# _Conclusions_

The 1997 financial crisis was the most disruptive socio-economic event to confront Indonesians for at least three or four decades, if not longer. The effects of the crisis were wide ranging. While some households prospered given the new opportunities afforded by rapid price changes, shifts in the structure of the economy and the political landscape, overall poverty increased and mean incomes fell. This study is the first to look at the Indonesian crisis impacts on psychological health and it does so using a high quality longitudinal socio-economic survey. We find that the severe economic dislocation and political uncertainty engendered by the crisis adversely impacted psychological health in the overall population.

We document substantial increases in distress indicators at all ages and for either gender over the crisis period. In addition, the imprint of the crisis on psychological well-being can be seen in the relatively large increase in poor psychological health for those groups most adversely affected: the less educated, the rural landless, and residents in regions hit hardest by crisis. Our analysis has focused on characteristics such as age, gender, education, and location prior to the crisis in order to avoid the difficulties associated with interpreting correlations with characteristics that might respond to the crisis. Complications associated with co-determinacy arise in many studies of the relationship between psychological health and economic outcomes such as labor force participation or income.

An additional important observation that emerges from this research concerns the persistence of psychological distress from the immediate post-crisis period in 1998 to the recovery period in 2000. By 2000, mean household consumption had already recovered to 1997 levels and the overall economy had returned to pre-crisis growth rates, however psychological distress remained at elevated levels. The finding that psychological distress persists following an economic shock while income and consumption recover suggests that psychological well-being is at least partially orthogonal to more standard measures of economic welfare.

These standard measures include at least one common measure of subjective welfare: happiness. The burgeoning literature on the economics of happiness (see Layard (2005) and Kahneman and Krueger (2006) for reviews) commonly finds that an individual’s happiness measure rapidly habituates to changes in income – any change in happiness as a result of a change in income is temporary and happiness soon returns to the pre-change level. Clearly the findings here suggest, especially when considered alongside other recent work on the persistence of psychological health changes resulting from life-events (Das & Das, 2006; Stillman et al., 2006), that psychological health stands distinct from happiness and other common subjective measures and may represent an independent domain of individual welfare.

This paper presents evidence that the internal life of the Indonesian population, as measured by psychological distress indicators, suffered over the crisis period. Indeed when judged by the duration of impact, population psychological health may have been one domain of welfare most affected by the crisis and its aftermath.

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