Just a little over two months ago, Indonesia was hit by yet another tsunami. Chilling footage flooded the internet of white water ramming through the coastline of the Sundra Strait. By the time the water retreated, the total death count had risen to four hundred and thirty. This was a relatively mild disaster compared to the 2004 tsunami that hit Southeast Asia that obliterated cities, towns, and villages and left 230,000 people dead across a dozen countries. Vasily Titov, a tsunami researcher and forecaster with the National Oceanic and Atmospheric Administration Center for Tsunami Research, described the devastation he saw in the months after the tsunami as “… hundreds of kilometers … as if somebody had taken an eraser and erased everything underneath the 20-meter line.”

On average, Indonesia has been hit by a natural disaster every month since 2004. This has resulted in tremendous loss of life, devastation of entire islands, and incredible economic instability. The Indonesian government spends between $300 and $500 million every year dealing with the aftermath of its annual disasters, some of which may only get worse due to climate change. Moreover, in years with major disasters, the cost of post-disaster damages result in as much as 0.3% of Indonesia’s national GDP and 45% of provincial GDP.

Constantly covering these costs and dealing with loss of productivity and industry as a result of natural disasters results in great economic instability and stunted economic growth. In the past thirty years these losses have amounted to a staggering $3.5 trillion. It is rather difficult to develop industries when they annually get wiped out by tsunamis, landslides, floods, and earthquakes.

After 2004, Indonesia and the rest of the world recognized that development without environmental considerations was simply impractical and even hazardous. Furthermore, there was an increased demand for solutions to Indonesia’s environmental problems that focused on prevention and risk reduction in conjunction to post-disaster response. This led to the adoption of the Hyogo Framework for Action 2005-2015: Building the Resilience of Nations and Communities to Disasters and then the Sendai Framework for Disaster Risk Reduction 2015-2030.

In an effort to prevent the devastating impacts of the 2004 tsunami, Indonesia has passed Law 24/2007 on Disaster Management and created the National Agency for Disaster Management and the Local Agency for Disaster Management. Following the centralized codification of efforts to address disasters, its efforts and investments can be divided into two parts: reduction and management.

The government of Indonesia recognizes that there are serious issues with post-disaster funding and aid. The central government has “on call” funds in its budget for emergency response that are meant to disburse in the case that a National Disaster is declared, otherwise emergency response falls on local government under Law 24/2007. The problem is that budget approval for every fiscal year and timing of disasters do not always align, leaving affected areas without rehabilitation and reconstruction funding for months at a time, while specific budget allocations are debated. This becomes an issue when the consequences of natural disasters cost over 20% of the municipal budget and the additional costs cannot be covered by the provincial government. In the case of the Aceh tsunami in 2004, the disaster occurred at the end of the fiscal year which meant that the following year’s budget had already been approved, resulting in aid being delayed.

To complement disaster risk financing, the government of Indonesia has also adopted Disaster Risk and Reduction (DRR) methods and strategies to prevent and lessen the impacts of natural disasters. The government of Indonesia invests about 1–2% of its budget into DRR ranging between $0.7 and 1 billion for every fiscal year with a general upward trend of funding. The majority of the money allocated to DRR is being used for physical disaster risk reduction. This includes updating infrastructure to be disaster resilient and creating disaster mitigation infrastructure.

While the effectiveness and efficiency of DRR is still being evaluated, its purpose is to reduce the loss of life, infrastructure, and economic growth caused by natural disasters while increasing the returns of government investment and expenditure. Thus, the question becomes whether the investment in programs, strategies, and methods resulted in mitigation of annual loss. A World Bank study on Disaster Risk Management in East Asia and the Pacific found that flood defense projects in Indonesia resulted in benefit-cost ratio of 2.5 and an internal rate of return of 23%. However, the problem is that cost-benefit analysis reflects only overall returns, so the distribution of the benefits of DRR remain unknown. The analysis does not provide insight on how public expenditure and investment impact local results. Some regions invest more in DRR while others are far more prone to disaster. How does this influence the efficacy of DRR? Say a region has heavily invested in DRR and has low disaster risk. That region will skew the benefit-cost ratio to reflect as far more successful implementation of DRR.

As the tsunami that hit the coastline of the Sundra Strait in 2018 has proven, Indonesia still has a long way to go in mitigating the devastating impacts of natural disasters that plague Indonesia. While the budget reform and financing strategies that Indonesia developed since 2004 to address post-disaster response are an incredible step in the right direction, it is vital that the government put extra weight on preventative measures.

Featured Image Source: Vatican News

Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty,  or the University of California, Berkeley in general.

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