We model two alternative macro adjustment scenarios that should bracket the likely response of the Sumatera region to the devaluation and structural adjustment program. In the second, regional savings and investment are assumed to fall more, as the region's trade balance is forced to improve dramatically to reflect the large required changes in the national trade balance. Under the first adjustment scenario, a devaluation benefits large farm households in the rural area and urban high income households who are involved in the production of tradable goods, while both rural poor and urban poor households lose. When investment falls more, all farm households and urban high income households benefit, but poor urban households lose more because the decline in investment hurts unskilled urban labor, especially in construction. Download full-text discussion paper .
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