Jakarta, IO – The year 2023 saw a staggering number of around 240 natural disasters globally, with wildfires, floods, earthquakes, and storms wreaking havoc across various regions. These calamities had especially severe consequences for rural and developing nations, worsening existing challenges like increased logistical issues and macroeconomic pressures such as inflation and interest rates.. Wildfires in Hawaii, North Africa, and Greece, floods in the Congo, Chile, and California, earthquakes in Turkey-Syria and Marrakesh-Safi, and storms like Cyclone Mocha and Storm Daniel in Myanmar, Greece, Libya, and other countries were among the most impactful events. Climate change played a significant role in the increasing frequency and severity of these disasters.
The impact of natural disasters is indeed unprecedented, with significant economic and humanitarian consequences. According to a report from The World Bank in 2016, extreme natural disasters result in global losses of approximately $520 billion in annual consumption. Additionally, these disasters push about 26 million people into poverty each year. This highlights the immense toll that natural disasters take on societies and economies worldwide, underscoring the importance of effective disaster preparedness, response, and mitigation strategies.
The recent natural disaster in Dubai served as a wake-up call, shattering the tranquillity of a city accustomed to sunny skies and modernity. Unprecedented rainfall, the heaviest in 75 years, brought life in the glitzy metropolis to a standstill. While emergency services laboured tirelessly, the devastation left in the storm’s wake highlighted the critical need for preparedness and resilience. The economic damage from the storm could go into billions of dirhams, with significant impact to vehicles, properties and infrastructure.
If such a disaster were to occur in one of the most modern countries, Indonesia, with its broader geographical area and varying levels of preparedness, could easily be affected by the same disaster without adequate preparation.
Preparation is increasingly relevant for Indonesia, particularly as we embraced Disaster Preparedness Day (HKB) that is celebrated every April. This moment should signify a pivotal shift in the country’s disaster management approach. Enacted in response to Law No. 24 of 2007, HKB aims at transitioning from reactive to proactive measures, emphasizing risk management.
Undoubtedly, a striking example of substantial losses resulting from natural disasters in Indonesia was the Aceh earthquake and tsunami in 2004. The losses reached Rp 51.4 trillion (USD 3.5 billion), while the allocated state budget for disaster risk management at that moment only ranged from Rp 3 trillion to Rp 10 trillion annually glaring to a significant funding gap to address the extensive economic losses and high number of fatalities. Given Indonesia’s heightened exposure to risks, projections from the World Bank suggest that economic losses attributable to climate changes could range from 0.66% to 3.45% of GDP by 2030 if adequate measures are not taken in advance.
Natural disasters pose a serious challenge in Indonesia due to both direct and indirect impacts. Direct impacts include immediate losses resulting from the disaster itself, while indirect impacts refer to subsequent effects. For example, natural disasters contribute to rising food prices, particularly for staple foods like rice. Droughts caused by phenomena like El Niño can lead to delays in rice harvests, exacerbating food scarcity and driving up prices. From July 2023 to February 2024, rice prices in Indonesia increased by approximately 23%, from 15.36 tons/cwt to 18.89 tons/ cwt. Given Indonesia’s high rice consumption rate of 185 kg/cap/year – among the highest in the world, these price hikes disproportionately affect vulnerable populations.
Recognizing the significance of preparing for natural disasters in Indonesia, IFG Progress conducted a study to map districts in Indonesia according to their susceptibility to natural disasters, utilizing data from the Village Potential Census 2018 conducted by BPS. Covering 83,931 villages/sub-districts from 514 districts/cities across 34 provinces, the analysis focused on multiple types of natural calamities, including landslides, floods, flash floods, earthquakes, tsunamis, tidal waves, cyclones, volcanic eruptions, forest and land fires, and droughts.
Additionally, by creating a composite severity index ranging from 0 to 100 for the aforementioned disasters, the study identified 24 districts or cities with a natural disaster index exceeding 75. The majority of these areas are situated in West Java Province, including Sukabumi, Cianjur, Bandung, Garut, and Tasikmalaya. Furthermore, the study also noted the presence of other districts with a natural disaster index surpassing 75 in Aceh, Banten, Central Java, East Java, North Maluku, West Nusa Tenggara, East Nusa Tenggara, Central Sulawesi, North Sulawesi, West Sumatra, and North Sumatra, although not as densely concentrated as those in West Java.
The importance of an early warning system in addressing associated risks cannot be overstated. Through econometric testing, it has been identified that for every 1% increase in the number of villages equipped with both an early warning system and proper telecommunication signal, the region could potentially save $200-300 billion USD in Gross Domestic Product at the district level. This significant impact is achievable by effectively mitigating the catastrophic effects of such disasters.
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Innovative financing is crucial for preventing further economic losses, as demonstrated by other countries’ experiences. Japan, known for frequent natural disasters, especially earthquakes, has established a robust disaster insurance system called the “Earthquake and Volcano Damage Compensation System” or “Kyosai.” Similarly, Taiwan responded to earthquakes by creating the Taiwan Residential Earthquake Insurance Fund (TREIF) after the Chi-Chi earthquake in 1999 offering insurance coverage for residential buildings against earthquake-related risks.
Similar initiatives are observed in less developed nations like Turkey and Mexico. Turkey’s disaster insurance program, the Turkey Catastrophe Insurance Pool (TCIP), emerged after the 1999 Marmara earthquake to cover earthquake-related disasters and associated risks. Meanwhile, Mexico established FONDEN in 1996 as a national disaster fund to aid rehabilitation and reconstruction efforts.
In conclusion, Indonesia’s focus should be on inclusivity and innovation in disaster risk mitigation. Implementing widespread early warning systems and disaster insurance is essential for building resilience. Through collaboration and for – ward-thinking strategies, Indonesia can better prepare itself for future disasters and overcome challenges with resilience. (Ibrahim Kholilul Rohman and Rosi Melati)
Ibrahim Kholilul Rohman is currently Senior Research Associate at Indonesia Financial Group Progress (IFG Progress). He is particularly responsible on researching the role and the pathways of digitization on the financial sector and how digitization will impact to the improvement of the industry especially in insurance and pension funds. Previously, he was a Chief Economist at Samudera Indonesia-one of the oldest shipping companies in Indonesia. Ibrahim spent ten years in Europe working in various positions. He was a research fellow at the United Nations University- Operating Unit on Policy Driven Electronic Governance (UNU-EGOV) in Guimaraes, Portugal. He was assigned to assess the role of electronic governance on country competitiveness. Prior to joining UNU, he was a research fellow at JRC Directorate Growth and Innovation- European Commission. He was in charge on a project analyzing the competitiveness of the EU´s ICT sectors on their R&D activities. The project is served as an input for the Europe’s Digital Progress Report (EDPR). Ibrahim teaches Digital Economics at the undergraduate program of the Faculty of Economics and Business, University of Indonesia. He earned his PhD in 2012 in Technology Management and Economics from Chalmers University of Technology, Gothenburg, Sweden. He got his bachelor and master’s degree in Economics from the University of Indonesia. He has published several articles on Telecommunications Policy and Science and Public Policy. He is also an active op-ed contributor with more than 30 articles in the Jakarta Post in various topics concerning digital economy, ICT and transportations.
Rosi Melati has joined IFG Progress in October 2021. Rosi experienced in Insurance Industry for around 5 years. Previously, Rosi worked as investment strategy in Cigna Indonesia and was responsible for the various role related to the investment management, she also handled for the asset and liability management (ALM). Rosi earned a bachelor’s degree from the Faculty of Mathematics and Natural Sciences, University of Indonesia in 2016. During in University, Rosi assisted national research project from the National Agency of Drug and Food Control (NADFC/BPOM) for data processing and analyzing. Moreover, Rosi had a license as the Investment Manager Representative from The Financial Services Authority (OJK) since 2018 and had actuarial certifications from The Society of Actuaries of Indonesia (PAI). At IFG Progress, Rosi is interested and in charge in various topics around Insurance sectors, Banking sectors, Finance and Macro-economic.