THE SOCIAL IMPACT OF ECONOMIC CRISIS....

Dr. Carunia Mulya Firdausy
(Centre for economic and Development Studies-Indonesian Institute of Sciences)
ABSTRACT The Indonesian monetary crisis, which later became a full blown economic crisis, has made the country from one of the world's fastest growing economy into its slowest growing economy. The impact of the crisis on social -economic aspects of national development until now still persist, and it takes years to come to fix the problems created from the crisis. This paper specifically addressed the social impact of the crisis on employment and examine policy implication and recommendation to reduce the unemployment problem due to crisis in Indonesia. It was no doubt that the economic crisis has increased the number of unemployment in Indonesia. Using data from National Survey of Social-Economic 1998 it was estimated that the number of unemployment was about 4.5 million people (excluding the new entrants of 1998 and the backlog of 1997). To solve the unemployment problems, at the short term, the government should reintroduced policies and programs to reduce interest rate. The importance of the interest rate policy is mainly to encourage the industrial sector to expand their production in achieving their economies of scale. However, the interest rate policy should be carefully designed as to mitigate the impact on the rupiah and inflation. In addition, the role of foreign investment needs to increase in the future. Capital is complementary to labor. During the last few months tens of billion dollars have been sent out of the country causing the huge depreciation of the rupiah and domestic capital shortages of capital, partly causing the sharp rises in unemployment. Much of this domestic capital will never return. Therefore, direct foreign investment is needed to create income by employing the unemployed, facilitate the continued production of the physical capital of bankrupt enterprises, increase the utilization of capacity of manufacturing industries, produce complementary producer and consumer surpluses, facilitate the transfer needed technology and skills from overseas, expedite exports, provide financial and other required services. An finally, the future potential of conglomerates to contribute to economic development must not be squandered. However, the bad past practice of conglomerates, such as the anti-competitive rent yielding and other special privileges granted by the Government should be abolished so that those conglomerates can become efficient, competitive and socially productive enterprises. The rate and nature of the change in the business environment must be such that the potential of the conglomerates, as well as other large enterprises and SMEs (Small and Medium Enterprises) can be realized. However, this is not saying that crimes committed by conglomerate executives and owners should be forgiven. The success of the above policies and programs in overcoming the unemployment problem due to crisis is certainly subject to financial assistance from overseas and political stability in the country. Therefore, it is a must for the government on one hand to maintain the political stability in the country and to seek for international assistance to ensure that many Indonesian do not fall more deeply well below the poverty line. And on the other hand, the government should renew their economic activity and investment that can be sustain in the future as it was before the crisis time. INTRODUCTION The Indonesian monetary crisis, which later became a full blown economic crisis, has transformed the country from one of the world's fastest growing economy into its slowest growing economy. The average annual growth rate which used to be 8 percent since 1970 until 1996 declined significantly to -14 percent in 1998. One of the result of the negative economic growth is the increasing number of unemployment. According to M. Djuhari Wirakartakusumah (1999), the number of unemployed workers in 1998 was about 32 million people or 34 percent of the nation's 94 million labour force. It consists of 13.5 million job seekers and new labor entrants from earlier years and 18.5 million as critical unemployment due to the sharp drop in construction and manufacturing activities, especially among unskilled workers. And also it is because of an increasing number of firms on banks to close their doors and or a long draught in the agricultural sector (see World Bank, 1998; Soesastro, 1998; Firdausy, 1999).FOR FURTHER INFORMATION PLEASE SEE THE ORIGINAL POST AT :
sources : http://www.ismea.org/asialist/Firdausy.html