Aris Ananta and Evi Nurvidya Arifin
Indonesia’s Vice President, Prof. Boediono, expressed his optimism in a forum on opportunities and challenges for the future of Indonesian economy on 9 December 2009 at Bank Indonesia as the economy records a 4.2 percent annual growth in the third quarter of 2009. In his keynote speech, Prof. Boediono believes that Indonesia’s huge population is an important asset, in addition to three others namely, fiscal security, strong political mandate and democracy. Prof. Boediono however was quick to mention that these four assets can become liabilities for Indonesian economic development if it is not utilized effectively.
This positive outlook on Indonesia’s population as an opportunity for growth is a change from previous attitudes. Over thirty years ago, a large population was seen as an impediment to economic development for Indonesia. An aggressive national family planning program was then implemented resulting in a relatively fast fertility decline in Indonesia, accompanied by a corresponding improvement in income level and human development. Despite declining fertility rates, however, the number of younger person still far exceeds the number of older persons. Prof Boediono regards this aspect as an important asset for economic development.
Our own calculation, based on data collected by the Indonesian Statistical Agency (BPS), shows that the potential economic power of this giant archipelagic country is currently 151.0 million strong in 2009. This is the number of people between the ages of 15 and 59 years old, deemed as productive persons. With only 18.0 million aged 60 years old and above assumed as no longer productive, Indonesia has a surplus of 133 million productive persons. This number is roughly 40 percent of the total US population.
Not only is this a huge number, these productive persons come from relatively smaller families thanks to the success of family planning. They are better educated, healthier, more mobile and have higher aspirations than their previous cohorts. Altogether, this surplus of 133 million productive younger persons should be quickly utilized to facilitate economic development.
Speed is the emphasis here. Further calculation shows that the surplus will rise until 2025 and will decline shortly after. Population as an asset can turn into a liability in the future if Indonesians do not catch this opportunity now. Indonesia can maximize the benefit of this huge population before 2025.
Not only does the large surplus indicate the availability of a large pool of factor of production, it also indicates a large and lucrative market. They have the potential to work and earn income. Utilizing them to produce goods and services provides them with money, creating a large base of consumers. The lower and middle income groups that makes up the majority continue to have rising education, income, and aspiration. It is this demographic window of opportunity that provides a quick leap in prosperity for Indonesia
What is the cost of missing this demographic window? As people live longer, the proportion of older persons increases as this bulge in the population ages. The surplus of younger persons dwindles. Indonesia will eventually face the problems of financing a burgeoning population of older persons. If Indonesia does not use the demographic window of opportunity wisely now, supporting these older persons who are supposedly considered no longer productive creates undue financial burden. The huge population will then become a liability.
Nevertheless, the timing of demographic window of opportunity varies from one region to another as Indonesia sprawls from Aceh to Papua. For example the percentage of older persons in the regency of Pacitan had been very high, at 14.2 per cent, even higher than that in Singapore. Every year it suffers from an exodus of younger persons, migrating in search of better economic opportunities elsewhere. Therefore, the demographic window of opportunity in this regency will reach the peak much earlier than 2025.
With this heterogeneity on the span of the demographic window of opportunity and the period of the remaining years before the peak of the opportunity, the government of Indonesia should not make a homogenous policy in exploiting this demographic window of opportunity. Instead, it should be matched to the region’s demographic condition.
If Indonesia continues having fiscal security, strong political mandate, and maturing democracy, the huge population can help bringing Indonesia into one of the emerging world economic giants. This will surely have beneficial ramifications for other countries.
(Aris Ananta is senior research fellow at the Institutes of Southeast Asian Studies, Singapore. Evi Nurvidya Arifin is visiting research fellow at the same institute.)