The Straits Times, March 17, 2012
By Zubaidah Nazeer, Indonesia Correspondent
JAKARTA: Two international organisations have warned Indonesia in separate reports that strong economic growth alone cannot guarantee more jobs, especially outside Java. There is an urgent need, they say, for more investment in education to improve the quality of workers.
The International Labour Organisation (ILO), in its report, noted a skills mismatch over the last decade as education struggled to keep up with shifting job market demands. As a result, Indonesians in the top ranks have seen their income rise while the wages of low-skilled workers have stagnated.
Separately, economists from the Asian Development Bank (ADB) say investment in education is crucial to transform Indonesia from a middle-income to a high-income economy which generates higher gross domestic product (GDP) and employment.
The economists were speaking at the launch of a book on the Indonesian economy yesterday.
Both the ILO and ADB say funds for education have to be backed by spending to build better infrastructure, improve governance and reduce poverty.
The analysis by the two global institutions is timely as Indonesia prepares to raise fuel prices on Sunday. The unpopular move, the government says, is necessary as crude oil prices continue to rise and budget spending on fuel subsidies balloons, surpassing expenditure on infrastructure and social assistance programmes.
Concerns that higher prices could fuel inflation and make life even harder for the poor have led many Indonesians to take to the streets, with students and workers threatening to strike.
There is also a general mistrust of government measures, such as cash handouts for the poorest and transport subsidies, to cushion the blow of the hike.
But the ADB economists, taking a different view, believe the measures are adequate and that the short-term pain is necessary to guarantee a long- term gain for the economy.
Said its chief economist Changyong Rhee: 'It is a very courageous move and will take the economy in the right direction even though it is not popular.'
Still, more than 80 per cent of those who benefit from current subsidies are middle- and upper-income families, and not the intended recipients.
But National Development Planning Minister Armida Salsiah Alisjahbana said the government has put in place measures such as compensation for the poor and limiting the number of vehicles on the roads to ease transportation costs that could spiral as a result.
Analysts say the time to implement such hikes is now, when the economy is stable and strong, and inflation is under control. The government should seize the moment to prioritise spending and roll out more poverty-alleviation measures, they add.
The Indonesian economy expanded 6.5 per cent last year, its highest GDP growth in over a decade. It also saw record investments of US$19 billion (S$24 billion) and its debt rating was upgraded by two rating agencies.
While unemployment has declined recently, nearly two-thirds of jobs are found in the informal sector.
The ILO report noted that while the average number of years spent in school has increased, unemployment among senior high school graduates also remains high. Some 10.2 per cent of young people are neither in school nor employed. High under-employment and unemployment are signs of a lack of job opportunities, the report said, and may be due to a skills mismatch as the economy shifts from traditional sectors such as agriculture to the service sector.
Economists call for 17 infrastructure projects costing 190 trillion rupiah (S$26.2 billion), which are part of the government's economic growth masterplan, to be implemented to ensure good connectivity across the sprawling archipelago, and eventually reduce poverty. With greater access, investors can consider putting money in provinces other than those in Java and Sumatra, which now contribute 82 per cent to Indonesia's GDP, the ILO said.