Constraints on policy making towards the informal economy in Indonesia: lessons of the current decade

This study was undertaken as part of an effort to draw out policy lessons learnt since the systemic shock triggered by the 1997/98 crisis, to provide a summary evaluation of the existing policy framework to lower informal workers’ vulnerability to economic insecurity, and to highlight the remaining and emerging challenges. The paper provides a useful guide to monitor the implementation process of the National Mid-Term Development Plan (RPJMN) 2010-2014 in relation to the informal economy.

The study concludes that an overarching policy framework directed towards the informal economy cannot and need not be found, and it provides perspectives on the Indonesian policy making environment since the fall of New Order regime in May 1998. While policies had not been directed as such to the informal economy, a number of policy initiatives to contain the rise in poverty, promote employment, promote social insurance, and to reform customs regimes, to name a few, are in place. Many of the elements of such programs can facilitate the transition to formality. Further work is needed in ensuring and evaluating the implementation of such policy measures, and whether they indeed lead to reduced incidence of informality over time.