INDONESIA: Foreign remittances set to fall with global slowdown

Photo: IRIN

Five million Indonesians working overseas sent approximately US$6 billion home in 2007

JAKARTA, 26 January 2009 (IRIN) - The amount of money sent home by Indonesians working abroad is expected to decline this year due to the global economic slowdown triggered by the financial crisis, government officials and economists said.

About five million Indonesians work overseas, 65 percent in the domestic sector, mainly in Middle East countries, and sent approximately US$6 billion home in 2007, according to the National Agency for the Placement and Protection of Indonesian Workers.

The amount is equal to 1.6 percent of gross domestic product, making remittances Indonesia's second-largest foreign exchange earner after oil and gas, said Mohammad Jumhur Hidayat, chairman of the agency.

The total amount of money sent to Indonesia could be as high as $11 billion annually as transactions worth more than five million rupiah (US$500) are not recorded as remittances by the central bank because they are considered business transactions, and some workers send money with friends or relatives, Hidayat said.

No figures were available for the whole of 2008, but as of April, $2.23 billion had been remitted, the agency said.

According to Oxford Analytica, a global consulting firm, the financial crisis and ensuing economic downturn is significantly slowing the flow of remittances to developing countries for the first time in almost a decade.

It said the impact on recipient countries would be felt this year.

The International Labour Organization (ILO) said last month that millions of migrant workers faced layoffs and worsening conditions as the effect was felt in employing countries.

"Past experience makes us painfully aware that migrant workers, especially women workers and those in irregular status, are among the hardest hit and most vulnerable during crisis situations," ILO director-general Juan Somavia said in a statement on the eve of International Migrants Day, 18 December 2008.

Work permits not renewed

Some employers have decided not to renew work contracts with Indonesian workers, and countries such as South Korea have postponed their intake of foreign workers until later this year, Hidayat said.

Past experience makes us painfully aware that migrant workers, especially women workers and those in irregular status, are among the hardest hit and most vulnerable during crisis situations.

Hidayat said his agency was looking at potential markets such as South Africa, Madagascar and eastern European countries to offset slower demand in the Middle East, East Asia and Malaysia, where many Indonesians work in the plantation and manufacturing sectors.

"Madagascar needs a lot of mining engineers so it is a good market for our workers," he said.

Some economists predicted that Indonesian remittances would only reach around $3 billion this year, half the amount sent home in 2007.

"The biggest revenue sources are Malaysia and the Middle East. Given the fact that Malaysia's economy is under pressure and growth for this year is expected at around 3 percent, obviously job absorption will be affected," said Chatib Basri, an economist from the University of Indonesia.

"The Middle East is also experiencing economic slowdown although not as bad as Malaysia," he said.

Last month, Indonesia's ambassador to Malaysia, Da'i Bachtiar, said about 300,000 of the 1.2 million Indonesian workers in Malaysia may have to return home as companies were forced to cut their workforce due to the crisis. Several electronic goods manufacturers are not renewing contracts.

However Bachtiar said the plantation and service sectors were not yet affected.

Abdul Malik Harahap, director for Indonesian migrant workers placement at the Manpower Ministry, said the impact of the credit crunch on remittances was likely to start being felt around April 2009.

"So far we haven't seen an immediate impact yet but we have to anticipate it, and must improve the skills of our workers so they can be more competitive overseas," he said.

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