Labor-based industries needed to reduce poverty
Yogita Tahilramani, The Jakarta Post, Jakarta
Poverty can be effectively addressed if the government consistently adopts the methods of labor-based industries in its public investment policies, an expert said on Monday.
International Labor Organization (ILO) consultant Inayatul Islam said during a seminar here that the public sector in Indonesia, like in other developing countries, played a major role in infrastructure investment.
"An ILO study has shown that labor-based production methods in infrastructure investment in Indonesia can generate as many as 1.2 million durable jobs over four years, without compromising the standard of quality associated with equipment-intensive production techniques," Inayatul said.
The three-day seminar, which began on Monday, centers on labor market policies and poverty alleviation strategies as part of the economic recovery of crisis-hit Asian countries.
Some 40 representatives from Japan, Malaysia, the Philippines, South Korea, Thailand and host Indonesia are attending the seminar, which is being sponsored by ILO in observance of International Labor Day on May 1.
The World Bank has estimated that at least 30 million Indonesians are currently living below the poverty line.
The bank's country director for Indonesia, Mark Baird, said recently that the majority of Indonesians were poor or vulnerable to becoming poor, and that to fight poverty economic growth was essential.
Every year, Baird said, a further two million people become economically active, creating a need for more jobs.
With some 36 million unemployed people in the country, economists say Indonesia's economy needs to grow by 5 percent to 7 percent a year to absorb new job seekers.
Indonesia's economy is expected to grow at the most by 4 percent this year.
Inayatul said agricultural workers, rural households and non- college educated people were at greater risk of falling into poverty.
A comprehensive social insurance system is critically needed, he said, and should include unemployment and retirement benefits to provide protection to people who are temporarily unemployed or who are no longer in the labor market.
"The ILO has made a strong plea for the introduction of unemployment insurance schemes in East Asian economies," Inayatul said.
Estimates suggest an average required contribution rate of between 0.3 percent and 0.4 percent of payroll, between 1991 and 2000, would have been sufficient to provide all insured dismissed workers over this period, including during the current crisis, with 12 months of benefits, he said, quoting a 1998 study.
"In the case of Indonesia, the required contribution rate is 0.44 percent," he said.
According to a 2000 World Bank report, a household or individual becomes more vulnerable to poverty due to fewer physical assets, limited human capital and a lack of social insurance system.
An empirical study by Suryahadi and Sumarto in 2001 showed that the economic crisis not only increased the incidence of poverty in the country, but significantly increased the number of Indonesian households with a high vulnerability to poverty.
The number of poor households almost doubled from 1996 to 1999, which is the equivalent of about 27 million people falling into poverty during this period.