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As the world population continues to age, Indonesia and a few
other Southeast Asian countries will defy global trends and continue to
enjoy growth in the working-age population, and therefore avoid an
economic slowdown, according to a report by the Pacific Economic
Cooperation Council (PECC).
The report on aging and economic growth, introduced here Wednesday by
Akira Kohsaka of PECC, reveals that aging already reducing growth by
0.5 percent in major developed economies, and would start to affect
growth in some other economies in the region starting 2010.
"Aging is slow in Indonesia, Malaysia and the Philippines, whose the
elderly are not projected to reach 20 percent by 2050," Kohsaka said.
The three countries, according to the report, would feel the pinch of
an aging population on growth starting only in 2020, when aging would
reduce growth by 0.09 percent. After that, the effect would continue
over the long term.
Currently, Indonesia is still in the earlier stages of demographic
change, with the number of people of 60 years of age and older
accounting for only about 7 percent of the total population. But this
figure is still much bigger than the 4.5 percent recorded in 1971.
However, the aging process remains slow, due chiefly to the country's
relatively high fertility rate.
Indonesia's fertility rate currently stands at 2.4 percent. Although it
is much lower than in the 1970s, when the fertility rate stood at 5.1
percent, Indonesia's current fertility rate is much higher than other
countries in the region, such as Thailand on 1.7 percent and China on
1.6 percent.
However, a young population also poses its own problems for the
economy, particularly a developing economy, warned Graeme Hugo, a
professor at the University of Adelaide.
Also addressing the PECC conference, Hugo noted that a younger
population often means higher rates of underemployment and unemployment
as many young people living in urban areas are picky about what sort of
work they do.
Citing United Nations data, Hugo said that many countries in the region
have increasing labor forces, with the rate of labor force increase
normally being higher than the birth rate. In Indonesia, for example,
the total population grew by 1.8 million people annually on average
between 1970 and 2005, but the workforce increases by 2.4 million
annually.
In addition to the rising workforce, which often means rising
unemployment and a slow aging process, the PECC report reveals that
Indonesia is suffering declining workforce productivity, which would
undoubtedly affect economic output in the longer term, as well as
foreign investment flows.
At the same time, when a population is relatively young, the need for
investment is also higher than in countries with older populations.
Such investment is required for human capital and infrastructural
development. Accordingly, the net affect on the savings-to-investment
ratio is negative, with investment demand outstripping domestic saving.
Indonesia's young population is expected to produce an increasingly
adverse effect on the country's current account balance, with this
increasing from a deficit of 0.21 percent now to one of 0.67 percent in
2020, rising further to 1.05 percent in 2030.
The policy implications of all this, according to the report, are that
sound macroeconomic policies with low inflation and sustainable public
debt levels need to be maintained, while domestic savings and capital
formation need to be promoted.
Also, governments need to start increasing labor force participation by
encouraging more female participation in the workforce, raising the
retirement age and encouraging migration.
As a result of the fact that productivity is declining in Indonesia,
the government here also needs to pay special attention to education,
training and technological development.
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