Lasting Impacts of Indonesia’s Financial Crisis

Abstract

We study the poverty impacts over time and space of Indonesia’s severe economy‐wide crisis of 1998, using 10 large national surveys spanning 1993–2002. On allowing for shifts in relative prices stemming from the crisis, we find a sharp but geographically uneven increase in the poverty rate in 1998, reflecting both the unevenness in the extent of the economic contraction and the differing initial conditions at the local level. Our counterfactual analyses indicate geographically diverse recovery rates 4 years later. Proportionate impacts on the poverty rate in both 1998 and 2002 were greater in initially better‐off and less unequal districts. In the aggregate, a large share—possibly half—of the poverty count in 2002 is attributed to the 1998 crisis.