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Indonesia Index

The services sector in Indonesia in the early 1990s was a heterogenous mix of modern government-operated utilities such as gas and electricity, sophisticated and well-paid private services such as finance and insurance, and millions of self-employed traders earning a marginal living in what is often called the informal sector. While there was little threat of privatizing the often inefficient government monopolies, the deregulation trend in the late 1980s encouraged more private participation in many services formerly reserved exclusively for the public sector. For example, a private airline--Sempati Air Services--was permitted for the first time to provide international jet service in competition with the government-owned airline, Garuda Indonesia, and the massive state-owned National Electric Company (PLN) began negotiations to purchase electricity from privately owned generators.

In an archipelagic setting, transportation infrastructure is crucial to a modern integrated economy. The effort to boost non-oil exports also demanded more efficient transportation both among islands and to international ports. Repelita V (FY 1989-93) increased transportation investment to almost 20 percent of development expenditures from around 12 percent in Repelita IV. An extensive reform of shipping regulations increased competition and access to Indonesia's ports.

Services provided 26 million jobs, about 35 percent of the employed work force in 1989 (see Employment and Income , this ch.). Growth in service employment was over 4 percent per year during the 1970s and 1980s, faster than total labor force growth, which averaged about 3 percent per year. One of the fastest growing sources of employment in services was the government civil service, which grew at a rate of almost 6 percent per year in these two decades. By 1990 there were 3.8 million civil servants employed in all levels of government and in public institutions such as schools and hospitals. (This number excluded employees of state enterprises.) Government civil servants were typically more educated than average. In 1990 over 16 percent of civil servants had some university education, compared with about 1 percent for the labor force as a whole.

Employment in trade or commerce was the largest source of employment in the service sector, accounting for almost 11 million workers in 1989. This number included about half of all women employed in nonagricultural occupations. A wide range of enterprises were involved in commerce, from large incorporated firms to unincorporated establishments operating without fixed premises. However, the unincorporated establishments were much more numerous and probably accounted for about 90 percent of employment in trade. These ubiquitous small-scale traders, usually selfemployed or employing only family labor, could be found plying their wares in the colorful village pasar (market) and in urban streets.

Petty traders made up the majority of the informal sector (small establishments outside the agricultural sector that employed only unpaid family labor). By this definition, about 17 million workers (around 23 percent of the labor force) in 1989 were employed in the informal sector in activities that usually required little skill or capital. Most informal activities provided household consumption services, like the popular kaki lima (five-leg) food stalls found throughout Javanese cities, so named for the three-legged food stall together with the two legs of the attendant. The informal sector also accounted for an important share of industrial employment (see Small-scale Industry , this ch.)

The government had an ambivalent attitude toward the informal sector. On one hand, the sector was recognized as an important source of employment that should be supported as part of the overall effort to promote pribumi economic development. Throughout the 1970s and 1980s, a variety of credit and training programs were geared to informal services and industry, although success was often tenuous because of the large and diverse target population. On the other hand, many policies, often on a municipal level, thwarted informal sector activities. For example, repeated efforts were made to centralize petty traders and food stalls into government-provided facilities in less-desirable locations with high rents. The once common becak (pedicab) was restricted to small side streets in many urban areas to reduce traffic congestion. In Jakarta, the becak was to be phased out entirely by denying new licenses after 1985.

Specific programs designed to assist the informal sector may have been less important than general, unrestricted economic growth. In spite of its symbolic "backwardness," the becak, like many informal activities, offered a vital service to urban dwellers at a low cost. The benefits of increasing manufacturing employment in the 1990s, which should have increased incomes of factory workers who had a high demand for inexpensive informal services, possibly offered the best program to assist this sector. The extensive investment in transportation infrastructure during the 1970s and 1980s, which facilitated urban-rural migration and eased rural travel, already enabled many rural households to supplement their income with informal employment in more prosperous urban areas (see Agriculture , this ch.).

Data as of November 1992

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