Impact of the Global Financial Crisis on Households in Kota Pekalongan

Asri Yusrina, Akhmadi
Education, Labor & Migration, Poverty & Inequality
Jawa Tengah
Working Paper, November, 2013, Final



This study adds to the studies about the impact of the 2008 Global Financial Crisis (GFC) on Indonesia’s economy both at the macro- and microeconomic levels. Kota (City of) Pekalongan was chosen because of the facts that the city is a Community-Based Monitoring System (CBMS) area in Indonesia and that there is household-level data available in the city.

The data analysis at the macroeconomic level was intended to find the occurrence of GFC and how it was transmitted to the city. Qualitative data collection through focus group discussions and in-depth interviews enrich the macroeconomic analysis. By combining data from the 2009 CBMS census and the GFC impact survey in five kelurahani, the study aims to identify which household group was the most affected. Principal Component Analysis (PCA) is used to predict which households belong to which quintile of household welfare in each kelurahan.

The fall of prices of commodities, particularly cotton, and the depreciation of the Indonesian rupiah were the shocks of the GFC that significantly appeared at the macroeconomic level and were transmitted to the city’s batik home industry, which later affected the households. There were also other local shocks that contributed to the GFC resulting in compound crises felt by the households.

The affected households are those that had a household member that switched jobs, even to a worse one, and experienced an income decline during June 2008−June 2009. Based on the household welfare quintile, the majority of the affected households come from the poorest household group (the first quintile). The poorest households, particularly the affected ones, reduced their food consumption, used the Health Insurance for the Poor, and had children (10−18) who dropped out of school during the crises and started work.

The provision of well-targeted social protection programs such as the Health Insurance for the Poor and Unconditional Cash Transfer 2009 (BLT 2009) programs helped the poor to cope with the compound crises. In Kota Pekalongan, the poor households benefited from the programs when they lost their financial ability during the crises. In times of crisis, the government should also provide incentives for industries that are vulnerable to external shocks and that many households rely on as a source of income.

In anticipation of future crises, a good database of targeted households and vulnerable industries will enable the government to create an effective early response system and take prompt action. Other than the database provided by the central government, databases initiated by the local governments, such as the household data from the CBMS project in Kota Pekalongan, can be of great benefit.

Keywords: CBMS, global financial crisis, Kota Pekalongan, impact

Share it