Modern Economy, 2010, 1, 156-167
doi:10.4236/me.2010.13018 Published Online November 2010 (http://www.SciRP.org/journal/me)
The Indonesian Experience with Two Big Economic Crises
Tulus T. H. Tambunan
Center for Industry, SME and Business Competition Studies University of Trisakti, Jakarta, Indonesia
Received July 13, 2010; revised August 15, 2010; accepted August 18, 2010
Abstract
This paper aims to examine the Indonesian experience with two big economic crises in the past 12 years,
namely the 1997/98 Asian financial crisis and the 2008/09 global economic crisis. The paper is based on
secondary data analysis and a review of key literature. It has two main parts. The first part gives a theoretical
explanation of the main transmission channels through which the two crises have affected the Indonesian
economy. The second part is the empirical part of the paper about the impacts of the crises on such as
economic growth, employment, remittances and poverty in Indonesia. One important finding from this study
is that the Indonesian economy was much more resilience to the last crisis as compared to the 1997/98 crisis.
During this first crisis, Indonesian economic growth was–13 percent and poverty increased significantly;
whereas during the second one, Indonesia managed to keep a positive economic growth rate (though
declined), and poverty kept declining.
Keywords: 2008/09 Crisis, 1997/98 Crisis, Economic Growth, Remittance, Poverty, Unemployment
1. Introduction
Indonesia now is much more vulnerable to any economic
shocks than, say, 30 years ago, for the following reasons.
First, since economic reforms started in the 1980s toward
trade, banking, investment, and capital account liberali-
zations, the Indonesian economy has become more inte-
grated with the world economy. Second, though at a de-
creasing rate, Indonesia is still dependent on exports of
many primary commodities, i.e. mining and agriculture.
This means that its economy is still sensitive to any
world-price/demand instability for those commodities.
Third, Indonesia has become increasingly dependent on
imports of a number of food items such as rice, food
grains, cereals, wheat, corn, meat, dairy, vegetables and
fruits, or even oil. Any increases or instabilities of world
prices or the world production failures of these com-
modities will have big effects on domestic consumption
and food security in Indonesia. Fourth, more Indonesian
working population, including women, went abroad as
migrant workers, and hence livelihoods in many villages
in Indonesia have become increasingly dependent on
remittances from abroad. Any economic crisis hit the
host countries (such as happened in Dubai during its
financial crisis in 2009) will hit the Indonesian economy
too. Finally, as a huge populated country with increasing
income per capita, domestic food consumption is not
only high but also keeps increasing. Accelerating output
growth in agriculture is therefore a must for Indonesia,
and this depends on various factors, including climate,
which is an exogenous factor. As Indonesia is located
between the Pacific ocean and the Indian ocean in the
line of equator, the country is always vulnerable to El
Nino/La Nina phenomenon which may cause failures in
rice (and other commodities) harvest and therefore will
generate a hyperinflation.
Indeed, in the past 12 years, Indonesia has experienced
two big economic crises, namely the Asian financial
crisis started by mid. 1997 and reached its peak in 1998,
and the global economic crisis in 2008 and 2009. This
paper aims to examine the Indonesian experiences with
these two crises. It addresses two key questions. First,
what were the main transmission channels through which
the two crises affected the Indonesian economy. Second,
was the impact on the Indonesian economy different
between the two crises, and if yes, what made the
difference?
The paper has three main parts. The first part (Chapter
II) gives an theoretical explanation on the main
transmission channels through which the two crises have
affected the Indonesian economy. The second part
(Chapter III) examines empirically the impacts of the
two crises on the Indonesian economy focusing on
economic growth, export, employment, remittances and

T. T. H. TAMBUNAN
157
poverty. The third part (Chapter IV) gives the most likely
reasons that made the impact of the 1997/98 crisis
different than that of the 2008/09 crisis.
2. Transmission Channels
2.1. The 1997/98 Crisis
In Indonesia, the 1997/98 Asian financial crisis was
triggered by a sudden capital flight from the country
which led its national currency, rupiah, to depreciate
significantly against the US dollar. The depreciation was
soon followed by a national banking crisis and ended up
as a national economic crisis. Through the rupiah
depreciation and higher interest rate (as the monetary
authority’s direct response in that time in order to stop
capital flight), the crisis hit first middle and high income
groups such as current employees in the financial/
banking sector and large scale industries which strongly
dependent on credits from bank or other financial
institutions and imports. After several months, domestic
inflation started to increase, and this accompanied with
the increase in unemployment due to many laid off
employees in crisis-affected firms than resulted in a
significant increase in the poverty rate in 1998.
Thus, for Indonesia, the 1997/98 crisis was initialy a
currency crisis. Theoretically, the direct impact of a
currency depreciation will be mainly on export and
import of the particular country (Figure 1). By assuming
other factors constant, export, and hence, production and
employment or income in the exporting firms/sectors and
in their backward as well as forward linked firms/sectors
will increase. This is the export effect of a currency
depreciation. On the import side, domestic prices of
imported consumption and non-consumption goods will
also increase. In the case of non-consumption goods, i.e.
raw materials, capital and intermediate goods, components/
spare parts, as a response to higher prices (in national
currency) of these imported goods, two scenarios are
possible: (1) imports decline and, consequently, total
domestic production and employemnt also drop, or (2)
imports may stay constant, but it means thus domestic
production cost will increase and finally it will result in
higher domestic inflation. This is the import effect of a
currency depreciation.
Besides the above effects, a national currency
depreciation also makes the value in national currency of
foreign debts (in foreign currency against which the
national currency has depreciated) owned by domestic
firms to rise. Many highly foreign indebted domestic
firms will face a serious financial crisis. If many of them
have to reduce their production or even collapse,
domestic total production and employment will then
further decline. This can be called as the foreign debt
cost effect of a national currency depreciation.1
The net result of all effects discussed above on poverty,
however, can be postive, or negative, or no effect at all,
depending on whether the export (positive) effects are
larger, equal to or smaller than the import and foreign
debts cost (negative) effects of the rupiah depreciation.
The key issue here is whether export will increase when
national currency is weakening. It depends at least on
two main factors. First, the proportion of imported inputs
in the export products, because it will determine to what
extent the price competitiveness of the products will
increase when national currency depreciates. Second,
domestic production capacity of the export goods, which
determines to what extent the production will increase
when their price competitiveness increases.
So, in this 1997/98 crisis case, the key transmission
channels through which the crisis affected the Indonesian
economy were changes in export and import volumes
and cost (in national currency) of foreign debts. With
respect to the impact on poverty, the next transmission
channesl were changes in employment/income, and
inflation. As export is usually increase (or at least not
decline) when national currency depreciates, the most
vulnerable group to the crisis is thus on the import side,
especially imports of inputs. However, depends on what
sectors are most severely affected by higher import costs
(in national currency) and their response to the increased
import costs: whether they keep the import volume the
same as before depreciation and without any labor
adjusment (e.g. lay off or less working hour) or reduce
the amount of imports and hence production and
employment.
2.2 The 2008/09 Crisis
The 2008/2009 crisis has been called by many econo-
mists as the most serious economic or financial crisis since
the great depression in the 1930s. The crisis impacted
many countries through various channels, i.e. exports,
investment (including foreign direct investment/ FDI), and
remittances[1]. However, for Indonesia and many other
developing countries, the most important channel was
export. Retrenchments mounted in much export- oriented
manufacturing firms in these countries, while working
time fell along with increased downward pressure
1Financial conditions of national governments which borrowed a lot o
f
money from abroad will also deteriorate as national currency
depreciates. However, in the case of Indonesia, the impact on domestic
p
roduction and employment was not evident. Even, during the crisis the
government could increase its expenditure on fuel, health and education
to mitigate the impact of the crisis on the poor. A large part of the
increased expenditure was from loans provided by the International
Monetary Fund (IMF).

T. T. H. TAMBUNAN
158
Depreciation of national
currency (Rupiah) Export ↑
Production ↑
Employment/
income ↑
Poverty ?
Import
Import ↓ Import constant
Production
costs ↑
Inflation↑
Production ↓
Employment/in
come ↓
Rupiah
cost of
foreign
debt ↑
Many foreign indebted
firms closed
Figure 1. Transmission Channels of the Effects of the 1997/98 Crisis on the Indonesian Economy.
on wages. Also many employees in these firms were laid
off and many of them migrated back to rural areas and
shifted to informal and vulnerable employment.
As export was the most important transmission
channel, therefore, the 2008/09 crisis for Indonesia and
most other affected countries was considered primarily
as a world demand/export market crisis. Theoretically, as
illustrated in Figure 2, this kind of shock will affect the
economy of these countries at the first stage through its
effects on their domestic export-oriented firms. It leads
further to less production and employment in these firms
and in other related firms. The employment reduction
causes decline in incomes of many households, and it
will result further in lower market demands for goods
and services and hence production cuts in many
industries/sectors. Finally, unemployment and poverty
will increase.
In large countries like Indonesia which consists of
many islands or regions (i.e. provinces, districts and
subdistricts), the impact may vary by region, or even the
impact in some regions within the country may more
severe than at the national level. For instance, if the
decline in average household income in Java island
(where most export-oriented manufacturing industries
are located) is higher than in the rest of the country, and
the proportion of the affected households in Java is
significant large, then total income in Java will decline
faster than that in the rest of the country.
If remittance inflows to Java also decline from foreign
countries also affected by the crisis, then the income in
Java will drop further. If remittances to other regions in
Indonesia also decline, than the national income or the
economic growth rate will decrease. In other words, if
only one region in Indonesia was affected by the crisis,
and the region’s economy is not significant important for
the national economy based on gross domestic products
(GDP) distribution by region, the effect at the national
level my insignificant, even if the impact for that
particular region is significant. On the other hand, if Java
is the highest Indonesia’s GDP contributor, even a small
impact of the crisis on Java will produce a serious shock
for the national economy.
Thus, depending on: (1) the importance of the affected
export commodities in Indonesia’s total export; (2) the
importance of the commodities and their related sectors
(through backward and forward production linkages) in
the economy of the regions of origin; (3) the importance
of the regions’ economy in the Indonesian economy; and
(4) the crisis-coping measures taken by the affected firms
to mitigate the effect of the crisis, the impact or outcome
of the 2008/09 crisis on the Indonesian economy and
hence poverty can be large or small. Therefore, in ana-
lysing the impact of the crisis on Indonesia’s economy
and poverty, the key are: (a) what export commodities
have been hit by the crisis; (b) in what regions; (c) how
are their linkages with the rest of the economy; and (d)
what types of workers and their households are mostly
affected?
3. The Impacts
3.1. The 1997/98 Crisis
The 1997/98 crisis hit many countries especially in East
and Southeast Asia such as Indonesia, Thailand, Singapore,
Malaysia Philippines and South Korea. However, the

T. T. H. TAMBUNAN
159
World demand↓
Export↓ Export↓
Production ↓ Production↓
Productions ↓ in
other sectors
Employment /income↓ Employment/
income ↓
Household incomes ↓/
household poverty↑
Regional incomes ↓/
regional poverty↑
National incomes ↓/
national poverty↑
Indonesia other countries
Remittances ↓
Figure 2. Transmission Channels of the Effects of the 2008/09 Crisis on the Indonesian Economy.
impact varied by country. Indonesia together with South
Korea were among the most severely affected ones. The
Indonesian economy had plunged into a deep recession
in 1998 with overall growth at minus 13.7 per cent
(Figure 3). The worst declines were in the construction
sector (-39.8 per cent), financial sector (-26.7 per cent),
trade, and hotel and restaurant (-18.9 per cent). Other
sectors, which had large contractions, were manufacturing
(-12.9 per cent) and transport and communication (-12.8
per cent). Mining and other services sectors experienced
a contraction of about 4.5 per cent. The agricultural and
utility sectors still experienced positive growth at about
0.2 per cent and 3.7 per cent respectively [2]. The crisis
also led to a significant drop in income per capita to drop
(Figure 4), and a significant increase in poverty rate
(Figure 5). All this evidence may suggest that the rupiah
depreciation was more negative rather than positive for
the Indonesian economy.
The increase in poverty and the decline in income per
capita were consistent with output contractions in many
sectors as expained before. There were three main
reasons why the rupiah depreciation had caused a serious
decline in Indonesia’s aggregate output. First, despite the
fact that Indonesia has adopted import substitution
strategy during the New Order era (1966-1998), Indonesia,
especially the manufacturing industrty, has been
increasingly dependent on imported capital and
intermediate goods, components and spareparts, and
some processed raw materials. So, the rupiah depreciation
prevented many export-oriented firms from gaining
better world price competitiveness, one one hand, while,
on the other hand, many domestic market-oriented firms
had to close down or to cut their production volume
because they could not purchase any more very expensive
imports. Second, many firms, expecially conglomerates,
during the New Order era had borrowed a lot money
from foreign capital markets; mostly were short-term
loans. They went bankrupt when rupiah depreciated and
many other firms which had business relations with them
were also in trouble. Third, the national banking sector
was also collapsed. By the end of 1997 16 commercial
banks were closed, and access to credit became very
difficult and interest rate increased significantly. This has
contributed significantly to output contractions in many
sectors in Indonesia.
There is some evidence that the crisis not only
increased poverty but also reduced the quality and supply
of education and health services. Reference [3] report
that the crisis decreased enrolment rates among children
aged 8-13 years and increased enrolment rates among

160 T. T. H. TAMBUNAN
Figure 3. Indonesian GDP Growth rate during the 1997/1998 Crisis. (Source: Statistical Yearbook of Indonesia (various
years), Indonesian National Agency of Statistics (BPS) (www.bps.go.id).)
Figure 4. Development of Indonesian Income per Capita during the 1997/98 Crisis Period (US dollar). (Source: Statistical
Yearbook of Indonesia (various years), BPS (www.bps.go.id).)
Figure 5. Poverty rate in Indonesia During the 1997/98 Asian Financial Crisis. (Source: BPS,www.bps.go.id)

T. T. H. TAMBUNAN
161
children aged 14-19 years, although these changes were
small, just one percentage point of enrollment. The
impact on school enrolment, however, varied by region,
suggesting that different regions in the country may had
experienced differently with the crisis. Another important
study is a 1999 report issued by the Australian Agency
for International Development (AusAID). It shows that
the crisis had numerous adverse health impacts in
Indonesia, including: (1) declines in, respecttively, per-
sonal and government expenditures on primary care. The
use of health services for primary care also declined; (2)
decline in purchases of medicines; (3) declines in DTP3
immunization rates and polio rates. Vitamin A supple-
mentation also fell. The declines most likely occurred
among the poorer populations; (4) decline in the lowest
wealth quintile in child visits to health facilities; (5) a
halt in the 1990s downward trend in infant mortality; and
(7) mortality increases [4].
3.2. The 2008/09 Crisis
Up to the end of 2008, countries like Thailand, Malaysia,
Singapore, Philippines and Indonesia still shown some
resilience towards the crisis. However in the first quarter
2009, they experienced deteriorating economic perform-
ance, except Indonesia (Figure 6). Singapore suffered
the most and recorded -8.9 per cent in real GDP growth
rate (year-on-year basis) in the first quarter 2009. This
was not surprise at all, given the fact that as a tiny
economy, Singapore is fully integrated with the global
market for goods, services and finance. Consequently, its
economy is fully sensitive to any external economic
shocks. The country’s economy then started to recover
with positive growth again in the third quarter. Similarly
with Singapore was Thailand which has also been
seriously hit by the crisis since the third quarter 2008 and
the economy contracted by 7.11 per cent in the first
quarter 2009. Thailand achieved again positive growth in
the last quarter 2009. Malaysia which experienced a
slightly positive growth of around 0.1 per cent in the last
quarter 2008, also suffered economic contraction by 6.20
per cent in the first quarter 2009. Meanwhile, Indonesia
and the Philippines managed to keep positive growth
although at declining rates during the crisis period. In the
first quarter 2009, Indonesia achieved 6.2 per cent
growth, but in the last quarter it was lower at 5.2 per
cent.
While the economy of other countries in the group was
deteriorated significantly especially during the first
months in 2009, Indonesia has not only positive but also
slightly higher GDP growth rates during the second and
third quarters 2009. In overall, however, official data
(National Agency of Statistics/BPS) show that the
growth rate of Indonesian economy was at around 4.5
percent, much lower than the growth rate achieved in
2008 (Figure 7). This may suggest that the Indonesian
economy was also affected by the world economic
recession in 2008/09, but nevertheless the country was
able to keep postive economic growth rates during the
crisis period.
Further as shown in Table 1, besides Indonesia, there
were other few countries in the region, such as China,
Figure 6. Economic Growth Rate in Selected ASEAN member countries, 2008 and 2009 (% change year-on-year). (Sources:
orld Bank database (country indicators) (http://web.worldbank.org/WBSITE EXTERNAL/COUNTRIES/).) W

T. T. H. TAMBUNAN
162
Figure 7. Indonesian Annual Economic Growth 2004-2009
(%). (Source: Statistical Yearbook of Indonesia (various
years), BP S (www.bps.go. id).)
Table 1. Economic growth in the developing world by re-
gion, 2007-2010.
2007 2008 2009 2010*
East Asia and Pacific 11.4 8.0 6.8 8.1
-PRC 13.0 9.0 8.4 9.0
-Indonesia 6.3 6.2 4.5 5.6
-Thailand 4.9 2.2 -2.7 3.5
Europe and Central Asia 7.1 4.2 -6.2 2.7
South Asia 8.5 5.7 5.7 6.9
-India 9.1 6.1 6.0 7.5
-Pakistan 5.7 2.0 3.7 3.0
-Bangladesh 6.4 6.2 5.9 5.5
Latin America and
Caribbean 5.5 3.9 -2.6 3.1
Middle East and North
Africa 5.9 4.3 2.9 3.7
Sub-Saharan Africa 6.5 5.1 1.1 3.8
Note: * forecast by the World Bank. Source: World Bank [5]
India, Pakistan and Banglades which were also managed
to mitigate the impact of the crisis on their domestic
econmy. Interestingly, the table shows that, within the
developing world, countries in Asia and the Pacific re-
gion performed much better than those in other parts of
the world during the crisis. Of course, many explanations
can be thought, including that the variation in the impact
of this kind of crisis on domestic economy is strongly
related to the degree of integration of the particular
country with the world economy. Rapidness and
effectiveness of crisis-coping policy measures in the
partuicular country may also played an important role.
With respect to remittances, according to ILO [6], the
number of Indonesian workers abroad had been on an
upward trend until the crisis deepened in mid 2009.
Reference [7] provide data which show that the number
of Indonesian workers departed overseas increased with
258,000 workers by the end of December 2008 or around
54 percent as compared to the end of September 2008
with 168,000 workers. However, total Indonesian
workers went abroad in 2008 were less than in 2007
(Figure 8). However, according to [7] estimation, total
remittances inflows from overseas Indonesian workers
declined slightly from approximately US$1.589 billion in
the end of first quarter 2009 from US$1.61 billion in
December 2008. It is not sure whether the less number of
Indonesian overseas workers in 2008 compared to 2007
or the slightly decline in remittances inflows was caused
by the crisis?
With respect to the impact of the crisis on employment,
according to ADB [8,9], unemployment in many Asian
developing countries has risen during the 2008/09 crisis,
particularly in the more export-dependent economies of
Hong Kong, China; Singapore; and Taipei,China. In
Indonesia, the number of workers dismissal and homed
in the formal sector has steadily increased during end
December 2008 and early December 2009 (Figure 9).
While, according to ILO [6] the crisis has prompted a
steep fall in the growth of wage employment, which
grew about 1.4 percent during the period February
2008-February 2009, compared to 6.1 percent during the
same period in the previous year.
But, surprisingly, open unemployment has not increased
sigbnificantly in that period. Even, it declined between
February-August 2009 (Figure 10). One explanation is
that Indonesia has a large informal sector which
absorbed laid-off employees from crisis-affected firms in
the formal sector. In other words, the impact of the crisis
on Indonesia’s labour market atwas not the significant
increase in open employment but in disguised unem-
ployment working in the infomral sector. The most
important policy implication from this fact is that the
government must fully support the development of micro
and small enterprises which are mainly found in the
informal sector. The measures what these enterprises
need are not only in terms of subsidized credit schames
but also in marketing and production assistances, transfer
of technology and other necessary knowledges, human
resource improvement through reeducation or vocational
training, infrastructure development, and many others.
Finally, the impact of the crisis on poverty in Indonesia
was the most concern in that time. As shown before, in
the aftermath of the 1997/98 crisis, poverty increased
dramatically from around 17.47 per cent in 1996 to about
24.23 per cent in 1998, when the crisis reached its climax.
However, in 1999 poverty started to decline gradually,
though first very slightly, up to 2005. In 2006, due to the
high increase in world fuel prices, and as Indonesia has
become increasingly dependent on imports of oil, the
poverty rate increased again, on average between 1.8

T. T. H. TAMBUNAN
163
Figure 8. Total Number of Indonesian Overseas Workers, 2000-2008 (000 persons). (Source: Yudo et al.[7])
Figure 9. Number of Laid off and homed workers in the formal sector, 31 December 2008-4 December 2009. (Source:
Ministry of Manpower and Transmigration, and BPS (www.bps.go.id/sakernas).)
Figure 10. Open Unemployment Rate, 2005–2009 (%). (Source: BPS (www.bps.go.id/sakernas).)

T. T. H. TAMBUNAN
164
percentage point per year or about 4.2 million people fell
into poverty between the period 2005-2006. Only after
some policy adjustments and macroeconomic stabilization,
the poverty rate started to decline again in 2007. In rela-
tive terms, the poverty rate in 2007 was the same as that
before the 1997/98 crisis. However, in absolute terms,
the number of those living under the current poverty line
was still higher than that in the pre-1997/98 crisis period.
Although the difference varies by year, the poverty rate
in urban areas is always lower than that in rural areas.
According to World Bank’s estimates, the poverty rate is
likely to continue to fall, from 14.2 per February 2009 to
around 13.5 per cent in early 2010 and 11.4 per cent in
early 2011 (Table 2). This suggests that the 2008/09
crisis would not lead to an increase of the poverty rate in
Indonesia (as compared to the 1997/98 crisis).
4. Main Factors That Made the Difference
By now it is well known that Indonesia was not only
weathering the 2008/09 global economic crisis better
than most other countries, but it was also much different
than during the 1997/98 Asian financial crisis. The
World Bank [10]concludes the following: One year after
the global financial crisis and economic downturn,
Indonesia’s economy appears to be broadly back on
track. Economic activity has been picking up, inflation
has remained moderate, financial markets have risen,
and the newly reelected government, having established
the strong fundamentals that supported Indonesia through
the global crisis, appears to be now gearing up for new
investments in Indonesia’s physical infrastructure, human
services and institutions of state. Indonesia seems
well-positioned to get back on its pre-crisis growth
trajectory, with the possibility of further acceleration
and more inclusive growth (page iv).
Was the difference because the Indonesian govern-
ment’s response this time was more quick or was better
prepared than during the 1997/98 crisis, or there were
other factors? According to many discussions/studies,
2there are various reasons, and the most important ones
are the followings:
1) from a regional perspective, the Indonesian
economy performed well in the years before 2008 (with
one of the best growth rates in Asia after the 1997/98
Asian crisis up to 2008, particularly during the period
2005-2008);
2) the banking sector remains in good health (which
was not the case in the years before the 1997/98 Asian
economic crisis), although bank lending growth reduced
in line with the slowing economy;
3) consumer prices kept stable, allowing Bank Indone-
sia (BI) to loosen monetary policy (which is important to
keep consumption growth);
4) Indonesia’s external position remained sound, the
country’s significant external financing obligations are
being met, and foreign exchange reserves have risen
slightly;
5) Indonesia’s public finances are strong (which was
not the case during the 1997/98 Asian crisis), allowing
policy makers to quickly move to offset the global
downturn’s effects on Indonesia with a fiscal stimulus;
6) also based on the experience of the 1997/98 crisis,
cautious policies by Indonesia’s government, banks, and
corporations, over the past decade have resulted in low
debt levels and limited refinancing needs. This served the
country especially well in late 2008 and early 2009,
when liquidity tightened around the world;
7) compared with some Asian countries, Indonesia is a
relatively “closed economy”;3
8) consumers kept spending despite the fact that banks
tightened credits in late 2008. Much of this spending
might also related to the election related activities; and
9) based on the experience of the 1997/98 Asian crisis,
this time the Indonesian government was more quick and
more active in response with appropriate measures to the
crisis, e.g. by providing the stimulus through fiscal and
monetary policies.
While, main reasons given by the Asian Development
Bank that made Indonesia was more resilience than other
countries during the 2008/09 crisis are the followings
[11]:
1) the impact of a spike in risk aversion was muted by
steady policy responses in Indonesia and the stabilising
impact of co-ordinated global counter-measures on
global financial markets;
2) the income impact of the fall in commodity prices
was mitigated by the fact that the preceding years had
seen record high prices for these same commodities,
allowing rural households to build up a savings buffer to
help them smoothen out consumption spending;
3) because the global recession was of relatively short
duration, the lagged effects of the financial crisis were
avoided;
4) the government’s good housekeeping of previous
years provided it with the space to take swifter and more
effective policy responses thn in previous episodes of a
3In his study, Djaja [15] shows that the share of Indonesia’s exports to
GDP was 29.4 per cent in 2007. The figure in the next three quarters o
f
2008 was 30.0 per cent on average. About 85 per cent of goods and
services produced by Indonesian economy were used domestically in
2005, while only about 15 per cent went to foreign buyers. This indi-
cates that Indonesia is not so strongly integrated with the rest of the
world, at least from an export point of view. With such low exports, a
sudden drop in world income and hence in world demand for Indone-
sian exports will not affect significantly domestic production.
2See for instance, [1,8,12-16].

T. T. H. TAMBUNAN
165
Table 2. Poverty in Indonesia, 2000-2011.
Number of Poor (million) Percentage of poverty (%)
Year
Urban Rural Total Urban Rural Total
2000 12.30 26.40 38.70 14.60 22.38 19.14
2001 8.60 29.30 37.90 9.76 24.84 18.41
2002 13.30 25.10 38.40 14.46 21.10 18.20
2003 12.20 25.10 37.30 13.57 20.23 17.42
2004 11.40 24.80 36.10 12.13 20.11 16.66
2005 12.40 22.70 35.10 11.68 19.98 15.97
2006 14.49 24.81 39.30 13.47 21.81 17.75
2007 13.56 23.61 37.17 12.52 20.37 16.58
2008 12.77 22.19 34.96 11.65 18.93 15.42*
2009 .. .. .. .. .. 14.20**
2010 .. .. .. .. .. 13.51***
2011 .. .. .. .. .. 11.42***
Note: *= March; ** February’ ***World Bank’s estimates ([10]. Source: BPS (www.bps.go.id).
external shocks; and
5) the balance sheets of the banking, corporate, and
household sectors were much stronger.
5. Concluding Remarks
The 2008/2009 global economic crisis started first in
2007 as a financial crisis in the US and then some
months latter spread worldwide. The crisis has affected
many countries, including Indonesia. While many other
cuntries in the region started to show a significant deca-
leration in their economic growth in the first quarter of
2009, the economic growth rate in Indonesia begun to
fall only in the last quarter of 2009. However Indonesia
has managed to keep its economic growth rate above
zero in 2009, though it was much weaker as compared to
its economic growth in 2008, or lower than the average
growth since the country had recovered from the 1997/98
Asian financial crisis.
This study comes with two main important findings.
First, despite many laid-off workers in the formal sector
were reported, the official (open) unemployment has not
increased significantly. Even, by August 2009, the rate
declined compared to the level by February 2009. The
most possible reason for this was that most (if not all) of
the laid off employees ended up in economic activities in
the informal sector, either es low-paid workers or owners
of micro or small businesses. This reason is said most
likely is due to the fact that Indonesia does not have a
social security system as the one known in the west
which provides unemployment benefits to those who
have no while looking for jobs. Thus, for the laid off
employees from the formal sector who were engaged in
informal economic activities, they did that just as a
means for them to survive. The informal sector has
proved to be very important during the crisis as the last
resort for them.
Second, the poverty level in Indonesia has not
increased as what was happened during the 1997/98
crisis, when poverty rate increased from around 17.5 per
cent in 1996 to 24.2 per cent in 1998 with the negative
economic growth at around 13 per cent in 1998. Even,
poverty kept decreasing during the 2008/09 crisis period.
At least, two main reasons that can explain this. First,
despite the crisis, Indonesia managed to keep positive
economic growth in 2009, although at a lower rate than
in 2008. In other words, although many employees were
laid off in the formal sector, many people still have their
jobs. Second, as explained before, the informal sector has
provided alternative income sources to the laid off
employees, which kept them away from falling to
poverty.
6. References
[1] ADB, “Asian Development Outlook 2010,” Asian

166 T. T. H. TAMBUNAN
Development Bank, Manila, 2010a.
[2] Feridhanusetyawan, Tubagus, Haryo Aswicahyono and
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[3] Chhibber, Ajay, Jayati Ghosh and Thangavel Palanivel,
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[6] ILO, Labour and Social Trends in Indonesia 2009.
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[7] Y. Yudo, S. T. Ira and S. Hadi, “The Impact of the Global
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[8] ADB, “Asian Development Outlook 2009 Update,” Asian
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[9] ASEAN-World Bank, “ASEAN Assessment o the Social
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Hua Hin, Thailand, 23 October 2009.
[10] World Bank, “Migration and Development Brief 10,”
Washington, D.C, 13 July 2009a.
[11] ADB, “Impact and Policy Responses: Indonesia,
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[12] World Bank, “Developing Indonesia’s Crisis Monitoring
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Response System (CMRS). Analysis and Presentation of
CMRS Data,” First Round Summary Report, Jakarta, 25
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[14] D. Komara, “Impact of the Global Financial and Eco-
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World Bank Economic Update for the East Asia and
Pacific Region,” Bangkok, April 2009c.

T. T. H. TAMBUNAN
167
Appendix
1. From 1994/04 Indonesia start up the second 25-year
long-term construction projects. Further investment re-
strictions to attracting foreign investment, and to take
measures to support small and medium enterprises, tour-
ism and increase exports. But in 1997 by the Southeast
Asian financial crisis, significant economic recession,
currency devaluation, rising inflation. In 1999 the
economy began to slow recovery, but the rectification
resistance greater private enterprise debt, bad debt prob-
lems difficult to solve. 2. Then, in 2008/09 global eco-
nomic crisis.To keep the economic increase and make
more people have their jobs is the key to solve poverty.
You mention Overseas Workers and homed workers, use
two Figure (8 & 9) which analysis the conditions of the
Indonesia, but no concrete solution. Make a little im-
provement will be perfect.