Headlines

Govt needs to pay more
attention to informal sector

The government should be focusing more attention on the informal sector, which plays a significant role in the country’s economy; to do otherwise could constrain development, a senior economist has said.

“Policymakers should work on the issues, depending on what concerns are the more pressing […]
whether productivity or social protection,” World Bank senior economist Truman Packard said on the sidelines of a seminar held by Jakarta-based think tank, the Centre for Strategic and International Studies (CSIS).

If a piece of legislation had hindered the informal sector from accessing private credit or bank loans — making it difficult for the sector to boost its production — then policymakers needed to get rid of the law, Packard said.

“The law has to recognize the way most people work. Small and medium enterprises are the largest source of employment. Most people are not working full-time, 9-to-5 jobs or waged jobs in this country,” he said.

The informal sector plays an important role in the national economy, and was a savior for the nation during the 1998 financial crisis. In 2012, 54 percent of 118.05 million workers were informal workers, according to data from the Central Statistics Agency (BPS).

This figure highlights a significant shift. Before 1999, the number of people working in the formal sector was much higher, at around 60 percent of the national workforce, BPS data shows.

Vivi Alatas, another senior economist with the World Bank, said that Indonesia trailed behind China and Vietnam in terms of labor productivity across the East Asia-Pacific region.

“This is mainly because 95 percent of employers in the country are [informal] small and medium enterprises, which encounter a lot of problems in terms of access to financing to expand their
businesses,” she said.

Indonesia recorded moderate growth in labor productivity from 1990 to 2010 with scores of between 100 and 200, while China tripled its growth rate from the same level of 100 to more than 400, and Vietnam doubled its growth to 200, World Bank data shows.

“The very first thing that the government can do is to lift the burden hindering business players from boosting their productivity,” Vivi said.

The government could help people working in the informal agricultural sector, for instance, and assist them in coping with unexpected conditions — particularly in the event of crop failure — by providing affordable seeds or bank loans, she said.

“The government also needs to encourage employers to train their employees,” she said.

According to World Bank data, small and medium enterprises account for less than 20 percent of
total formal training by companies in the country.

Packard said that policymakers also needed to think about social protection for informal workers, as many people were working in insecure environments, leaving them vulnerable to possible health
or other problems in the future.

Acording to Packard, the solution would be to provide everyone with access to health insurance, regardless of their type of jobs or employment.

He added that health insurance should benefit all people. (koi)

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