Expenditure patterns of Indonesian households before and after the 1997 economic crisis : a thesis submitted in partial fulfilment of the requirements for the degree of Master of Philosophy in Agribusiness at Massey University, Palmerston North, New Zealand
Indonesia is a developing country located in the Southeast Asian region and the fourth largest country in the world. Indonesia had a positive economic development, notably since the mid-1960s and this continued until the economic crisis in 1997. Development in the economic sector brings development in the social sector. Household expenditure is one of the social indicators used in a range of studies, particularly in the developing countries, as a common measure to assess living standards and poverty. Theories of consumption illustrate that when the economy surges, expenditure and income rise; and when the economy retrenches, expenditure and income fall. Therefore, changes in Indonesian economic development would be reflected in changes in the expenditure of Indonesian households. Furthermore, patterns of household expenditure can be used to symbolise the level of economic welfare of households, particularly in their buying capacity to meet their needs for living. In mid-1997, an economic crisis hit Indonesia and this negatively affected the country. Some of the major economic and social indicators showed that the rupiah (the Indonesian currency) fluctuated, the consumer price index climbed, poverty increased, unemployment rose and the price of rice (Indonesia's staple food) increased. By 1999, nearly two years after the 1997 crisis, the Indonesian economy began to demonstrate some signs of recovery, which was indicated by strengthened macroeconomic indicators. From 1999 onwards, GDP grew positively, inflation (CPI) went down, the exchange rate strengthened and food prices went down. Given the fact that Indonesia experienced an economic crisis in 1997, the general aim of this study was to investigate the impact of the 1997 Indonesian economic crisis on the economic welfare of households in Indonesia, with regard to their expenditure. There were three years (1996, 1999 and 2002) observed to represent the period before the economic crisis in 1997 (before 1997), the period initial adjustment of post crisis (1998-2000) and the period further adjustment of post crisis (after 2001). Five objectives were set out for the study as follows: • To examine changes in the Indonesian economy before and after the economic crisis in 1997. • To review the socio-demographic characteristics of Indonesian households. • To investigate changes in expenditure patterns of Indonesian households, in order to measure their buying capacity before and after the economic crisis in 1997. • To investigate changes in household expenditure patterns on different foods and non-food items, before and after the 1997 economic crisis in Indonesia. • To develop a typology of Indonesian households based on their expenditures. The data employed for analysis was from the SUSENAS (the national socio-economic survey) at household level conducted by the Indonesian Central Agency for Statistics (CBS). Univariate, bivariate and multivariate analytical methods were performed for the data analysis. The results showed that the economic crisis in 1997 led to the decline of the purchasing power of households in Indonesia. In the further adjustment of the post crisis (in 2002), their buying capacity level had improved, however, it had not reached their higher level before the crisis (in 1996). Food is a necessity expenditure compared to non-food. Indonesian households consumed more than 50 percent of their total expenditure on food, relative to non-food, indicating that the majority of Indonesian households are relatively poor. Necessity items included cereals and vegetables for food and housing, goods-services, health and clothing-footwear for non-food. Luxury items included meats, fruits, prepared food-drink for food and education, durable goods, tax-insurance and social activity for non-food. There were six types of Indonesian households identified, based on similarities in their expenditure. They were labelled from the 'very poor' type (T1) to the 'very wealthy' type (T6). These six types of households demonstrated different stages of expenditure patterns, moving from basic through to high non-basic expenditure. The very poor type represented about 70 percent of households in Indonesia. In conclusion, the Indonesian economic crisis in 1997 had a negative impact on households in Indonesia with regard to their household expenditures.