Weathering the Storm: The Impact of the East Asian Crisis on Farm Households in Indonesia and Thailand

Abstract

This article assesses the impact of the East Asian financial crisis on farm households in two of the region’s most affected countries, Indonesia and Thailand, using detailed householdlevel survey data collected before and after the crisis began. Although the nature of the shocks in the two countries were similar, the impact on farmers’ income (particularly on distribution) was quite different. In Thailand, poor farmers bore the brunt of the crisis, in part because of their greater reliance on the urban economy, than did poor farmers in Indonesia. Urban-rural links are much weaker in Indonesia. Farmers in both countries, particularly those specializing in export crops, benefited from the currency devaluation. Although there is some evidence that the productivity of the smallest landholders declined over the period in question, it is difficult to attribute this directly to the financial crisis. At least in Thailand, a rural credit crunch does not seem to have materialized. Now that the East Asian financial crisis has waned, its impact on two of the region’s most affected countries, Indonesia and Thailand, can be more readily assessed. Agriculture is the major employer in these economies, yet little is known about how farm households weathered the crisis. Hyperbolic news reports notwithstanding, many farmers surely benefited from the exchange rate depreciation. Other effects of the crisis, however, may not have been so sanguine. Overall, one would expect considerable variation in the impact of the crisis within the rural sector. Of particular interest to policymakers, given the implications for the design of safety net programs and balanced rural development, is how the rural poor fared relative to better-off households. This article uses detailed household survey data from Indonesia and Thailand collected before and after the onset of the 1997 financial crisis to explore its effect on farm production and income, especially its differential impact on the poor.