Linkages and rural non-farm employment creation: Changing challenges and policies in Indonesia

Increasing problems of rural unemployment in Indonesia are at the core of this report. Numbers of unemployed increased dramatically after the 1997 economic crisis and millions of people searched to be reabsorbed in rural labour markets. Agricultural land is scarce, however, and entry barriers are often high in non-farm businesses. Access to capital and information is limited for the rural poor and uneducated people. During successful periods of economic growth in Indonesia, various linkages in factor and commodity markets were created. Any return to the state-dominated economy and substantial government interventions in markets is unrealistic, but linkages may nevertheless be manipulated for political ends like employment creation. Policy instruments may still be applicable for reducing market failures and to facilitate commercial transactions in an economy characterised by disintegration and sectoral and geographical disconnection. This paper aims to assess experiences from former linkage strategies for rural non-farm employment creation and to point at new policies suitable in various and changing economic, political and cultural contexts of Indonesia. A conclusion is that linkages and rural employment creation strategies should aim towards mobilising the variety of local natural and cultural resources and encourage horizontal communication and economic transactions between regions and peoples.