Hotbonar Sinaga, CEO, Jamsostek: Interview

Interview: Hotbonar Sinaga

What is your position on the potential merger of the four major government-managed national social security providers (SSPs)?

HOTBONAR SINAGA: This is not a good idea. These organisations were originally created by segmenting employees into various categories – civil servants, military service, private sector, etc. Each category is governed by totally different employment regulations. As a result, over the past few decades each of the SSPs have become highly specialised and possess a unique expertise that enables them to better serve their membership. Throughout the region, in countries such as Malaysia, the Philippines and Thailand, governments have adopted segmentation as their preferred system and agree that it achieves the level of international best practise. Had Indonesia originally established a single SSP, similar to Singapore, then we would be debating whether or not to implement a segmentation scheme. Trying to restructure our four already well-established and highly functional SSPs under one umbrella would be extremely difficult and would not result in an overall benefit to the members they are obligated to serve.

How can employers be encouraged to fulfil their legal obligation to contribute to social security?

SINAGA: Currently, over 30m formal workers in Indonesia are employed by private and state-owned companies. By law they are all required to contribute a portion of their income to us and we are responsible to provide them with social security. At the moment only 9m (30%) actually do so. The responsibility to enforce the law is held by the Ministry of Manpower and Transmigration at the regional level. As a company, we do not have the authority to enforce the law or even to audit companies in order to accurately determine how many employees they have. To be granted this authority would require amending the existing law, which would be extremely difficult if not impossible to do. Therefore, the approach we must take is to help companies understand that contributing to social security is not simply a compulsory programme with no benefit, but a service that will actually help develop and improve their business. There is a certain lack of understanding about the advantages of social security and it is our responsibility to educate employers and create awareness regarding the actual benefits. We can do this by aggressively pursuing a promotional campaign and by working directly with the specific labour unions and confederations of unions. We even offer fiscal incentives to the confederations of unions who are successful in getting their members to contribute.

Should contribution rates to social security be increased? What would the outcome of a rise be?

SINAGA: While it is true that Indonesia has one of the lowest contribution rates in the world, with a maximum rate of 12.7%, an increase is not necessary. The real issue is to increase the base of our membership, not penalise those who are already meeting their legal obligation. We must also examine this issue from a macroeconomic perspective. In a highly competitive environment to attract foreign investment, one of Indonesia’s advantages over other countries in the region has been its lower labour costs. An increase in social security rates would somewhat negate that advantage. It is also felt that the merger of the four national SSPs would result in rate increases.

Is there a need to re-examine regulations concerning how social security providers can invest?

SINAGA: These regulations are over seven years old and are now too restrictive. We would like to have more flexibility in terms of direct investment. That is why we are in the process of establishing a subsidiary with the aim of supporting economic development in labour intensive industries. For example, we would invest in large-scale infrastructure projects, which the country desperately needs, as well as manufacturing industries. This will not only provide a national economic benefit but will also help us increase our membership.

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Hotbonar Sinaga

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The Report: Indonesia 2012

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