Family Matters: Demographic Change and Social Spending in Indonesia

Abstract

Economic growth of only 4.9% in Indonesia in the first quarter of 2016 cast doubt on the previous official target of 5.2%–5.6%. Given the lacklustre internal demand and dampening global outlook, whether the government can generate faster growth in the remaining months will depend on the extent to which its programs champion productive spending. The government’s response to stalling growth has focused on increasing infrastructure and social spending. In the face of budgetary constraints to financing such expenditures, initiatives to raise revenue and to improve targeting on social spending are taking place. On the revenue front, two initiatives are worth noting: the issuance of Law 11/2016 on Tax Amnesty and the amendment of Law 16/2009 on General Provisions and Tax Procedures. To improve the targeting of social spending, the National Team for the Acceleration of Poverty Reduction (TNP2 K) launched an updated Unified Database, which contains information on 24 million of Indonesia’s poorest households. Meanwhile, around 167 million Indonesians have registered for the National Health Insurance scheme. Yet any consolidation of social protection and insurance programs in Indonesia necessitates an understanding of long-run trends in population dynamics. In particular, understanding the trends and drivers of family change is pivotal to mapping key issues and challenges in President Joko Widodo’s continued push towards welfare reform. We outline key features of contemporary family change in Indonesia: a modest decline in average household size, an uncertain trend in age at first marriage, fertility rates that hover just above replacement level, an increasing tendency for women to ‘marry down’ in education, more interethnic marriages, and an upturn in divorce since around 2006. We note the implications of family change on future trends in population and the workforce, and their associated longer-term challenges for current social protection initiatives.

Angka pertumbuhan ekonomi Indonesia yang hanya mencapai 4.9% pada kuartal pertama 2016 menimbulkan keraguan atas target pertumbuhan sebelumnya di kisaran 5,2%–5,6%. Dengan lemahnya permintaan dalam negeri dan kondisi global, keberhasilan pemerintah dalam mempercepat pertumbuhan di bulan-bulan mendatang bergantung kepada apakah program-program pemerintah dapat menyalurkan belanja yang produktif. Respon pemerintah terhadap lambatnya pertumbuhan difokuskan kepada peningkatan belanja infrastruktur dan sosial. Terbatasnya anggaran untuk membiayai belanja-belanja tersebut melahirkan berbagai inisiatif untuk menambah penerimaan dan memperbaiki pencapaian belanja sosial. Dari sisi penerimaan, dua inisiatif perlu mendapat perhatian: terbitnya Undang-undang (UU) Nomor 11 Tahun 2016 mengenai Pengampunan Pajak dan rencana amandemen Undang-undang Nomor 16 Tahun 2009 tentang Ketentuan Umum Perpajakan. Untuk memperbaiki pencapaian belanja sosial, Tim Nasional Percepatan Penanggulangan Kemiskinan (TNP2 K) mengeluarkan Sistem Data Terpadu yang berisikan informasi mengenai 24 juta penduduk Indonesia termiskin. Sementara itu, sekitar 167 juta Warga Negara Indonesia (WNI) telah mendaftarkan diri untuk mengikuti skema asuransi Sistem Jaminan Kesehatan Nasional. Namun segala upaya konsolidasi berbagai programjaminan sosial dan program asuransi di Indonesia membutuhkan pemahaman mengenai tren jangka panjang dinamika populasi penduduk. Secara khusus, memahami tren dan pemicu perubahan keluarga sangat penting untuk memetakan isu-isu kunci dan tantangan-tantangan yang dihadapi dalam agenda Presiden Joko Widodo seputar perluasan program jaminan sosial. Para penulis memberikan gambaran terhadap isu-isu utama mengenai perubahan keluarga kontemporer di Indonesia, mencakup penurunan moderat dalam rata-rata jumlah anggota rumah tangga rata-rata, tren yang ambigu pada usia pernikahan pertama, angka fertilitas total yang berkisar sedikit di atas tingkat penggantian (replacement level), naiknya kecenderungan wanita menikahi pria di bawah tingkat pendidikannya, meningkatnya pernikahan antaretnis, dan naiknya tingkat perceraian sejak 2006. Para penulis mencatat beberapa dampak dari perubahan keluarga bagi tren populasi di masa depan dan angkatan kerja, beserta tantangan-tantangan jangka panjang terkait bagi inisiatif-inisiatif perlindungan sosial.

Keywords:

• social protection
• health insurance
• demographic dividend
• fertility
• tax amnesty

JEL classification:

• E60
• H26
• H60
• J11
• J12
• J13
• O11
• O53

MACROECONOMIC DEVELOPMENTS

Economic Growth

In the first quarter of 2016, Indonesia’s economy slowed slightly, to 4.9% (year on year), from 5.0% in the preceding quarter, prompting revisions of official growth forecasts. Bank Indonesia (BI), the central bank, adjusted its projected range of annual economic growth to 5.0%–5.4%, from 5.2%–5.6%, and the government, in its revised budget for 2016, lowered its growth assumption to 5.2%, from 5.3% in its original budget. These revised forecasts also reflect the global economic outlook, which has been dampened by the sluggish performance of commodities (often the main source of growth in emerging and developing countries). In April, the IMF (2016) lowered its global growth expectations by 0.2 of a percentage point, to 3.2%. The World Bank was more pessimistic, dropping its estimate by 0.5 of a percentage point, to 2.4% (press release, 7 June 2016).

Investment in Indonesia grew by 5.6% in the first quarter, year on year, despite only moderate growth in private consumption (table 1). Private consumption is expected to increase in the second quarter, given the rise in the consumer confidence index, from 109 to 112, between April and May (BI 2016a). That consumption-led growth, as a share of private consumption, is around 35% of GDP points to the need to raise consumption among lowand middle-income households. A more medium-term objective would be to get investment to contribute more to growth.

Table 1. Components of GDP Growth, 2014-16 (% year on year)

Sources: CEIC Indonesia Premium Database.

Note: Calculated on the basis of GDP at 2010 constant prices. NPIs = Non-profit institutions.

In April the government issued its 12th economic reform package, as part of its attempt to make Indonesia more attractive to foreign investors. The package brought to 16 the number of regulations issued to streamline investment procedures, reduce the number of required licences, and generally speed up the administrative process. It also set the seemingly unattainable target of improving the country’s Ease of Doing Business ranking from 109th in 2016 to 40th in 2017 (Kompas, 7 May 2016).¹ Given that this ranking is based on the results of a firm survey, it will not be until these new regulations are enforced (and experienced by firms) that they may translate to an improved position. In any event, the adoption of these new regulations is only one step towards increasing stakeholders’ awareness and tackling problems related to institutions and policy implementation; it is a tall order to expect much, if any, improvement in only one year. The government’s earlier reform packages may have similar difficulties, hamstrung by the issuance of new regulations insufficient to counter enforcement problems and institutional limitations.

At the sectoral level, non-tradables experienced relatively high growth in the first quarter, with business services, information and communication services, and finance and insurance growing by 8%–9%, year on year (table 1). However, high growth in non-dominant sectors such as these cannot prop up the overall growth rate. The more dominant but underperforming tradables sector, which grew by only 2.7%, was dragged down by a contraction of −0.7% in mining and quarrying. This negative growth may not have much of an impact on private consumption, however, given that mining and quarrying provides less employment than other sectors. The largest share of GDP came from manufacturing, which increased by 4.6%, year on year, while the labour-intensive agricultural sector remained sluggish.

Inflation and Monetary Policy

Despite slowing economic growth, inflation has remained relatively unchanged, at around 4% (figure 1), and in line with BI’s inflation target, which is also 4% (plus or minus one percentage point). Limited inflation in the energy sector contributed to the low inflation of administered prices, implying that fluctuations in inflation are due largely to volatile food prices.

FIGURE 1 Inflation 2015–16 (% year on year)

Source: CEIC Indonesia Premium Database.

Given this low and stable inflation, a reduction in BI’s policy rate in June, after it had remained unchanged for three months, may go some way towards stimulating the economy (WSJ.com, 16 June 2016).² BI reduced its policy rate by 25 basis points, to 6.50%, accumulating to a decrease of 75 basis points since January. (Meanwhile, the US Federal Reserve continued to keep its interest rates unchanged.) BI also reduced its seven-day (reverse) repurchase (repo) rate, from 5.50% to 5.25%.³ This monetary easing may or may not be effective. The reduction of the BI policy rate from 7.25% at the start of the year to 6.50% in June has slowly translated to a lower credit rate. Credit growth has not picked up, however (figure 2), most likely owing to a combination of low demand; a more cautious approach to lending, given an increase in the number of non-performing loans; and an increase in bank activity in non-interest income (Jakarta Post, 30 May 2016).⁴

FIGURE 2 Credit Growth and GDP Growth, 2010–16 (% year on year)

Source: CEIC Indonesia Premium Database.

In June, news of Brexit (the United Kingdom’s vote to leave the European Union) created uncertainty and put further pressure on global growth, potentially weakening the financial stability of emerging and developing countries. Financial stability is important for Indonesia, given that its economy is particularly sensitive to global conditions and has experienced two crises in recent decades (box 1). The short-term effect of Brexit on Indonesia was small, however, at least in currency terms: the rupiah depreciated by less than 1.2% against the US dollar (WSJ. com, 27 June 2016). In any event, the rupiah soon rallied when the Indonesian parliament approved Law 11/2016 on Tax Amnesty (see ‘Revenue Management’).

Budget Policy

In response to slower growth, the revised budget reduced government spending by 0.6%, from Rp 2,095.7 trillion to Rp 2,082.9 trillion (table 2). Spending on subsidies was slightly reduced, to Rp 177.8 trillion, and the allocation to technical ministries, in the draft revised budget, was reduced by only Rp 16.3 trillion, or 2%, from the previous allocation in the budget. The cut will apply only to operational and non-priority spending, with the government prioritising defence spending and regional transfers (CNNIndonesia.com, 29 June 2016). The latter were increased from Rp 602.3 trillion in the 2015 budget realisation to Rp 729.3 trillion in the revised 2016 budget, perhaps due to higher estimated revenue-sharing from natural resources and related tax-sharing.

Table 2. Budgets for 2015 and 2016 (Rp trillion)

Sources: CEIC Indonesia Premium Database and data from BPK (2016) and the Ministry of Finance (2016).

Note: Discrepancies are due to rounding. Amounts to May 2016 are unaudited. SOEs = state-owned enterprises. DAK = Special Allocation Funds. SPN = Treasury bills.

Low realised spending as of May 2016 reflects problems of disbursement. By the end of May, realised expenditures were at 33% of the revised budget (table 2). The disbursement of capital and material spending was low, compared with the original budget, as was spending on electricity subsidies (which are tied to infrastructure programs), causing a slowdown in government spending in GDP. In the meantime, the shortfall in tax revenues is apparent; as of May the revenues had fulfilled only 26% of the budgeted amount. The poor performance of tax revenues seems to be caused not only by economic conditions but also by policy and implementation problems. The average growth of Indonesia’s two dominant taxes, for example, is lower now than it was before the Asian financial crisis (figure 3). The income tax and VAT ratios to GDP, which are in the range of less than 5%, are too low in comparison with their respective statutory rates (25% for corporate income taxes and 10% for VAT). The poor performance of income and VAT revenues may be due to high levels of informality (Andrews, Caldera Sánchez, and Johanson 2011), in addition to underlying problems related to tax policy and its administration (Brondolo et al. 2008).

FIGURE 3 Value-Added Tax and Income Tax Ratios and Growth, 1985–2015

Source: CEIC Indonesia Premium Database.
Note: Income tax refers to non-oil-and-gas income tax. The growth average excludes 1998–2001 because there was a crisis and a change of budget period during that time.

BOX 1 Law 9/2016 on the Prevention and Handling of Financial System Crises

Indonesia’s financial stability relies in part on BI and Indonesia’s Financial Services Authority (OJK) managing macroprudential and microprudential assessments, respectively. These processes were bolstered in April, when parliament approved Law 9/2016 on the Prevention and Handling of Financial System Crises, which institutionalises coordination on financial system stability and provides protocols for policymaking and in defining a source of funds for restructuring or closing failed banks.

The law has less to do with issuing new policies than with filling a void left by Government Regulation in Lieu of Law 8/2008, which expired in 2009. (The 2008 regulation, like all of its kind, had a legal basis of only one year.) The 2016 law regulates how institutions manage the risk of financial and economic crises. To some extent, the issuance of Law 21/2011 on the Financial Services Authority, which oversees Indonesia’s financial institutions, emphasises the role of state committees in managing bank failures. However, efforts to mitigate the 2008 crisis placed a great political burden on policymakers, and emphasised the need to set clear policy protocols with a strong legal basis.

Under the new law, a committee coordinated by the Ministry of Finance, with members of BI, OJK, and the Deposit Insurance Corporation (LPS), will provide insurance on bank deposits. This committee, whose decisions should be unanimous, can set up indicators to assess the risk of financial and economic crisis. Furthermore, article 21 of the law clarifies the function of OJK and LPS in regard to bank restructuring: OJK will issue a restructuring plan in order to improve bank solvency and mitigate the risk of financial crisis. It will have the authority to instruct LPS to continue to monitor bank solvency and, if necessary, to bail out banks. OJK will also coordinate with the Ministry of Finance and BI in implementing the plan.

There is a shortfall in the revised budget estimate of tax and non-tax revenues, and thus deficit financing has increased to Rp 296.7 trillion (the budget stated Rp 273.2 trillion). In this case, deficits are estimated to reach 2.4% of GDP, and are approaching the fiscal deficit limit of 3.0% of GDP. However, the government may be overly concerned about the 3.0% limit, which refers to the consolidated government deficit. Given that subnational governments have tended to run surpluses in recent years, the central government could, in fact, run a deficit somewhat greater than 3.0%. In 2015, the total surplus of subnational governments reached Rp 24.6 trillion (BPK 2016).

Revenue Management

In an attempt to offset a shortfall in tax revenues, the government has undertaken two initiatives of note: the tax amnesty program and the amendment of Law 16/2009 on General Provisions and Tax Procedures.

The tax amnesty program (Law 11/2016) was finally approved by parliament in June, having been submitted in 2014. Its immediate objective is to cover the predicted shortfall in tax revenues by repatriating funds held overseas by Indonesians. It aims to do so by waiving the interest and accumulated penalties on overdue tax liabilities, as well as by eliminating the overdue tax liabilities themselves. For participants, the redemption rate will be applied to the amount of declared assets, which will not be subject to audits and will be protected from legal investigation until the end of the 2015 tax year. These large financial and non-financial incentives are expected to attract broad participation, given an assumed high level of tax evasion by affluent individuals and large corporations (Kar and Spanjers 2015). In contrast to administrative audits and legal enforcement of the tax gap, the tax amnesty program relies on voluntary disclosure and may have relatively few administrative costs. The law itself, which came into effect in July, sets March 2017 as the deadline for participating in the program. Starting in 2017, there will be an agreement in place between countries on the exchange of information for tax purposes (OECD 2016). The fine (that is, the redemption rate) for disclosing previously unreported assets increases as the program nears its end (table 3).

Table 3. Indonesia's Tax Amnesty Program

Sources: http://www.pajak.go.id/amnestipajak.

Note: The redemption rate will be applied to the value of declared assets (at the December 2015 market rate), net of those stated in the taxpayer's previous tax return. Assets under criminal investigation are not eligible for inclusion.

^aAssets must be invested in Indonesia for at least three years.

^bFrom July 2016.

The government has estimated that the program will raise Rp 165 trillion (Jakarta Post, 24 May 2016), but BI has predicted that the amount will be closer to Rp 54 trillion.⁵ Even though the scheme is generous for individuals and businesses, the government’s estimated tax amnesty revenues, of 10.7% of overall domestic revenues, are large in comparison with those of other countries. Revenues from tax amnesties commonly compose up to 3% of tax revenues (when complemented by enforcement at the end of the amnesty) (Kar and Spanjers 2015; Hasseldine and Li 1999). Whether a shortfall in tax amnesty revenues will reduce the credibility of the budget will depend on how the government responds on the spending side. After all, the point of the tax amnesty is to mitigate the imminent risk of a shortfall in tax revenues, and the government is legally bound to maintain a fiscal deficit limit of less than 3% of GDP. However, owing both to economic conditions and to a lack of reform in tax administration, it may be too much to expect tax revenues to increase substantially in the short term (Bird 2015).

The government has also submitted a draft law on tax administration (a revision to Law 16/2009), with the aim of granting more authority to a new institution in charge of tax administration. The draft includes a proposal to set maximum penalties, in terms of jail time and fines, and to eliminate the minimum penalty of jail under the existing law. There is also a reduced administrative sanction, from 400% to 300%, on unreported tax that is applied in exchange for not having a case of tax fraud taken to court.

There is a need for a clear sequence of implementation for these policies. It is uncertain whether the tax amnesty program can fit into a proposal of more lenient penalties or whether changing the institution in charge of tax administration will improve the governance and accountability of tax officials.

Expenditure Management

In the revised budget, energy subsidies have declined overall. Non-energy subsidies have increased, however, from Rp 80.5 trillion in the original budget to Rp 83.4 trillion in the revised budget (table 2). Of these non-energy subsidies, 67% has been allocated to fertiliser and agricultural product stabilisation, an approach that Banerjee et al. (2015) consider ineffective. The tax holiday, which refers to incentives in the form of tax exemptions or lower rates in certain sectors or for certain firms, is also quite significant, at Rp 10.2 trillion. It is still uncertain whether this policy will erode the tax base, especially for corporate income and VAT revenues. Effectively managing subsidies, especially non-energy subsidies, will help to create the necessary fiscal space for future budgets.

In addition to promoting infrastructure spending, the government is looking to maintain social assistance in 2016 at relatively the same level as it was in 2013 (figure 4). This includes social insurance programs that started in 2014 and 2015. The consolidation of family-based targeted social programs continues, with the National Team for the Acceleration of Poverty Reduction (TNP2 K) having launched an updated Unified Database in 2015. The database now covers the bottom 40% of the Indonesian population by socio-economic status, listing about 24 million households and, within these, 96 million individuals. In 2012, conditional cash transfers, introduced in 2007, shifted from being household-based to familybased, to account for multiple families living in one household.

FIGURE 4 Public Spending on Infrastructure and Social Assistance, 2005–15

Source: Authors’ calculations based on data from the Ministry of Finance (various years).

Depending on their assessed socio-economic status, eligible families may now access a number of social assistance initiatives, including conditional cash transfers and the Productive Family Program (see Yusuf and Sumner 2015, 344–45). Under this program, the administration of President Joko Widodo (Jokowi) has launched a series of welfare cards: the Smart Indonesia Card, the Healthy Indonesia Card, the Family Welfare Card, and the Family Welfare Deposit Card. These cards are produced with the intention to improve the delivery of non-cash welfare payments to their targeted beneficiaries.

On top of strengthening its targeted social assistance programs, the administration continues its push to expand universal health care. By June 2016, around 167 million Indonesians had registered for the National Health Insurance scheme (JKN) (CNNIndonesia.com, 15 June 2016). Under the scheme, the poor’s premiums are paid by the government. This non-contributory membership covered around 95 million individuals, or 70% of all JKN memberships.^{Table 4}

Table 4. JKN Contributions and Claim Ratios by Type of Membership

Sources: Data from the ADB (2015).

Note: JKN = Jaminan Kesehatan Nasional (National Health Insurance scheme).

The policy of universal coverage is ambitious and expensive, and comes with the risk that much of the expenditure will disproportionately benefit the nonpoor. There have also been problems with enforcing regular payments of contributory members who are self-enrolled or work in the informal sector. Calculations by the ADB (2015, figure 1) highlight concerns around the financial sustainability and equity issues in JKN as it stands in its current model of implementation. The utilisation rate of the JKN is lowest among the poor, and the average claim-topremium ratio is highest, by far, among self-enrolled members.

Jokowi’s expansion of social spending suggests that Indonesia is eager to join the ranks of its middle-income neighbours—Thailand, the Philippines, China, and India—in securing further building blocks for a welfare system (Aspinall 2014; Ng, Muntaner, and Chung 2016).⁶ As outlined above, however, the government’s effectiveness in delivering social assistance and, in particular, the JKN, depends greatly on its ability to ensure that these schemes are reaching their intended beneficiaries. For this to work, the government needs an integrated data and information system, which is already in place but needs to be re-enforced under this administration. Furthermore, these various initiatives put forward by the central government need to be put in the perspective of this decentralised system in delivering targeted outputs. The social programs already financed and managed at the central level may to some extent be restructured to give subnational governments a greater role. The financing of these programs can exercise the potential of co-funding from these lower levels of government.

It is obvious that Indonesia’s multiple family-based social protection programs and budding universal health insurance scheme, as intended by Jokowi, must overcome significant financing problems if they are to succeed. Less obvious— but, as we argue here, just as pertinent—is that any expansion of social spending must take into account the underlying dynamics of Indonesian population size and composition if it is to be effective. We now shift our attention to the changing family, where many of the demographic decisions are taking place.

THE CHANGING FAMILY IN INDONESIA

Across societies, the family is an elemental social and economic unit. Examining patterns of change in family structures, functions, and norms offers a unique and important window through which to understand the complexities of wider societal transitions. Specifically, in Indonesia, the changing family reflects a broader process of demographic transformation. In a similar manner, the change in the size and composition of the population is both a consequence and a cause of economic change.

Our examination of family change in Indonesia is timely, given Jokowi’s continued stride towards welfare reform. As with structural change, the literature has documented the family’s historical shift away from being the core unit of production. Yet, despite such shifts, the family and its extended kinship networks have continued to be the primary sources of many forms of social protection for most Indonesians. Careful consideration of contemporary patterns in family change must be taken into account in current initiatives to expand social spending.

In this Survey, we first explore how recent trends in family structure, formation, and dissolution in Indonesia share commonalities and differences with the wider trends of family transitions in the region. We particularly note how ongoing tensions around religious moralities and family values in the post-reformasi period may partially explain some indicators of family change: a modest decline in average household size; an uncertain trend in age at first marriage; fertility rates that hover just above replacement level; an increasing overall tendency for women to ‘marry down’ in education (although men and women among the tertiaryeducated elite are more likely to marry one another); more interethnic marriages; and an upturn in divorce since 2005. The first three of these trends are quite distinct from what is happening in East Asia and parts of Southeast Asia, including Thailand and Singapore. To follow, we discuss how the changing family may shape the trajectory of Indonesia’s population and development, highlighting the challenges it may bring to the current policies on expanding the coverage of social protection and insurance programs.

Drivers

At the core of family change is fertility decline and the demographic transition theory. The theory models the levelling off in population growth that occurs as pre-industrial societies with high levels of mortality and fertility shift to become developed societies with higher life expectancies and replacement-level fertility rates. But the experience of many industrialised societies has shown that instead of settling at a steady level, fertility continues to decline below the replacement rate of 2.1 births per woman—the rate at which a population exactly replaces itself from one generation to the next.⁷

Since the late 1980s, theorists have proposed a second demographic transition theory to explain sub-replacement fertility levels in the West (Lesthaeghe 1995; Van de Kaa 2003). Among the key characteristics of societies undergoing a second demographic transition are declining household size, delayed marriage and parenthood, an increasing rate of cohabitation, a rise in divorce and single parenthood, shifts in individual values orientation towards higher-order needs, and increasing symmetry in gender roles and female autonomy. Lesthaeghe (2010) argues that, with the exception of parenthood out of cohabitation, these characteristics have spread to East Asia. What makes it puzzling, however, in South Korea, Taiwan, and Japan, is that fertility decline occurred much more rapidly than it did in the West.

The East Asian experience shows that the path towards very low fertility rates occurred despite ‘limited change in family expectations and obligations’ (Raymo et al. 2015, 485). In 2010, fertility rates fell to a level described as the ‘lowest low’ in South Korea (1.2), Taiwan (0.9), Japan (1.4), and China (1.6). Among Indonesia’s more immediate neighbours, Singapore, Thailand, and Vietnam have shifted to below-replacement fertility levels (McDonald 2014).

As in the West, marriage—and the family—has changed because women’s opportunities have changed. The consensus explanation for East Asia’s rapid fertility decline is that vast improvements in gender equity in the public sphere were met with (a) either stagnation or very slow changes in gender inequality within the family, and (b) social and economic institutions that had not evolved to accommodate the changes in women’s roles outside the home (McDonald 2000, 2006; Raymo et al. 2015). In combination with higher life expectancy, sub-replacement fertility rates bring forth policy challenges to address an ageing population in the region. Will we see similar narratives being driven by the trends in family change in Indonesia’s near future?

Since the late 1960s, fertility decline and the associated trend towards smaller family norms have been largely fuelled by the nation’s family planning program. But concurrent with the program’s ideals and norms has been an expansion in the education and labour-market opportunities of Indonesian women. For example, data from the 2010 Population Census suggest that the male-tofemale ratio among the tertiary-educated population aged 50–54 was 176:100. Among those aged 25–29, the situation was reversed, to 76:100. Between 1990 and 2013, the female labour-force participation rate remained stagnant, at around 51% (Cameron, Contreras Suarez, and Rowell 2015). Yet there are indications of an increase in the labour-force participation of younger women in urban areas, largely through wage employment (Schaner and Das 2016).

In a comparative context, Indonesian (and, more generally, Southeast Asian) women have had a relatively higher status in society than women in other parts of Asia and the Middle East (Booth 2016). But the post-reformasi context has cast a shadow of uncertainty on gender relations and, hence, on patterns of family change. Overshadowing global influences and trends, the transition from authoritarian government to democracy and decentralisation in Indonesia opened the doors to a broad spectrum of actors—from groups advocating gender equity, to conservative forces advocating strongly patriarchal values and practices (Brenner 2006; Robinson 2009; Wieringa 2015).

The increasing proportion of dual-earner families is matched by the growing number of social media debates between conservative clerics and their followers asserting that a woman’s place is in the home, and working women maintaining that they can be as good a mother as any.⁸ We have seen actions like the public display of support for polygamy, the expansion of the Obedient Wives Club into Indonesia, and the organised opposition to the gender equity bill (Utomo 2015). While small in terms of their representativeness of the country’s Muslim population, these actions, and the pressure they create, are in effect shaping the conflicted discourse on gender relations. Ultimately, the interactions between these conflicting societal forces and evolving cultural preferences, on the one hand, and the growing employment and education of women, on the other, are setting an uncertain scene for trends in family transitions.

A number of caveats need to be taken into account when interpreting data on family change in Indonesia. First, unlike the nature of economic indicators conventionally presented in this journal’s Survey of Recent Developments series, the long-run and gradual nature of data on demographic change must be noted. Second, without effective vital registration data in place, outlining long-term changes in the family can be done only through interpreting the shadow of available data from population surveys and censuses. Despite steady improvements in the quality of population data since the first full enumeration of the population was attempted in the 2000 census, there are continued concerns over measurement errors, serious undercounts, and, ultimately, the accuracy of data and the conflict between estimates of indicators such as fertility levels and age at marriage (McDonald 2014; Hull 2016). Third, while ‘real change’ in the family is taking place owing to economic and socio-political change, we are unable to canvass certain facets of family processes—for example, cohabitation, polygamy, and the prevalence of contraceptive use among unmarried women. Last, the scope of our Survey falls short of detailing the important issue of diversity in family trends over population groups and the vast subregions in the country. With these limitations in mind, we now outline a number of distinctive features of contemporary family change in Indonesia.

Trends

A Modest Decline in the Average Size of Households

The first step in understanding how Indonesian families are changing is to interpret household data from population censuses and surveys. The latest estimates from Statistics Indonesia (BPS), the central statistics agency, are that there were close to 64 million households in Indonesia in 2013,⁹ while the average household size has declined gradually over the last 40 years (table 5). In 2012, the average household in Indonesia had 3.9 members (BPS 2014),¹⁰ higher than that in neighbouring Singapore (3.5), Thailand (3.2), and Australia (2.7) but lower than in Malaysia (4.3) and the Philippines (4.6) (Euromonitor 2014).

Table 5. Average Household Size, Indonesia, 1971–2013

Sources: Data for 1971–95 from Jones (2002). Data for 2000–2013 from the weighted average in the 2000, 2010, and 2013 Susenas.

Statistics on household size and composition are mere shadows of the actual patterns in the size and structure of the ‘family’ as we understand it in a more traditional sense. There is no standard classification of household-structure living arrangements in Indonesia. Table 6 outlines the distribution of individuals and households by household types in Indonesia. The majority—over 60% of households—are two-generation families. A factor in the relatively larger household size in Indonesia, and in Singapore and Malaysia, is the presence of ‘others’ or non-family members, including domestic workers.

Table 6. Distribution of Households and Individuals, by Household Type, 2013 (%)

Sources: Data from the 2013 Susenas

About 7.1% of households are non-family households. These include oneperson households and those made up of unrelated members, as is common in shared accommodation. Further tabulations of data from the lower-level subcategories in table 6 identified more than 1.1 million skipped-generation families (about 2% of all households).¹¹ Leaving children in the care of grandparents has become increasingly common, owing to both internal and transnational migration of parents from rural areas (Hoang et al. 2015).

The reduction in Indonesia’s average household size is relatively modest, given that during the same period the total fertility rate (TFR) declined sharply, from about 5.6 children per woman in 1969 to 2.4 in the first decade of the 2000s (figure 5).¹² Jones (2002) emphasised the role of offsetting factors in this decline. On the one hand, apart from declining fertility, the rise in one-person households— such as tertiary students living away from home, or single employees living in private studios—are among the factors that reduce the average household size. On the other hand, increased longevity increases the average household size—longer life expectancies lead more elderly parents to live with their children’s family—as does a long-run trend in protracted transitions to adulthood, the demographic markers of which are the ages when leaving home, getting married, and having a first child (Furstenberg 2013; Yeung and Alipio 2013). Studies suggest that patterns of home-leaving vary by socio-economic status among young adults, with young rural migrants tending to leave home earlier than their contemporaries (McDonald et al. 2013; Witoelar 2006). But the general pattern is that increased schooling and delayed age at first marriage imply that more children are living at their parental home for longer (Xenos et al. 2006).

FIGURE 5 Singulate Mean Age at Marriage, 1995–2013

Source: Data from Hull (2016, figure 9.4).

Uncertain Trend in Age at First Marriage

Age at first marriage is one of the proximate determinants of fertility levels. In general, increasing age at first marriage among women is associated with lower levels of fertility. While earlier expectations were that women’s increasing access to education and paid employment would sustain a trend of delayed marriage, recent data have indicated otherwise. From around 2005 until 2013, there was a reversal of this trend (figure 5). The singulate mean age at marriage for women in the early 1990s was around 22.0.¹³ It climbed to 23.2 in 2006, but fell to 22.4 in 2011–13 (Hull 2016). However, the latest data from the 2015 Intercensal Population Survey point to a returning long-run trend of delayed marriage, with an estimated singulate mean age at marriage of 23.1 for women and 27.5 for men (BPS representative, pers. comm.).¹⁴ The temporary but unexpected fall in age at first marriage has been seen as a reflection of the debates and tensions around family values and moralities between ethno-religious conservatives and progressive forces in the post-reformasi era (Hull 2016). A case in point is the push to amend Law 1/1974 on Marriage, which regulates the minimum age for marriage (and indirectly regulates whom one should marry). Article 1 of the law lists 16 and 19 as the minimum marriageable ages for girls and boys, respectively. Civil-society groups petitioned the Constitutional Court to raise the marriageable age for girls from 16 to 18, but the court rejected their proposal in June 2015. That same year, the court also turned down a petition for judicial review fielded by students from the University of Indonesia. This time the request was for a judicial review of article 2 of the law, which in effect prohibits interreligious marriage. These legal initiatives to amend the way marriage pairing is regulated by the state reflect broader shifts in societal norms on and attitudes towards the family in Indonesia.

A Slow Decline in Fertility

Despite the apparent reversal in the trends in age at marriage during 2000–2013, we did not see a matching surge in fertility ideals. Among urban women, the mean ideal number of children continued to fall, from 3.2 in 1987 to 2.8 in 2007 and to 2.6 in 2012.¹⁵ The contraceptive uptake continues to rise, although there has been a notable change in the mix of contraceptive methods used (Hull 2016).

The outlook for TFRs is somewhat uncertain. Multi-method estimates from a number of datasets suggest that total fertility continues to hover around 2.4 (McDonald and Rangkuti 2015) (figure 6). But Hull (2016) notes that there was a slight upturn in fertility, from 2.2 in 2002 to 2.5 in 2012. The latest estimates of the TFR from the 2015 Intercensal Population Survey stand at 2.3 children per woman. Despite the marked appearance of small urban middle-class groups advocating child-free lifestyles, the two-child family norm remains a dominant feature of the Indonesian family (Kompas, 12 Apr. 2015).

FIGURE 6 Multi-method Estimates of Indonesia’s Total Fertility Rate, 1969–2015

Sources: Data for 1969–2011 from McDonald and Rangkuti (2015); data for 2015 from BPS (pers. comm. 2016).

Indonesia’s plateauing levels of fertility are in sharp contrast to the experiences of Singapore, Thailand, and Vietnam, which have moved to sub-replacement levels. Malaysia’s TFR reached replacement level in 2012, and is forecast to reach 1.9 by 2020. According to BPS projections, the TFR in Indonesia will reach belowreplacement levels in 2025–30. In 2030–35, the projected TFR is just under 2.0 births per woman. McDonald (2013) thinks it unlikely that Indonesia’s fertility levels will reach the very low levels—of below 1.5 births per woman—of its neighbours).

Although some have pointed to the detrimental effects of decentralisation on the provision of contraceptives as one potential explanation of stalling fertility decline in Indonesia,¹⁶ others have seen decentralisation in a positive light (McDonald 2014; Arifin and Ananta 2016). Further drops in fertility might not have favourable implications for the country’s overall age structure, and would exacerbate Indonesia’s already accelerating pattern of population ageing.

Fewer Women Marry Up, More Marry Out

While there is uncertainty over future trends in the timing of entry into marriage, a much clearer direction of change in other facets of family formation is evident. We have seen a great reduction in the role of third parties, such as parents and extended kinship networks, in deciding whom one should marry. Arranged marriages are becoming increasingly less common, and self-choice marriage has become the norm (Smith-Hefner 2005). However, despite the movement away from arranged marriages, parents and extended families continue to play a role in spouse selection. There is no doubt, however, that individuals have gained greater autonomy over the process.

This autonomy, along with growing urbanisation, increasing rates of migration across the archipelago, and a greater amount of formal education, has contributed to the changing landscape of marriage pairing. In the past, women tended to marry someone older who had higher educational qualifications and better earning prospects than themselves. But recent data from Susenas (the National Socio-economic Survey) show a decline in the spousal age gap from 6.4 to 4.7 years between 1982 and 2010 (Utomo 2012). The proportion of women ‘marrying down’ in education (hypogamy) is rising (figure 7), but, for the most part, individuals tend to be married to someone with equal educational attainment (homogamy). A deeper look into the data suggests that the intensity of this socalled educational assortative mating declined over the three decades. However, there is a greater degree of homogamy among tertiary-educated men and women. In the post-reformasi context, changes in the relative age and education patterns of husbands and wives are bound to change gender relations and power dynamics within the family. How such patterns will shape the future of social mobility and stratification remains an empirical question.

FIGURE 7 Relative Education of Couples, 1982–2010 (%)

Sources: Data from Susenas 1982, 1992, 2000, and 2010. Based on a standardised classification of five educational groups (individual’s highest completed level of education: less than primary, primary, junior high, senior high, and tertiary) across the four surveys.
Note: These results differ slightly from those of Utomo (2014), who noted a smaller decline in homogamy and a slightly larger decline in hypergamy between 1982 and 2010 when more detailed tertiary education subcategories were used.

The post-reformasi period provides an interesting backdrop for an examination of intergroup marriage, or ‘marrying out’. Intergroup marriage, or the absence thereof, serves as an important proxy for societal openness and the strength of group boundaries across different parts of the archipelago. With modernisation, one might expect an increase in the rates of intergroup marriage. This is a plausible hypothesis to apply to intergroup marriage in post–New Order Indonesia, where there has been an air of optimism about achieving a more open and tolerant society. Yet the reform era has been marked by a resurgence of politicised ethnic identities and ethno-religious conflicts boosted by political decentralisation, a process that in theory may have consolidated ethno-religious endogamy (Utomo and McDonald 2016).

Using data on more than 47 million couples from the 2010 Population Census, recent studies have shown that there are contradictory trends in interethnic and interreligious marriage. On the one hand, the likelihood of being in an interethnic marriage was higher among individuals in younger age groups (Utomo and McDonald 2016). However, when the same dataset was used to look at interreligious marriage, it was found that individuals in their 50s were more likely to be in an interreligious marriage than those in their 30s (Aini, Utomo, and McDonald 2016). Thus it is speculated that it may be more difficult to initiate interreligious marriage in recent times. The enforcement of the 1974 marriage law seems to have provided an effective barrier to interreligious marriage in younger cohorts.

An Upturn in Divorce Rates

After independence, divorce patterns in Indonesia had been regarded as an anomaly. While modernisation is generally associated with a rise in divorce rates, there was a dramatic decline in divorce in the latter half of the 20th century. High divorce rates in the past were explained by norms: most marriages were arranged, women were married off at a relatively young age, and divorce was relatively easy to obtain. Thus the decline in divorce rates was associated with a series of correlates: increasing education, rising age at first marriage, and greater autonomy of partner selection (Heaton, Cammack, and Young 2001; Jones 1997)

From around 2006, reports of increasing rates of divorce began to appear in the Indonesian national newspapers. Islamic court data suggest that there has been a strong upward trend in divorce rates since 2006 (figure 8). Between 2001 and 2014, the total number of Muslim divorce cases rose by a factor of 2.6, and the proportion of divorces initiated by women also increased. In 2001, 58% of divorces in Islamic courts were initiated by women (Cammack and Heaton 2011, 795). It was reported that there were 382,231 divorce cases in 2014, of which 70% were initiated by the wives (Kompas, 30 June 2015).

FIGURE 8 Muslim Divorces in Islamic Courts, 2001–14 (’000)

Sources: Data for 2001–9 from Cammack and Heaton (2011, table 3); data for 2010–14 from figures cited in national newspapers.

Estimating long-run trends in divorce is challenging. In a given age cohort of women, the timing of marital dissolution varies greatly. Revisiting their landmark paper on divorce trends in Indonesia, Cammack and Heaton (2011) were the first to provide a rigorous analysis of the upturn in divorce. Using the Indonesian Demographic Health Survey series, they found that the 1980–84 birth cohorts had the lowest likelihood of divorce—65 times lower than for those born in the 1950s. The risk rose again for those born after 1985.

Using an alternative dataset from the Indonesia Family Life Survey (IFLS), Cammack and Heaton also found a distinct temporal pattern in marital dissolution occurring before and after 1995. They suggest that most divorces before 1995 were attributed to individuals in the relatively early years of marriage. After 1995, longer marriages did not reduce the risk of divorce as much as they had in the past. Cammack and Heaton proposed that just as greater autonomy in spouse selection had resulted in less divorce in the period following Indonesia’s independence, a similar sense of freedom after reformasi has enabled individuals to ‘escape from the constraints of marriage’ (795).

Implications

Fertility Decline and Future Development

Despite uncertainties due to data problems and contested moralities in the post-reformasi period, the underlying current suggests that family structures and formations in Indonesia are gradually moving towards Western patterns: later marriages, smaller families, more egalitarian marriage pairings, and higher divorce rates. While the family is changing in many ways, it is fertility decline that will have the greatest echo in broader demographic transformations and economic change.

The annual change in population size is determined by a component of natural increase (excess births over deaths) and net migration. In the case of Indonesia, fertility decline and the associated norm of smaller family sizes are principal drivers of future population growth. Despite declining fertility rates, Indonesia will continue to experience positive population growth in the coming decades. This is the so-called population momentum, whereby despite the fact that each woman is now having fewer children than in the past, there is still a sizeable number of women giving birth. In 2000–2010, Indonesia’s population growth rate was estimated to be 1.4% per year. Under the assumption that the replacement-level fertility rate will be reached in 2025, the rate of population growth is projected to continuously fall, reaching 0.6% in 2030–35, with a corresponding total population of 305.7 million (BPS 2013) .

But perhaps more interesting than population size and growth is how the changing age structure of the population will shape the course of future development in Indonesia. Again, fertility decline is an important consideration. With a relatively youthful age structure at present, Indonesia is approaching the so-called demographic window of opportunity, when the ratio of the young and the elderly to the working-age population (dependency ratio) is at its lowest. Adioetomo (2005) forecasts that the window, also known as the demographic bonus or demographic dividend, will occur between 2020 and 2030. After this period, the dependency ratio is projected to rise and Indonesia will enter a phase of population ageing.

The 2010 census noted that persons aged 60 and over made up almost 8% of the population. Arifin and Ananta (2016) note that this figure is expected to rise to 14% in 2030, and show that at the subnational level there are already pockets with accelerated ageing patterns. In the district of Gunung Kidul, in Central Java, for example, the proportion of the population aged 60 and over has reached more than 18%—a phenomenon attributed to both low fertility and high rates of emigration. On a more positive note, however, Jones (2013) and McDonald (2014) propose that ageing will occur more slowly in Indonesia than in Thailand, where fertility declined much more sharply between 1970 and 2010.

Policy Challenges

Driven by fertility decline and higher life expectancy, population ageing is the new demographic reality for much of Asia. The economic challenge associated with population ageing is how to mitigate the potential effects of a falling employment-to-population ratio and decreasing labour productivity. On the path towards population ageing, much can be learnt from how other countries in the region have handled family change in their respective societies.

On the population-policy front, the East Asian strategy to counter population ageing has centred on bolstering fertility rates, largely through pronatalist policies. But so far, fertility behaviour has for the most part been unresponsive (Yip et al. 2013). Once fertility moves below replacement level, it is very hard to push it back up. Outside of the fertility-focused policy sphere, strategies to address population ageing are primarily intended to mitigate reductions in the employment-topopulation ratio and in labour productivity—for example, through increasing the age of retirement, facilitating the employment of better-educated young workers, and bolstering the female labour-force participation rate (see Guest and Makin 2013). Smaller family norms have the potential to increase human capital investment in children, consequently raising the capital-to-labour ratio and lifting future productivity. Indeed, in anticipating an ageing population, the demographic window of opportunity will not necessarily stimulate economic growth and increase living standards without government policies geared towards productive investment: education, training, and jobs for the young (Hayes and Setyonaluri 2015; McDonald et al. 2013).

Bolstering women’s participation in the labour market is going to be a challenge in Indonesia. As mentioned earlier, despite attaining gender parity in education, female labour-force participation has stagnated at a little over 50% in the last two decades. Examining women’s age-group participation patterns indicates that marriage and motherhood are driving their low participation rate. For all of Indonesia, female labour-force participation rates showed an inverted U-shape, and peaked at the ages 45–49 at around 64% in 2015. This suggests that women’s first entry into the labour force occurs at older ages and in the informal sector, after they have married and after their children have grown (Schaner and Das 2016). In Jakarta, women’s labour-force participation peaked in the 25–29 age group, and is indicative of trends of a more permanent exit out of employment after family formation (Setyonaluri and Utomo 2016). Cameron, Contreras Suarez, and Rowell (2015) estimated that Indonesia has 86.3 million women of working age who do not work outside the home. Prevailing norms and preferences around the gender division of labour in marriage and the family are slow to change. At the outset, there may be a link between Indonesia’s relatively slow decline in fertility and the employment patterns of married women that warrants further empirical examination. To this end, Indonesia will benefit from further research into how policies can help families balance work and caring roles.

With the prospect of population ageing, we speculate that the issue of care— not only of children but also of the elderly—is likely to become a concern for the Indonesian family. In Indonesia, like much of Southeast Asia, the care of and support for the elderly is provided by the family, with their own children or other relatives co-residing or providing remittances when they live apart (Witoelar 2012). The burden of care work within the family is becoming an even more important consideration in fertility decisions in ageing societies.

Across East and Southeast Asia, the changing family and population ageing have created challenges for so-called familialistic welfare regimes (Croissant 2004). Though the family has generally remained an important institution in the provision of care and welfare, the changing nature of the family is increasing the demand for care and financing. In Indonesia, population ageing in the near to medium term will put considerable strain on the newly established JKN and on the pension scheme that provides non-familial income for the elderly (Smith 2012).

A pilot program targeting the needs of poor and neglected elderly (Asistensi Sosial Lanjut Usia Terlantar) was initiated in 2006 (see Adioetomo et al. 2013). The beneficiaries of the scheme, which delivers a monthly cash transfer of Rp 2,000,000, grew from an initial 2,600 in 6 provinces in 2006 to 26,500 in all of the 33 provinces in 2012. The Jokowi administration has continued to expand the coverage of the scheme, to cover 125,000 target beneficiaries in 2016 (SindoNews.com, 31 May 2016). The rationale for providing targeted assistance to the poor and vulnerable elderly population is well justified, given that those in their 70s and 80s have the highest poverty rates in Indonesia (Priebe and Howell 2014).

While much of the conversation on care provision has focused on the challenges brought by an increasing size and share of the elderly population, the contemporary features of the changing family also concern other population groups. There is evidence, for instance, that expansionary education policies in past decades have paved the way for intergenerational mobility. Panel data from the five waves of the IFLS have shown that, in the majority of cases, children’s highest educational attainment is at least one level higher than their fathers’. For example, more than 40% of children whose father only completed primary school managed to complete 12 years of education (Witoelar and Wicaksono 2016). It remains to be seen whether indications of current strengthening of assortative mating among men and women at the higher end of the education section will be detrimental to future prospects of mobility and social inequality.

While provisions are already in place for targeted subsidies for children’s education in poorer families, new family norms raise other emerging issues in children’s well-being. On the one hand, some aspects of family change, such as trends towards smaller household sizes, would increase parental resources for their children. However, rising divorce rates act to reduce these resources. Although the upturn in divorce rates may be interpreted as a positive sign of women’s empowerment, care must be noted for increasing numbers of single mothers in the lower quintiles of socio-economic status. The experience of the West has shown that children in single-mother families have higher poverty rates than those in two-parent families (McLanahan 2004).

In its current form, the government’s commitments to social protection and the JKN are facing considerable challenges to do with program financing and effectiveness. The changing family and the consequent demographic landscape of population ageing in Indonesia add to these challenges. In so far as we can speculate how the changing family might pose challenges in the financial sustainability and administrative capacity of social programs in Indonesia, much speculation can be drawn from the other direction. Informal risk sharing within the family and extended kinship networks has been a strong feature of plural societies across Indonesia (Witoelar 2013). Examining the way in which the current initiatives in social protection and insurance may change family norms and behaviour would be a fruitful area of future research.

Notes

1 The package covers 10 areas, as part of the criteria set out in the Ease of Doing Business survey results, including starting businesses, obtaining construction permits, registering property, paying taxes, accessing credit, enforcing contracts, connecting electricity, easing cross-border trade, resolving insolvency, and protecting minority investors.

2 BI also lowered its loan-to-value ratio, which targets construction financing schemes. The construction sector, which grew by 7.9% (year on year) in the first quarter, is viewed as a leading indicator of economic growth.

3 Indonesia’s repo rate, which has been used as benchmark on interbank loans, is an instrument by which commercial banks can borrow from BI. It is part of the government’s liquidity adjustment policy (BI 2016b). As of 19 August 2016, to be in line with the market, BI will use the repo rate (rather than the BI rate) as its policy rate.

4 The share of non-performing loans in the commercial banking sector increased from 2.8% in March 2016 to 3.1% in May (OJK 2016, 147).

5 The estimated tax amnesty revenue is part of the income tax revenue target. In the revised budget, the overall tax target was revised downward by −0.5%, but the income tax target was increased by 13% (table 2).

6 See also http://www.economist.com/node/21562210.

7 The replacement rate is about 2.1 children per woman for most countries. The replacement rate would be higher in countries with higher level of mortality, and would be closer to 2.0 in industrialised countries with low levels of mortality.

8 See, for one, http://www.bbc.com/indonesia/majalah/2016/01/160111_trensosial_ibu_bekerja.

9 Based on estimates from BPS (2013).

10 See http://www.bps.go.id/linkTabelStatis/view/id/1283.

11 Available from the authors on request.

12 Based on the own-child method estimated by McDonald and Rangkuti (2015).

13 The singulate mean age at marriage is a demographic indicator used to estimate the timing of entry into first marriage for men and women. It is the average length, in years, of those who marry before the age of 50, and is calculated from the proportions of individuals who were single (never married) by age from national surveys and census data.

14 Demographic estimates from the 2015 Intercensal Survey are due in late 2016.

15 Data from the Indonesia Demographic and Health Survey series, accessed through the DHS Program’s STATcompiler: http://beta.statcompiler.com/.

16 See, for example, the coverage of the 2016 International Conference of Family Planning, held in Bali (Jakarta Post, 26 Jan. 2016).