Financing Indonesia's Ageing Population

Ageing Population in Indonesia

Japan has the highest percentage of older persons in the world. In 2010 its older persons (aged 65 and over) constituted a large percentage (22.7 per cent) of the total population, followed by Germany (about 20.4 per cent), and Italy (about 20.4 per cent). Clearly, in these countries, the ageing population (the process of a rising number and percentage of older persons) has created a tremendous financial burden for the society and government. Though the percentage of older persons is not as high as in these countries, Singapore already feels the pressure of a rapidly rising number and percentage of older persons, who formed 9 per cent of the total resident population in 2010. Older persons contributed 11.1 per cent of the total population in South Korea and 12.7 per cent in Hong Kong.

Many developing countries, including Indonesia, may not have faced the severe challenges of an ageing population such as in those countries cited above. Nevertheless, developing countries are confronted with a different set of challenges caused by their ageing population.

Indonesia has experienced a relatively fast decline in its fertility rate. Though its fertility has not been as low as in other countries, Indonesia has achieved replacement level fertility in 2010.² Its older persons (measured by those aged 60 years old and over) were 7.6 per cent of the population in 2010, much lower than 14.1 per cent in Singapore in the same year, if Singapore's older persons are measured as those aged 60 years old and over.³ The percentage may look small, but it will rise to about 13.2 per cent in 2025, close to the condition in Singapore in 2010. Furthermore, in terms of size, Indonesia has 18 million older persons in 2010, very much larger than 0.5 million older persons in Singapore. In 2010 Indonesia had to feed this large number of older persons with per capita income of US$3,000, very much lower than US$44,790 in Singapore in the same year. Worse, as mentioned in Rahardjo et al., the older persons in Indonesia live in a society where transportation and communication facilities have not been well developed and are generally not older-persons friendly as in Singapore.⁴

Furthermore, the issues of ageing populations have been more severe in sub-national regions. Some provinces and regencies already have relatively high percentages of older persons. For example, in 2010, the percentage of older persons reached 10.4 per cent in the province of East Java and 12.96 per cent in the province of Yogyakarta. The percentages were even higher at the regencies (kabupatens) within these provinces. In East Java, the percentage of older persons in Pacitan regency reached 16.13 per cent; in Magetan, 16.16 per cent. In Yogyakarta, the older persons in the regency of Gunung Kidul formed 18.28 per cent of the total population.⁵

This chapter discusses the challenges, particularly the financial consequences, of the ageing population in Indonesia. It examines possible policies to finance the anticipated rapidly rising number of older persons and describes the existing programmes. It starts by discussing the issue of population explosion, mostly of younger persons, in the 1960s and 1970s, and then compares it with the future explosion of older persons in 2020 and beyond.

Threat of Population Explosion in Indonesia in the 1960s

In the 1960s Indonesia faced the threat of population explosion, characterized by high fertility and mortality rates. As argued by Nitisastro, Indonesia experienced population issues commonly seen in many other developing countries at that time.⁶ There were three main issues in Indonesia. One was the high population growth rate, at an annual rate of 2.1 per cent during 1961-71. The rate even rose to the peak of 2.3 per cent during 1971-80. In the late 1960s Indonesia was still characterized by a high fertility rate as measured by total fertility rate (TFR) at about 5.6 children per woman and low life expectancy at birth of about 45.7 years. Not surprisingly...