Layoffs will not reach into the millions next year as was feared, mainly because of the ability of the informal sector to absorb workers who have been dismissed from the formal sector, the World Bank says.
“The labor market (here) has been quite flexible, but we are expecting unemployment to rise,” World Bank lead economist Wil-liam E. Wallace told reporters Wednesday.
“The number will not reach a million, as people move from formal to informal (sectors). They will not be unemployed, but have less money.”
Businesses have announced possible layoffs for next year amid a rapid decline in export demand due to the global economic downturn.
The Indonesian Rattan Furniture and Craft Producers Association said the industry might lay off up to 35,000 workers, while the Indonesian Textile Association said the industry had temporarily laid off 14,000 workers due to decreased demand from overseas.
Finance Minister Sri Mulyani Indrawati has said the government will prepare a “realistic” response to help businesses cope with slower growth next year, but warned that companies will have to make sacrifices to share the burden.
The government will inject Rp 12.5 trillion (US$1.13 billion) into the 2009 state budget to compensate for a move to waive income tax, value-added tax and import duties to help stimulate the real sector.
Meanwhile, the central bank cut its interest rate this month by 25 basis points to 9.25 percent, having aggressively increased it in previous months, to spur economic growth. A lower interest rate may reduce lending rates, thus lowering borrowing costs for businesses.
The World Bank said the government should speed up spending early next year to stimulate growth, which might reduce unemployment.
Indonesia’s informal sector, which encompass millions of micro and small businesses, is renowned for its resilience, which was tested and found true during the 1997/1998 Asian financial crisis.
Despite the number of layoffs being “manageable”, Wallace said that due to the global economic downturn, Indonesia would see a slower decline in poverty next year.
“The decline in poverty is not as dramatic as before,” he said.
According to the Central Statistics Agency (BPS), a poor person is defined as “consuming” less than Rp 166,700 per month. There are about 19.1 million poor households in Indonesia, or 76.4 million people out of a total population of 235 million.
However, the World Bank’s definition differs — instead classifying a poor person as earning less than US$2 per day.
Wallace forecast that, based on the BPS’s standard, the rate of poor people will fall to 13.8 percent next year from 15.4 percent this year.
He said the forecast included 1.6 million people who will likely not escape poverty because of the effects of the financial crisis on Indonesia.
The World Bank said Indonesia’s economy would grow 4.4 percent next year, a significant drop from 6.1 percent in 2008, in part due to slowing investment and exports as a consequence of the global liquidity crisis.
taken from: the jakarta post