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Benedict Bingham

IMF Senior Resident Representative

Indonesia: Sustaining Inclusive Growth

“The views expressed in this presentation are those of the author and should not be attributed to the IMF, its Executive Board, or its management.”

Forum for Development Analysis Jakarta, 23 November 2012

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Outline

Impressive macroeconomic performance

Disconnect with social indicators?

Productivity challenge

Economic development since Reformasi impressive….

2 Source: IMF WEO, Oct 2012

Indonesia’s performance amongst the best in Asia and G20 EM, especially during GFC….

3 Source: IMF WEO, Oct 2012

2003 - 2007 2007 - 2011

Employment and productivity numbers look solid….

4

Indonesia: Growth, Employment, and Productivity

Inclusiveness indicators remain weak though…

5

Gini coefficient rising (and understated?)

Almost two thirds of labor force is without a formal sector job

Just under half the population still living on less than $2/day

Underperformance of non-commodity exports a factor?

6

ASEAN 5 and China: Labor Pool and Non-Commodity Exports

Sectoral productivity trends a concern?

Indonesia: Productivity Growth by Sector (3 year moving average)

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Employment, productivity, value added/employee

How productivity challenge met important…

Policy Challenges for inclusive growth

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Infrastructure

Formalizing Activity to Foster “Missing Middle”

Regulatory Environment

Labor Market

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The Minimum Wage Dilemma

Labor market policy is a challenge

Minimum wages

Non compliance rate has increased from

20% in 1999 to 40% in 2007

Severance pay

Two thirds of terminated employees do

not received severance pay

Most firms non compliant

World Bank Job Report Findings (2010):

Thank you