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espite higher economic growth in the last several years, Indonesia has not been able to translate its economic improvements into quality employment due to, among other things, mismatch between education and job demand, the ILO says.

The creation of quality employment is linked closely to poverty alleviation, the report went on. The report defines employment as “productive employment and decent work”, which excludes work that does not result in economic activities and output, and jobs that do not ensure freedom, equity, security and human dignity.

Kazutoshi Chatani, an economist from the International Labour Organization (ILO), said Thursday the Indonesian labor market had huge unexplored potential that could create productive employment.

“Indonesia has seen a decrease in its unemployment rate. However, productive employment creation in the country still lags behind the vast increases in job opportunities,” he said on the sidelines of the launching of the ILO report titled “Labor and Social Trends in Indonesia 2010: Translating economic growth into employment creation”.

Chatani said the Indonesian economy had shifted into the service sector. However, only few job seekers had the adequate skills and educational background to meet the opportunities.

“Indonesia has lost its competitiveness in labor-intensive manufacturing. The situation has been worsened since many new job opportunities are dominated by the service sector requiring highly skilled workers only,” he said.

The huge income gap between workers with a university education and those with only a basic and secondary education reflects an imbalance between demand on manpower and the availability of highly skilled job seekers.

Referring to the significant improvement in economic growth recently, Chatani said Indonesia was “blessed by huge economic potential”. Indonesia maintained positive economic growth both in 2009 and 2010 despite the impact of the global financial crisis across the region.

The Indonesian government is targeting annual growth in GDP of between 6.3 to 6.8 percent per year between 2010 and 2014.

“Indonesia can tap its potential for further economic growth by improving its infrastructure and governance, by creating an efficient and effective administration, as well as [improving] the country’s education [system]. By tackling these three things, I believe Indonesian economic growth can progress faster,” he said.

A World Bank and International Finance Corporation (IFC) report titled “Doing Business in Indonesia 2010” said it was difficult to start a business in Indonesia. Surabaya in East Java was ranked the worst performing city in terms of days to deal with construction permits, which takes 230 days on average. Jakarta ranks the worst in terms of days to start a business (60 days).

Poor infrastructure due to protracted land clearing processes aggravates the difficulties in starting a business in Indonesia, negatively affecting employment creation, the ILO said.

“Indonesia hasn’t benefitted from the available opportunities and strengthened the link between economic growth, employment creation and poverty reduction,” ILO director Peter van Rooij said.

The Indonesian Employers Association (Apindo) said most investments in Indonesia were made by companies with a portfolio in the financial services, absorbing less manpower.

“Less labor-intensive manufacturing firms are attracted to Indonesia due to poor infrastructure, including electricity supply shortages,” he said.

An Indonesian Jobs Pact (IJP) recently signed by representatives of the government, workers and employers is expected to bring the benefits of economic growth to Indonesians by creating decent and productive employment.

“I hope it can make the Indonesian economy more competitive,” Chatani said.