World Economy

Demographic Disaster Awaits Indonesia Amid Rising Unemployment

Demographic Disaster Awaits Indonesia Amid Rising Unemployment
Demographic Disaster Awaits Indonesia Amid Rising Unemployment

Indonesian companies are shedding jobs as they grapple with the weakest economic growth in six years, adding to the troubles facing President Joko Widodo, who was elected last year on pledges to dig the country out of a rut.

Government data might suggest no cause for alarm–unemployment was 5.81% in February, up only slightly from 5.70% a year earlier–but the official numbers are notoriously unreliable and don’t adequately cover the informal sector, which is two-thirds of Southeast Asia’s biggest economy, Reuters reported.

Recent reports of heavy lay-offs across the country paint a bleaker picture, and business executives, recruitment firms and jobseekers say it is getting worse.

Young people are being hit hardest; the International Labor Organization estimated the youth jobless rate was more than 20% in 2013, and economists believe it is higher now.

About a third of the workforce is aged 15 to 29, a youth bulge that could bring Indonesia, a country of 250 million people, the sort of demographic dividend China and South Korea enjoyed a generation ago–but only if there are jobs for the 2 million people joining the workforce every year.

“The government doesn’t have a blueprint for labor absorption,” said property businessman Hariyadi Sukamdani, chairman of the Indonesian Employers’ Association.

“If this condition is allowed to continue, what we would get is not a demographic bonus, but a demographic disaster. There could be social turmoil and higher crime rates.”

 Promises Fail

When he took office eight months ago, Widodo said he would pour billions of dollars into infrastructure and foster growth in manufacturing.

But the promised splurge on roads, power plants and ports has not materialized, largely because of bureaucratic hold-ups and land disputes, and a shortage of skilled labor is holding back growth in value-added industries.

Miners have been hammered by a double whammy: a ban on mineral ore exports and a sharp drop in commodity prices.

Meanwhile, labor-intensive industries such as textiles and manufacturing have been hit by the rupiah’s slide to a 17-year-low, which has raised the cost of imported raw materials.

Hundreds of redundant garment factory workers protested for hours this week in the financial district of Jakarta, the capital, after their company was declared bankrupt and its assets seized by two banks.

Unemployment in turn is hitting consumption, which makes up more than half of Indonesia’s economy. Automobile sales in May fell 18.4% from a year earlier, the ninth decline in a row.

“Stocks are piling up because nobody is buying. The people’s purchasing power is weak,” said Ade Sudrajat, head of Indonesia’s textile association. “This has never happened before in the last 45 years.”

Arif Budimanta, adviser to the finance minister, said the government was introducing measures such as halving lending rates for small businesses and exempting most goods from a luxury tax to stimulate consumption.