the global economic crisis and its impact on indonesia s education 1

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1 the global economic crisis its impact on donesia s education 1 Pressor Dr. Mudrajad Kuncoro Head Department Economics Faculty Economics Busess Gadjah Mada University, Indonesia. abstract This paper will exame to what extent the unprecedented global fancial crisis affected the Indonesia s economy. differences between Indonesia s experience the global fancial crisis (GFC) Asian Fancial Crisis (AFC) will be illumated. government s priority on the development education - together with achievg quality growth, reducg poverty, creatg jobs, improvg frastructure - have accelerated the economic recovery improved key dicators education. Despite budgetary adjustments, the Indonesian government contues to prioritize vestment education. As a result, the GFC not affected number students Indonesia significantly. GFC not affected the terest students to get higher education at the Indonesia s troduction analysis begs with an overview Indonesia s economic development precedg the current crisis exames how the crisis affected the Indonesian economy. It will compare to what extent the Asian Fancial Crisis (AFC) the recent Global Fancial Crisis (GFC) brought some tremendous effects on the Indonesian economy. patterns Indonesia s growth will be explored. Next section will exame to what extent the GFC affected Indonesia s education. paper concludes with some considerations for Indonesia s future. rebound from the global fancial cisis It was not difficult to image Indonesia 2008 returng to conditions economic upheaval similar to the Asian Fancial Crisis (AFC) 1 Earlier version this paper been presented at the 1st Asia-Europe Education Workshop on lmpact the Fancial Crisis to Higher Education, Makati City, Philippes, March This paper will be published the Journal Indonesian Economy & Busess, vol. 25, No.2, May

2 the late 1990s. result could have cluded devastatg contraction output, a dramatic surge flation, an even more dramatic reduction the external value the rupiah. AFC created so much turmoil as to result the downfall the governg regime, just like the one before it the mid-1960s. differences between Indonesia s experience the Global Fancial Crisis (GFC) AFC are remarkable. 1 compares a number the key economic variables durg the two crises. dicator most fundamental importance is the GDP growth rate, which plummeted below - 18% the earlier crisis, but remaed positive (4.4%) so far durg the GFC. On most the other measures the differences are equally strikg. depreciation the currency from its strongest pot just before each crisis to its weakest pot was more three times higher the case the AFC; the peak rate year-on-year consumer price flation was almost seven times higher; the peak terest rate on BI s open market operations strument, the 30 day SBI (Sertifikat Bank Indonesia, Bank Indonesia 1 Crisis Comparisons. 1 Crisis Comparisons 25

3 Certificate), was more six times higher; the peak ter-bank sevenday borrowg rate was more eight times higher. loss ternational reserves was only a little higher absolute terms durg the AFC, but well over twice as high percentage terms. Only relation to the rupiah market value shares listed on the stock exchange have the two crises been comparable their impact, with decles a little over 50% both cases. If we focus on the percentage decle the dollar value shares, however, the impact the AFC was aga considerably more severe. As we shall argue below, these much more favourable outcomes reflect, to a considerable extent, the far greater skill with which the shocks to Indonesia s economy have been hled by policy makers the second time around GFC however was different for Indonesia. Indonesian government quite effectively steered the national economy through fancial storm. In the first quarter 2008, Indonesia s real Gross Domestic Product (GDP) was comparable with other Southeast Asian countries. From then 2 Selected Asian Economies: Real GDP, Consumer Prices, Current Account Balance (Annual percent change unless noted otherwise) Source: IMF (2009: 2.2) 26

4 on, Indonesia s economic performance faired much better economic contractions the other economies (Figure 1). Less exposure to external shocks from the ternational trade expansionary fiscal monetary policies particular allowed the economy weather the worst the crisis 2008 rebound durg the first half 2009 ( 2) (IMF, 2009: 71-74). Figure 1. Indonesia s GDP Growth Regional Perspective a (% p.a.). Mar-2007 Sep-2007 Mar-2008 Sep-2008 Mar-2009 a eight comparator economies are: South Korea, Taiwan, Hong Kong, Vietnam, the Philippes, Thail, Malaysia Sgapore. Source: Kuncoro, et al. (2009) patterns growth year-on-year GDP growth rate decled from 6.4% to 4.2% over the six quarters to Q ( 3), followed by a slight fall household consumption to 4.7%. decle was almost entirely attributable to a much more severe drop vestment spendg, reflectg the sudden emergence heightened caution on the part the busess community. Reflectg the world-wide contraction ternational trade, there been a dramatic decle the growth exports over the last four quarters, particularly Q2 Q3 2009, which saw a reduction over -5% -14 respectively. However, the impact this on Indonesia s output been fset by even larger reductions imports - particular significance given the high import content many Indonesia s manufactured exports. 27

5 content many Indonesia s manufactured exports. 3. Components 3 Components GDP Growth GDP (2000 Growth prices; (2000 % year prices; on % year) year on year) year-on-year growth rate vestment fell dramatically from 12.2% September 2008 to only 4% September With the vestment category, the decles spendg on machery equipment (-1.4%) on transport (8.3%) have been especially severe ( 3). From 2004, the trend foreign direct vestment (FDI) domectic foreign vestment (DFI) have tended to crease (Figure 2). However, both FDI DFI dropped drastically after the GFC emerged

6 Figure 2. Realization Domectic Domestic Direct Investment (DDI) Foreign Direct Investment (FDI) Indonesia, * Data for 2009 until February DDI= Domestic Direct Investment; FDI= Foreign Direct Investment Source: Indonesia Investment Coordatg Board (2010) It may also be noted that the fiscal stimulus package reported by Gunawan Siregar (2009: 31-2) been slightly strengthened. Proposed additional expenditure on frastructure creased from Rp 10.2 trillion to Rp 12.2 trillion. This is expected to result a budget deficit Rp trillion, or 2.5% GDP (Mistry Fance 2009). By implementg this package the government is hopg to keep GDP growth with the range 4-4.5% crease the deficit resultg from this package is to be fanced by unspent funds from the 2008 budget additional loans, cludg st-by loans, from bilateral multilateral sources. Turng to sectoral performance, we note that growth the tradables sectors aggregate slowed only slightly year-on-year terms by comparison with that non-tradables, although the latter contued to grow more twice as fast. picture is quite different, however, if we focus on the quarteron-quarter growth rates (seasonally adjusted) output: by Q1 2009, nontradables growth had fallen back to be equal to that tradables. Two ma explanations suggest themselves. First, despite the dramatic reduction exports, manufacturg output growth remaed positive except Q4 2008, suggestg that there been a switch 29

7 domestic dem toward import substitutes away from imports. Second, there been a noticeable decle the output the trade, hotels restaurants sector - especially severe Q Moreover, although the communications subsector contues to grow very rapidly, there been a significant decle its quarterly growth rate, from 9% to 5.4%, over the three most recent quarters. Foreign trade data show a narrower trade surplus from March to August 2009, albeit start to recover September (Figure 3). September showed a decent trade surplus US$ 1.27 billions or over a 50% m-o-m rise, supported by a stronger decle the value imports compared to exports. This surplus stems from (Gunawan & Arman, 2009a; 2009b): first, the decle Indonesia Mas crude oil prices, by 8.7% m-o-m, may have also Figure 3 Indonesia s Foreign Figure Trade 3 Indonesia s Foreign Trade contributed to the decle crude oil exports. Second, most the decle non-oil & gas exports was due to the slide commodity prices durg the month. Third, exports values meral fuel/coal, vegetable oil (CPO), rubber were down by 8.32%, 29.2%, 9.4% m-o-m, respectively. exports copper, however, were up by 12.1% m-o-m. Japan, the United States Cha were still the largest non-oil & gas exports destation for Indonesia, coverg slightly more 30% total non-oil & gas exports. Fourth, non-oil & gas exports to Japan Sgapore contued to crease September. Lastly, Cha data shows a month on month decle imports raw commodities such as coal for October; this might have somewhat impacted Indonesia s exports for the month. On the other h, we expect that imports may have stayed robust followg the appreciatg trend the IDR. Source: Gunawan & Arman (2009) 30

8 impacts the gfc on education sector A fiscal stimulus package Rp 73.3 trillions (about US$7.3 billions) proposed by the Government Indonesia (GoI) was approved by the parliament. In terms size, the Indonesian fiscal stimulus package is much lower those developed countries but comparable to those other Asian countries. US, German, Japan, Malaysia, Republic Korea, Thail have the fiscal stimulus package US$ 787 billions, US$ 70, US$ 990,9 billions, US$ 2 billions, US$ 4,1 billions US$ 8,6 billions, respectively. Many observers questioned why the package is predomantly on tax savg (tax cut) rather direct spendg. 4 represents the allocation the package. Unlike the US government that allocated 40% for taxation 60% the direct spendg, about Rp 56.3 trillions (80% the total fiscal stimulus package) is allocated for taxation duties. On the other h, only Rp 17 trillions (23.2%) is for the direct spendg (frastructure, direct subsidy, energy). 4 Fiscal Stimulus Package Fiscal Stimulus Package 4 Fiscal Stimulus Package 2009 It might be argued that the allocation package to waivers tax duties is less effective to raise the competitiveness the Indonesian dustries. oretically, the stimulus package on tax savg will have a smaller multiplier effect that the government spendg. Tax savg will be effective if there are still a lot Indonesian companies operatg survivg. In fact, data from the Association Indonesian Textile (API) shows that there have been more 460 companies textile textile product dustries bankrupt durg the last three years. refore, if 31

9 there are a lot companies bankrupt, the fiscal stimulus package on tax savg becomes effective. fiscal stimulus on import duties on raw materials & capital goods will also be effective if the smuggled goods still exist. Busessmen electronic TPT dustries compla about the smuggled products from Cha India. ir products are unable to compete with the smugled product. GoI stated that the fiscal stimulus package Rp 73.3 trillions can stabilize the Indonesian economy as a counter-cyclical measure. It is predicted that the package can create 2.4 employment. issue is where the package will flow to? package will be distributed by the Mistry Public Works (Rp 6.6 trillions), the Mistry Transportation (Rp 2.2 trilions), Mistry Agriculture (650 billions), Mistry Energy Mng (Rp 500 billions), State Mistry State Owned Enterprises (Rp 500 billions), State Mistry People Housg (Rp 400 billions) other departments (less then Rp 400 billions for each department). 1. Government Commitment on Education Despite budgetary adjustments, the Indonesian government contues to prioritize vestment education. This is reflected by the Presidet Susilo Bambang Yudhoyono (SBY) s speech front the parliament. He highlighted that there are five major national programmes 2010 (SBY, 2009). First, GoI will mata people welfare, particular the poor, implement the social safety net. Second, GoI will improve the quality human vestment. Third, GoI will improve bureuacratic reforms laws, democracy, national security. Fourth, GoI will recover the economy from GFC by supportg agriculture, frastructure, energy. Fifth, GoI will improve the quality natural resource climate change management. To develop Indonesia s education, particular for higher education, Mistry National Education set two key policy measures. Figure 4 highlights two key policy measures volve: (1) equality access extension for education; (2) crease quality, relevance, competitiveness. 32

10 Figure 4 Key Policy National Education Development Equality Access Extension for Education: Increase access to Utilize formation technology communication for distance learng. Recruit teachg staffs. Increasg Quality, Relevance, Competitiveness: Improve implement national stard for education. Enhance quality assurance benchmarkg. Increase student s creativity, entrepreneurship, leadership. Increase quality academic publication tellectual property rights. Accelerate number study programmes, vocations, pressions. Encourage number 100 Top Asia 500 Top World Universities. Source: Summarized from Mistry National Education (2010) As far as the goverment budget is concerned, 5 shows that Indonesia s Educational Budget creased from Rp208.3 trillions to Rp trillions (about US$ 22.4 billions if the exchange rate is US$1=Rp9,300). However the percentage education budget to total government expenditure persisted about 20% durg budget will be allocated to the Mistry National Education various subsidies to regions. 2. Key Indicators Educational Sector GoI target for access extension for education is to crease number students from 14.3% 2004 to 18% Investments to develop new will rely on the role private stitutions while the role GoI will focus on vocational pressional education the existg 33

11 Toward Enhancement Economic, Social, Technological Environmental Development Welfare Implications the Greater Mekong Sub-region Asia-Pacific Toward Enhancement Economic, Social, Technological Environmental Development for Welfarefor Implications the Greater Mekong Sub-region Asia-Pacific to 2004 to 18% Investments to develop new willonrely the role 14.3%14.3% % Investments to develop new will rely theon role private stitutions while the role GoI will focus on vocational pressional education private stitutions the role GoI will focus on vocational pressional education Volume 2, Numberwhile 1, January 2014 the existg the existg Toward Enhancement Economic, Social, Technological Environmental Development for Welfare Implications the Greater Mekong Sub-region Asia-Pacific Toward Enhancement Economic, Social, Technological Environmental Development for Welfare Implications thegreater Mekong Sub-region Asia-Pacific 5 Indonesia s Educational Budget, ( Trillion 5.Indonesia s Educational Budget, ( Trillion Rp). Rp) 14.3% % Investments develop new will rely role 14.3% 2004 to to 18% Investments to to develop new will rely onon thethe role private stitutions while role GoI will focus vocational pressional education private stitutions while thethe role GoI will focus onon vocational pressional education existg thethe existg 5 Indonesia s Educational Budget, Trillion Rp) 5 Indonesia s Educational Budget, (( Trillion Rp) GFCnot affected not affected Rate () number students GFC CrudeCrude Rate () number students Indonesia. for general creased steadily from 15.2% particular by state, GFC theology nottheology affected Indonesia. for general creased steadily from 15.2% open 2005 to 17.75% () shows thatnumber total number students various 2005 to 17.75% Rate 6 shows that total students theology various university, Crude creased from 3.86 to GFC not creasg trend are enjoyed creased from to creasg trend are enjoyed affected the terest number students Indonesia. particular by, state, open university, theology GFC particular by state open university, theology GFC Rate students to get higher at for general theology GFC not affected Crude Rate () number students GFC not affected Crude () number eduaction students not affected the terest students to get higher eduaction at Indonesia s not affected the terest students to get higher eduaction at Indonesia s Indonesia. general theology creased steadily from 15.2% 2008 creased steadily from 15.2%target Indonesia s Indonesia. forfor general theology creased steadily from 15.2% was %, was 17.75%, higher %. It creased slightly the 2008 higher 2008 target 17.19%. It creased slightly the 2005 to 17.75% shows that total number students various was 17.75%, higher 2008 target 2005 to 17.75% shows that total number students various 2005 to 17.75% shows 2007 (17.25%). number, however, is relatively much lower those OECD 2007 (17.25%). number, however, relatively much lower those OECD creased from 3.86 students 2005 tois creasg trend are enjoyed creased from to creasg trend are enjoyed 17.19%. It creased slightly the that total number countries countries (50%).(50%). particular by state, open university, theology GFC particular by state, open university, theology GFC various creased from 2007 (17.25%). number, 6 University Crude Rate (), Indonesia not affected the terest students to get higher eduaction at Indonesia s 6 University Crude Rate (), Indonesia not affected the terest students to get higher atisindonesia s however, relativelyslightly much lower to 4.5 eduaction 2008 was 17.75%, higher 2008 target 17.19%. It creased 2008 was 17.75%, higher 2008 target 17.19%. It creased slightly thethe those much OECD countries (50%) creasg trend are enjoyedis relatively 2007 (17.25%). number, however, lower those OECD 2007 (17.25%). number, however, is relatively much lower those OECD countries (50%). countries (50%). 6 University Crude Rate (), Indonesia University Crude Rate (), Indonesia Chiangrai University, Chiangrai, Thail, Chiangrai RajabhatRajabhat University, Chiangrai, Thail, Chiangrai Rajabhat University, Chiangrai, Thail, 2011 Chiangrai Rajabhat University, Chiangrai, Thail,

12 Although the crease on is not high, the number university students persisted to creased particular Jawa Isl. role Jawa terms number students been about 57% to 69% durg Universities Jawa are distributed unequally across provces. Most students prefer to choose Jakarta Capital City, West Jawa, East Jawa provce, followed by Central Jawa, Yogyakarta (DIY), Banten (Figure 5). Outside Jawa, university students prefer their studies Sumatra Isl (predomantly North Sumatra, South Sumatra, West Sumatra provce) to much lesser extent Sulawesi isl (especially South Sulawesi provce) (Figure 6). Figure 7 shows the trend university students vary fluctuate considerably across provces. 35

13 Figure 6. Student Outside Jawa Isl. Figure 7 Number University Students Indonesia, Total number Indonesia s comprise 83 state 2,884 private, with 15,170 study programs diploma, undergraduate, pressions, Master, Doctorate level. In 2006, from study programs, number lecturers with Master PhD degree were from lecturers or about 54% ( 7). In 2008, from study programs, number lecturers with Master PhD degree were from lecturers or about 52%. In state, 64,64% 72,473 lecturers have held Master PhD degree, relatively higher other type Based on Times Higher Education Supplement (THES), 3 study programs Gadjah Mada University (UGM) been cluded 100 top world Those are social, culture, bio - medice sciences, with rank 47, 70, 74 respectively. In the same year, THES put 4 Indonesia s universites the list 500 Top World Universities, i.e. UI (rank 250), ITB (rank 258), UGM (rank 270), Undip (rank 495). Moreover, open university received accreditation from ICDE. Those five world class served about 13% total Indoonesia s students. 7 dicates that these dicators have not changed a lot In Asia, based on Webometric, only two are listed the 100 top best Asia 2008, i.e. UGM (rank 64) ITB (rank 71). 36

14 TABLE 7 Key TABLE Performance 7 Key Performance Indicators, Indonesia Indicators, Indonesia Conclusion conclusion This paper examed to what extent the unprecedented global fancial crisis affected the Indonesia s economy. differences between Indonesia s experience the Global Fancial Crisis (GFC) AFC have been illumated. scope response requires provisions policy space that allow Indonesia to adopt stimulus recovery plans that provide stimulus sustaed recovery, but also builds safety nets for the poor, vulnerable disempowered households. needed response clearly pots to 37

15 counter-cyclical policies as have been adopted fiscal stimulus package easy money policy. Less exposure to external shocks from the ternational trade expansionary fiscal monetary policies particular allowed the economy weather the worst the crisis 2008 rebound durg the first half government s priority on the development education-together with achievg quality growth, reducg poverty, creatg jobs, improvg frastructure - have accelerated the economic recovery improved key dicators education. Despite budgetary adjustments, the Indonesian government contues to prioritize vestment education. Indonesia s Educational Budget creased from Rp208.3 trillions to Rp trillions the percentage education budget to total government expenditure persisted about 20% durg As a result, the GFC not affected number students Indonesia significantly. GFC not affected the terest students to get higher education at Indonesia s total number students various creased from to , particular state, open university, theology Number students decled several years for some provces is very likely due to natural disasters. bibliography Abimanyu, Anggito (2009). 10 Years Fiscal Policy Presented at Economic Discussion Study Forum Semar, Faculty Economics Busess Gadjah Mada University, Yogyakarta, November 5th. Badan Pusat Statistik (BPS-Statistics Indonesia) (2009). Growth Rate Gross Domestic Product Y on Y by Industrial Orig by Expenditure, (Percent). id. Accessed on Dec 4th. Indonesian Investment Coordation Board (2010). Direct Investment Realization. bkpm.go.id/contents/p16/ PUBLICATIONS++STATIS- TICS/16. Accessed on March 14. Gunawan, Anton Reza Siregar (2009), Survey Recent Developments, Bullet Indonesian Economic Studies, 45 (1): Gunawan, Anton Helmi Arman (2009), Indonesia Economic Briefg Inflationary Pressures: Still Nowhere Sight?, PT Bank Danamon Indonesia, Tbk, Jakarta, November 2nd. International Monetary Fund (IMF) (2009). World Economic Outlook October 2009: Sustag the Recovery, IMF, Washgton D.C. 38

16 Kuncoro, Mudrajad (2009a). Ekonomika Indonesia: Damika Lgkungan Bisnis di Tengah Krisis Global [ Indonesian Economy: Dynamics Busess Environment Amids the Global Crisis], UPP STIM YKPN, Yogyakarta. Kuncoro, Mudrajad (2009b). Visi Capres: Change We Believe In [Vision Presidential Cidates: Change We Believe In], Investor Daily, com/dex.php?option= com_content&task= view&id=61780.accessed on May 18 th. Kuncoro, Mudrajad, Tri Widodo, Ross H.McLeod (2009). Survey Recent Developments, Bullet Indonesian Economic Studies, 45 (2): Robson, R. V. Hadiz (2004). Reorganisg Power Indonesia: Politics Oligarchy an Age Markets. London: Routledge. Mistry Fance (2009). Kerangka Ekonomi Makro dan Pokok- Pokok Kebijakan Fiskal Tahun 2010 [Macroeconomic Framework Fiscal Policy Prciples 2010], Explanation Fance Mister Budget Commitee Indonesian Parliament Meetg. Jakarta, June 1st. fiskal. depkeu.go.id. Mistry National Education (2010). Laporan Kerja Pendidikan Tahun 2008 [Report on Education Performance 2008]. Accessed on March 5 th. World Bank (WB) (2009). Indonesia Economic Quarterly Report June 2009: Weatherg Storm, Washgton, DC, World Bank. Yudhoyono, Susilo Bambang (2009). Presidential Speech on the Introduction Government Explanation on National Budget Plan 2010 Its Notes Front the Indonesian Parliament Meetg. Jakarta, August3 rd. 39