The ILO has warned of a global employment catastrophe spreading from the developed to the developing world in the wake of the U.S. sub-prime disaster and spreading financial crisis. ILO suggested that 62 percent of Indonesia's labor force works in vulnerable jobs.

For Indonesia, memories of 1998 are still fresh: The precipitous fall in real sector output, close to three digit inflation, falling real wages and sharply rising poverty. How close are the parallels between the events of 1998 and the current crisis with regard to potential job losses, falling labor incomes and an associated rise in poverty? What has been learned from that traumatic experience and applied to policy?

Prospects are not looking good. The Finance Minister has already warned of the possibility of growth rates falling back to 4.5 percent next year from above 6 percent in 2008, and many are predicting a severe global cutback in output and employment lasting several years. This signals a very different scenario from 1998 when Indonesia came out of a much more severe crisis on the back of a still buoyant U.S. and world economy.

Better and more permanent jobs for new job seekers and those close to the poverty line may be hard to find for two or three years in Indonesia. The extent of the shock on the domestic labor market is likely to depend partly on the severity of the impact of the United States and Japanese recessions, and mounting fears of a recession across Europe.

Second round effects will come from damage to exports and investment in China that has driven regional economic growth over the past decade. For Indonesia, steeply falling commodity prices are a second unpalatable reality, threatening investment and employment in some of the land- and resource-abundant outer island economies. In short, a protracted slowdown in growth and new job opportunities beckons, in contrast to the recovery from the sharper, domestically generated, financial and real sector crises of 1998.

Fortunately, the news is not all bad. Most importantly, rice production is up and staple food prices are coming down. This is good news for the poor and vulnerable as a quarter of their expenditures goes to rice. Rising food prices that drove real wages and incomes down in 1998 are unlikely to be repeated over the next several months, provided there is a good, wet season rice harvest next year and the availability of agricultural inputs is guaranteed.

The government is also much better placed to deal with shocks to jobs and incomes among the poor, leading the region in cash and food assistance programs (BLT and raskin) and rural infrastructure programs (PNPM). Social safety nets are up and running, courtesy of major government efforts initiated during the 1998 crisis, and more recently reintroduced to help shield poorer households from earlier simultaneous escalation of fuel and international food prices.

Furthermore, the situation leading up to the crisis contrasts with the 1990s when job growth and a decrease in poverty prior to the crisis were driven by exports. Although slowing in recent years, domestic demand has been the main factor underpinning growth and employment for much of the past decade. Indonesia's failure to integrate closely with the rest of East Asia and China in the booming electronics-driven, product "fragmentation-trade" may well turn out to be a blessing in disguise.

The inevitable sharp decline in Chinese exports to the United States will probably impact much more on neighboring Thailand, Vietnam, Malaysia and Singapore than it will on Indonesia, where the trade in components for final assembly in China is much smaller. A further domestic fiscal stimulus, and probably some boost through monetary policy, as inflation comes down, may just stave off a net loss in wage jobs. This was not the case during the 1998 crisis.

Nevertheless, there are some big challenges for containing the likely negative impacts on jobs, particularly in urban areas. Because of greater regulation and compliance, the modern sector labor market is less "flexible" than it was in 1998. More active labor unions are much less likely to accept a fall in real wages without significant protest than was the case in 1998.

One event demonstrates the point -- the recent strong negative reaction from workers to the Joint Decree of Four Cabinet Ministers to recommend capping regional minimum wage increases in 2009, by taking regional economic growth rates as a reference point.

The subsequent government back down -- now recommending minimum wage increases in line with inflation -- means that there may be more job losses than might have occurred under institutional arrangements which prevailed a decade ago. There is also likely to be less incentive for businesses that are still growing to hire new workers. New hires could be especially discouraged in a weak labor market through the link between potentially higher minimum wages and the high level of government mandated level of severance payments, which make it quite costly to lay off workers.

Strong union-led resistance to the Ministerial Decree is to be expected under current conditions. All the same, a labor market that is less controlled by government laws and regulations, with policies more focused on social safety nets, rather than setting actual wage levels and a plethora of labor standards, could be less of a threat for job losses.

From the point of view of saving jobs, one alternative is to revise the labor code, in the direction of encouraging greater collective bargaining of wages and working conditions. Unfortunately, any move in that direction is off the political agenda until at least after the 2009 elections.

Overall, compared with 1998, the looming economic slowdown may have a greater impact on less flexible urban labor markets than in rural areas, where small-scale enterprises are much more common.

Besides seeking to protect rural communities in which most poor people reside, the government may need to invest in monitoring urban labor market adjustments. It could focus on the impacts of unemployment, informal sector growth and poverty more closely in coming years to establish an effective response package. And thus already scarce resources could be efficiently allocated in a manner which does not jeopardize the prospect of achieving recovery.

Chris Manning is head of the Indonesia Project, ANU, Australia and Sudarno Sumarto is the director of the SMERU Research Institute, Jakarta.

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