Spending on Education

Indonesia

Economic News

22 Jul 2010
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On August 8, Indonesian President Susilo Bambang Yudhoyono unveiled a draft of the country's 2009 national budget. The forecast for the country's economic growth looks positive and the budget is being applauded for increases in civil servant salaries and much-needed education spending. However, some are raising concerns over the extent to which the budget allocations are being driven by next year's pending elections and whether the education increase can be spent effectively. There are also concerns from the business community over whether these budget increases are coming at the expense of other critical spending needs, namely infrastructure upgrades.



The president said Gross Domestic Product (GDP) was expected to grow to 6.2% in 2009 and inflation to hover around 6.5%. GDP growth has so far reached 6.4% for the first half of this year, the best performance since the financial crisis hit the country in 1998. The forecast inflation figure rate of 6.5% is also positive in itself; while high, it is line with global events and well below the 12% reached in July as a result of a 30% fuel hike and surging commodity and food prices.



The new budget calls for a 15% rise in civil servant salaries and a boost in education expenditure to 20% (the budget for 2009 is expected to be $134bn), up from the 15% allocated in 2008 - a first for the country. This move will see spending on education rise from $16bn in 2008 to $24bn in 2009.



Currently, it is estimated that only 17% of students who finish high school go on to university, and that only 5% of eligible Indonesians have been educated beyond the high school level. It is estimated that only one in three have graduated high school. Spending on education is split between the ministry of education (81% of all spending) and the ministry of religious affairs (19%), which is responsible for all state-owned Islamic schools that tend to cater mostly to the poorer proportion of society. For 2009, an additional funding of $5.6bn will be channeled through the ministry of education, while the religious affairs ministry will receive an additional $2.2bn in funding.



At present, approximately 99% of all higher learning institutions in the country are private. There are nearly 2800 private universities, colleges or schools with an overall attendance of 25m compared to the 75,000 students who attend public higher learning institutions.



Wayah S Wiroto, vice rector of privately managed Binus University, told OBG that he would like to see the number of privately run facilities reduced. "There are too many poorly run 'bad seeds' which are ruining the reputation of private education in the country. Of the 2800, only 1000 are of decent quality and meet minimum standards," he said.



The president announced that the "increased spending on education will raise the living standards of teachers and improve the quality of graduates making them ready for work". The move is naturally being welcomed by the education community, which nonetheless said it would like to see a draft of the implementation scheme to ensure that the funds are spent effectively and efficiently.



Sammy Kristamuljana, Dean of Prasetiya Mulya Business School, told OBG, "While I am happy that the government is putting more money in education, I am worried that the ministry is overly bureaucratic and old fashioned and do not always know what to do with it."



Some critics are also arguing that the move may be aimed at generating positive voter sentiment in advance of national elections that are set to take place in the second half of next year.



While there is an overall consensus on the need to spend more on education, many in the business community feel that increases in government spending should rather be allocated to much-needed infrastructure projects. Indeed, it is estimated that the country needs overall infrastructure spending of $150bn by 2010, and that the government alone is only able to meet 17% of this need.



Many in the business community believe that the answer to this puzzle may lie somewhere middle of the road. While education should receive priority, a better solution for the government would be to create a more attractive investment climate for the private sector to spearhead the nation's infrastructure projects, they argue.



Ahmad Fahmi, President Director of Citramasjaya, a leading Indonesian contractor, told OBG, "The country has no choice but to get infrastructure spending back to pre-crisis levels. The government has announced many important projects, but we are not seeing any concrete on the ground results. The government should focus its spending on social welfare needs like education, and leave the infrastructure projects up to the private sector. So long as the legislative support is right, investors will line up to participate in these projects as the opportunities for returns are there."
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