggerated. The crisis has had a serious impact on some subpopulations. Other subpopulations have actually benefited from new opportunities.

The research summarized here is based on the Indonesian Family Life Survey (IFLS)—a longitudinal survey of individuals, households, communities, and facilities in Indonesia. The second round of the IFLS was completed in 1997, prior to the precipitous collapse of the Rupiah in January 1998. To provide data on the impact of the crisis, we rapidly designed and implemented a follow-up survey in 1998, covering 2,000 IFLS households in seven provinces. We reinterviewed 98 percent of those households. In combination, the two surveys are uniquely well suited to provide insights into the complex effects of the crisis.

NOTE: All results are statistically significant.

Changes in Economic Status

On average, between 1997 and 1998, real purchasing power, as measured by per-capita levels of household expenditure, declined substantially. However, median expenditures remained virtually constant. The expenditures of those at the top and bottom of the distribution have declined the most. As a result, poverty rates have risen—by at least 25 percent.

In response to price changes, households have changed their spending patterns. The share of the budget spent on food, particularly staples, has increased. To compensate, households have reduced expenditures on other, predominantly nonessential, goods and services. However, the share of the budget spent on health services and education has also declined, especially for the poorest.

Changes in Education

The decline in the share of the budget allocated to education is reflected in enrollment rates. In rural areas, the percentage of 7–12-year-olds not enrolled in school rose from 5.5 percent in 1997 to almost 9 percent in 1998. The gap between children at the bottom of the income distribution and those at the top has widened. By 1998, children from the poorest households were about five times more likely to be out of school than were their wealthier counterparts. Young children whose schooling has been interrupted, whether temporarily or permanently, will likely feel the effects for the rest of their lives.

Changes in schooling for older children have been even larger. Among 13–19-year-olds, the dropout rate has risen substantially, particularly for children in urban areas and for those from poor households. Whether interruptions in schooling will make these children and their families better or worse off in the medium term and long term is an open question.

Changes in Health

The story is more complex with respect to health care and health status. Use of public health services (measured by a visit in the month before the interview) has declined for adults and for children. For children, the change is driven by a dramatic decline in visits to the posyandu (community health posts), a key source of preventive care for young children. Between 1997 and 1998, use of the posyandu by children under five dropped from nearly 50 percent to only 25 percent. Simultaneously, the proportion of children receiving Vitamin A, which protects against disease and blindness, has decreased. In part, this reflects a general deterioration in the quality of preventive services. Vitamin A was far less available at public and private health facilities in 1998 than in 1997. More generally, stock outages of antibiotics and bandages increased significantly at puskesmas (government health centers and subcenters), and prices rose faster at public than at private facilities.

Have decreases in use of care been accompanied by measurable changes in health status? On a number of dimensions, health status actually improved between 1997 and 1998. The proportion who are moderately anemic decreased, as did the proportion of children at the lowest end of the nutritional spectrum (as measured by weight-for-height). However, among adults, nutritional status (as measured by a body mass index of less than 18) deteriorated, particularly for poorer women. For those who were in good health in 1997, it seems likely that the impact of the crisis on health status will take some time to emerge. The most vulnerable, however, do not appear to be so fortunate. Moreover, an impressionistic evaluation of health by our health workers in the field suggests that overall health status may have declined slightly. If the crisis persists, physical health may not remain so resilient.

The Impact of Mitigation Efforts

Indonesia's economic crisis has affected a number of dimensions of individual well-being. When asked which changes in the economy have had the biggest effect, survey respondents overwhelmingly mentioned the rising cost of food.

Government and nongovernmental organizations have launched efforts to distribute free food and provide food at subsidized prices. What effect has this formal assistance had? About one-quarter of households reported purchasing foods at reduced prices in the six months prior to the survey; about 10 percent had received some food for free. While this assistance is more likely to be received by the poorest, targeting could be improved substantially. In particular, conditional on level of expenditure, urban households are much more likely to receive assistance than are rural residents. Moreover, the value of the assistance is modest. Assistance from family and friends is more substantial but tends to accrue to the better-off.

Implications for Policymakers

If policies are to alleviate the impact of the crisis, they must reach the most vulnerable and those most likely to suffer grave consequences in the longer term. Policies that are not well targeted will waste resources.

The IFLS suggests that young children in poor households are especially at risk. Poor households are spending less on education and health care than they were a year ago. And young children in these households are less likely to be in school or receiving preventive health care. To the extent that investments in health care and education have deleterious impacts far into the future, the children missing out today may bear the costs of the crisis for years to come.

Interventions that reduce the costs of schooling or public health services or that raise the quality of public health services are likely to be especially profitable investments. While income support and food assistance programs have some potential to alleviate the effects of the crisis, thus far such programs do not appear to have benefited the neediest.

Precisely because the effects of the crisis are heterogeneous and because households have responded to the crisis in different ways, policymakers must continue to monitor the crisis carefully and must evaluate interventions and subsequently adjust policies as the medium- and longer-term impacts of this crisis emerge.