T

his is a comment on an article titled '€œWorkers rally against controversial pension plan,'€ (The Jakarta Post, July 4, p4).

Indonesia has one of the lowest mandatory pension contribution rates in the Asia-Pacific region and 80 percent of its population is financially illiterate in terms of pension funds.

Just compare the size of pension fund assets in Indonesia (around US$12-15 billion) to those in neighboring countries with lower populations, such as Singapore ($185 billion) and Malaysia ($178 billion).

The government should educate its people on the benefits of pension funds as social assistance in old age, irrespective of their earnings during employment.

It is an effective measure to reduce poverty as these employees can enjoy continuous income after retirement.

Strong and large pension funds in an economy provide support to the domestic financial sector. The banking sector currently dominates with less participation from institutional investors such as pension funds, insurance companies, mutual funds, etc. A lack of institutional investors in Indonesia to fill in the gaps left by capital outflow makes Indonesia'€™s financial/stock market the most vulnerable in the region.

Indonesia needs a diversified financial sector, deep capital market and a high level of investment for economic stability, as well as an increase in standard of living. When there is a high domestic fund available, the need for foreign capital will be reduced (note: Indonesia'€™s external debt has tripled since 2007).   Indonesia still has room for significant and continued growth.

Andy Kai
Jakarta