The aim of the ASEAN Economic Community (AEC) is to ease trade amongst the 10-member Association of Southeast Asian Nations, but questions remain over whether the countries are equipped for it and how Indonesia might benefit from such integration.

The Urgency of Human Capital Reforms in Indonesia (1)

Analysts have expressed their doubts on the effectiveness of the AEC, suggesting that most ASEAN countries are not well prepared to implement the agreed policies. Huge disparities of human capital and economic strength will generate a prominent problem in the future. As highlighted by the Economist, “Some ASEAN countries, such as Singapore, will be better equipped during the integration process to benefit than the less developed countries, which could challenge the implementation.” Thus, this is likely to lead to instability of chances within the region.

Escalating the quality of basic education in Indonesia is imperative and remains a major challenge for the government. To support the initiative, governments, business leaders, educational institutions and individuals must act on it by putting in place comprehensive programmes and regulations. If the government ignores these issues, Indonesian children are likely to fail in obtaining skills required to lead full and productive lives. In relevance with the AEC, it is vital that Indonesian workers are qualified and capable to compete with other ASEAN workers.

Unfortunately, Indonesia ranks in the bottom ten according to the Organisation for Economic Cooperation and Development (OECD). The unemployment rate is highest for people between the ages of 15 – 24 years. The productive age group are facing very critical challenges that cannot be tackled by the government within a short period. Those who graduated from Indonesian universities, vocational schools and secondary schools encounter difficulties in finding a job annually (within a year of graduating), indicating the importance of innovative programmes by the government and a sustained collaboration with the associated parties to solve the difficulties in creating employment opportunities.

The Urgency of Human Capital Reforms in Indonesia (2)

The data from Statistics Indonesia in 2015 show that the unemployment rate of Indonesia is 6.2 percent (7.2 million unemployed people). The total population of Indonesia is roughly 250 million people, making this country the world’s fourth-populous country after China, India and the USA. With half of the population being below the age of 30 years, Indonesia has a clear demographic advantage but this could bring dangers if managed poorly.

The Indonesian government must strive to improve education quality, by varying teacher training, professional development, increased accountability, and free education. As noted by the OECD, “The Economic Survey points out that the central government’s strong fiscal position – marked by low deficits and low public debt – offers the opportunity to raise greater revenues to fund higher spending targeted at improving education, boosting infrastructure and expanding the social security system.” In order to alleviate poverty, improving the existing social security programmes, including health care, food subsidies, and helping the neglected citizens are major priorities. Therefore, the long-term objective of the present government can be achieved, as exemplified by increasing the quality of living of underprivileged communities for the betterment of greater society in Indonesia.

Text by Anka June (BritCham Head of Communications) and David Hatcher (Chairman of the Eclairage Club London Centre d’Etude et de Prospective Strategique & International Consultant on Political and Economic Affairs)