JAKARTA (ILO News): The global crisis had a relatively limited impact on the Indonesian economy and labour markets due to Indonesia’s favourable initial conditions and because of early implementation of counter-cyclical monetary and fiscal measures, said the new study released by the International Labour Organization (ILO) on Wednesday, 23 March. The study entitled “Indonesia: Reinforcing Domestic Demand in Times of Crisis” highlights how well-designed employment and social policies helped Indonesia recover quickly from the crisis.
The study says that rather than resorting to competitive devaluations, wage cuts and financial deregulation – as predicated by conventional wisdom – Indonesia opted for a well-designed boost to domestic demand through tax exemptions for lower-income households and cuts in income taxes. The Government also provided addition support to existing social protection programmes developed in response to the Asian crisis. These policies were complemented by efforts to strengthen the employment-intensity of infrastructure investments, including in rural areas.
The study notes that Indonesia could take advantage of these significant achievements by addressing high employment informality and promoting the creation of quality jobs as well as stimulating employment prospects of youth who have not been filled equally of the recovery.
This case study of Indonesia is part of the new series of Studies on Growth with Equity issued by the ILO’s International Institute for Labour Studies (IILS). Other countries reviewed in the series include Brazil and Germany. More country reviews (including Spain and Tunisia) are to be issued later this year. The aim of the series is to show that – contrary to previous thinking – economic growth can be achieved alongside equity gains.
Based on these new series of study, the IILS has developed a Synthesis Paper entitled “Making recovery sustainable: Lessons from country innovations” based on a detailed analyses of Brazil, Germany and Indonesia, published under the series Studies on Growth with Equity – a version of which was presented at the ILO’s Governing Body on 21 March 2011.
The new paper says that considering “economic, employment and social policies” as a package could lead to “better overall outcomes” as policy-makers seek to emerge from the worst economic crisis in six decades and reduce the risk of social unrest associated with the status quo. It also highlights the efficiency of employment-centred projects that create more and better jobs and improve long-term productivity. “Reducing the current job quality gap will not only achieve equity objectives but - with the right policy mix - can enhance productivity and future resilience to economic shocks,” the paper says. “Some of those measures include well-designed employment protection, job-friendly tax regimes and lower administrative burden on the self-employed”.
Similarly, the paper claims that social protection measures, if well designed, “help to stimulate and maintain incomes among the most vulnerable but can also have large multiplier effects that go beyond this group, stimulating jobs and incomes at the aggregate level”.
“Recent events in the Middle East and North Africa have highlighted the centrality of employment and balanced income developments for social cohesion which is itself a key ingredient of sustainable growth”, says Raymond Torres, Director of the ILO research Institute. “The issue certainly deserves urgent attention, especially since the rising trend in food prices is likely to exacerbate income inequalities in many parts of the world”.
“The experience of the current crisis shows us that, to be effective, job-centred policies need not to be expensive. The fiscal stimulus packages of Brazil and Indonesia – two successful performers – were among the lowest in the G20”, the paper says.
The full report could be accessed through: www.ilo.org/inst
The Indonesian case study report can be accessed through: /public/english/bureau/inst/download/cr_indonesia_e.pdf
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