Indonesia's response to the crisis

Compared to the Asian crisis in 1997-98 Indonesia's economy has remained relatively stable in this crisis. This can be attributed partly to the post-Asian crisis reforms, which have reduced Indonesia's vulnerability to market turmoil. For instance, the ratio of short-term loans to foreign reserves was 175 percent in 1997; today, it is approximately 35 percent. Therefore, even as the US and Japan slide into deepening recessions, Indonesia's US$433 billion economy has expanded by 6.3 percent on average over the past two years and is expected to grow by about 4 percent in 2009, which is nonetheless an eight-year low.

In the midst of the current crisis, Indonesia's government declared its commitment to fully implementing the Social Security System (SJSN) Law of 2004. This shows the governments' determination to fight the crisis and protect people. However, the greatest challenge is still to provide coverage for the workers in Indonesia's informal economy – about 60 million individuals. Here, crisis response in the field of social security has lacked focus so far. 

Impact of the crisis

As mentioned above, the fallout from the current economic crisis is not as bad in Indonesia as in some other countries. Nevertheless, the global downturn is affecting the country's economy on all fronts, from weakening demand for exports and slowing down flows of investment, to reducing consumer purchasing power. The export sector and commodity extracting industries are especially badly hit. As these industries are important for the Indonesian economy the falling demand for rubber for the automobile industry comes as a blow, for instance. Exports fell by 20% year-on-year in December 2008, and are expected to contract further in 2009 because of the economic downswing of Indonesia's trade partners. A slowdown of the inflation rate to 5-6 per cent by August 2009 was forecast by the Indonesian Finance Ministry in February 2009. Consumer prices rose by 9.2 percent year-on-year in January 2009.

Impact on and challenges to social security systems

All of these factors affect employment negatively. While economists estimate that in order to create ample jobs for Indonesian school leavers a growth rate of 6 percent needs to be maintained, the actual growth rate is expected to drop to 4 percent. Unemployment could go up from the current 8.5 percent to 10 percent by the end of 2009. By January 2009, export-oriented industries had laid off 24,790 workers and were planning to lay off another 25,000 in the months to come. Next to the problem of growing unemployment, Indonesia generally faces high poverty rates, which leave the country's economy and people vulnerable to fallout from economic crises.

The Indonesian crisis responses in general

To tackle this problem, the Indonesian government announced a stimulus package of Rp 73.3 trillion for 2009 earlier this year. The originally foreseen Rp 10.2 trillion for infrastructure projects and empowerment programmes for people living in rural areas have been supplemented by additional Rp 2 trillion for employment-intensive infrastructure projects. Although the stimulus will partly be financed through unused funds from last year's budget, it is expected to push the 2009 budget deficit up to Rp 139.5 trillion (US$11.62 billion), or 2.5 percent of GDP. Indonesia secured emergency loans worth US$5 billion at the end of 2008 from the World Bank, the Asian Development Bank, Japan, Australia and France.

One part of the stimulus plan is Rp 56.3 trillion tax reductions. One of the aims of reducing taxes is to ease the burden of low- to mid-income workers. Workers with a monthly income of less than Rp 5 million will receive a tax cut, and in addition corporate and value-added taxes will be reduced.

The Finance Minister said about the stimulus package that "[it] is everything that cuts costs borne by businesses and the people", when asked why the stimulus was not fully designed to support businesses. The package aims to increase people's purchasing power, and the competitiveness and sturdiness of businesses facing the economic downturn.

Stimulation of domestic demand

Social security and the crisis in Indonesia

Conclusions

There is no data currently available on the exact government spending on social security in response to the global crisis from official Indonesian sources. Nevertheless, the commitment to the full implementation of the Social Security System (SJSN) Law of 2004 shows the government's determination to fight the crisis and protect people. Covering the uncovered workers in Indonesia's informal economy involves extending the constitutional right to social protection to 60 million workers, and this obviously is the greatest challenge for the country's social security system. Apart from fulfilling these workers' constitutional rights, such a feat will make a huge and concrete difference in their lives. As this may not be realized in the short term, coherent and comprehensive policies are required in order to prioritize social insurance access for certain types of informal sector work.