Indonesia’s government allocates one-fifth of its budget to the education sector, with the goal of boosting its international rankings and pupils’ progress. However, certain challenges have impeded the full potential of this policy from being realised. For example, decentralisation of education policy undermines standardisation of curricula at all levels and creates regional disparities in teaching quality and student attainment.

Successive administrations have nevertheless made considerable strides in increasing the number of pupils in school, although more progress is needed with regard to ensuring students finish their education with the skills required to compete in an economy that is transitioning towards innovation and value-added activities.

Structure & Oversight

Prior to the 1997-98 Asian financial crisis and President Suharto’s subsequent resignation, Indonesia’s education system was highly centralised under the Ministry of Education and Culture (Kemdikbud). After Bucharuddin Jusuf Habibie took office, a political shift towards decentralisation emerged, with the aim of increasing the political authority of provincial and regional governments, in recognition of Indonesia’s ethnic, cultural and economic diversity. In 2001 the central government transferred much of the authority for education policy and management to district governments as part of the “big bang” decentralisation effort, although higher education remained under the control of the national government through the Directorate General of Higher Education, a department of the Ministry of Education and Culture.

Decentralisation constituted an attempt to respond to Indonesia’s vast cultural and linguistic differences. In total more than 700 languages are spoken in the country. In addition, various different religions and cultures exist across the archipelago, which consists of over 17,000 islands with diverse levels of wealth and development. This vast size makes the lack of a standardised national curriculum even more challenging. In particular, the quality of education available in the outer islands, especially in the east, is considerably lower than on the island of Java, including in critical subjects like maths and science. Indeed, 71 of Indonesia’s top universities are located on Java. Under the current spending regime, about two-thirds of the education budget is managed by governments at the provincial and district level. In accordance with a 2002 constitutional amendment, the central government is mandated to allocate 20% of the annual budget to education, a target that has been met every year since 2009. Total national education expenditure has increased nearly 11-fold in nominal terms, and quadrupled in real terms, between 2001 and 2016, according to World Bank figures. However, while that period saw a 23% increase in student enrolment, it was accompanied by only a modest improvement in quality and attainment. President Joko Widodo has acknowledged that educational shortfalls and severe skill gaps in the workforce have the potential to derail efforts to cultivate high-tech, value-added industries if they are not properly addressed.

Despite rapid economic growth, rising education expenditure and falling poverty rates over recent decades, only 17% of the 127m Indonesians with a job have finished high school, while less than 10% have a university degree, according to a Bloomberg report published in October 2018. “Human capital development will be in the spotlight over the next five to 10 years, especially in terms of matching curricula in universities to industry needs. The language barrier in secondary education has already been addressed, but overcoming the skills gap through applied science, not only theory, is a current necessity,” Kartika Wirjoatmodjo, president director and CEO of Bank Mandiri, told OBG.

Reform Drive

Although policymakers are seemingly aware of the problems, it has proved difficult to implement a long-term, integrated reform strategy across the different strata of government. “Indonesia does not have a clear, long-term plan for education, whereas other countries have a plan covering 20 to 30 years,” Juli Adrian, president director of Provisi Education, told OBG. “While President Widodo emphasises a focus on vocational training, the governor of Jakarta is focused on illiteracy and the education minister on character-based learning.” Besides regional disparities in education delivery and diverse policy orientations, another challenge of decentralisation is ensuring the separation of education from politics, since headteachers at local schools are often appointed by local government officials, which creates the potential for political patronage. In addition, aside from local discrepancies in curricula, school instruction is often reliant on repetition-based learning in order to optimise pupil performance in examinations. Critics argue that there is insufficient emphasis placed on analysis or abstract thinking. These skills are essential in 21st-century business, particularly if Indonesia is to promote entrepreneurship and innovation.

Education Policy

President Widodo won the 2014 election with a promise to overhaul Indonesia’s education system by both increasing funding and modernising the curriculum and overall structure. Five years on, progress has been mixed, even by the president’s own admission, and human capital development is expected to be an even greater priority if he is re-elected for a second term in April 2019. A compulsory 12-year education system was introduced in 2013, replacing the previous nine-year system. The mandated 12-year system has led to a concurrent increase in enrolment, as well as an increase in the numbers of schools and teachers. Indeed, Indonesia’s educational system is estimated to be the fourth-largest in the world, with a total of over 400,000 schools according to 2017-18 figures from Kemdikbud. Enrolment and education access have also been improved by the School Operational Assistance (Bantuan Operasional Sekolah, BOS), a grants programme introduced in 2005 that aims to provide additional funding for primary and junior secondary public schools, based on the number of pupils enrolled. The Making Indonesia 4.0 initiative, announced by the government in 2018, is also expected to accelerate advances in education. With Making Indonesia 4.0, the country is aiming to spur investment in next-generation technologies such as artificial intelligence and robotics to nurture the growth of hightech, value-added industries (see Industry chapter). Indonesia is also seeking to reduce its dependency on commodities, which have taken a hit in recent years. For Making Indonesia 4.0 to succeed, it will require curriculum reforms, greater investments in research and development (R&D), and enhanced collaboration between industry and academia. In terms of R&D, the country lags behind developed economies and many comparable emerging economies, spending just 0.1% of GDP on R&D activities, according to the most recent World Economic Forum Global Competitiveness Index; Israel, which spends the most of any country in the index on R&D, allocates it 4.3% of GDP; Thailand spends 0.6%. In 2014 Indonesian researchers produced a total of 5499 academic papers. However, nearly half these papers were produced with international collaboration, which shows strong overseas links and openness to international cooperation, but may also raise questions over the academics’ and institutions’ capacity to independently produce research. In addition, this total is considerably less than that of neighbouring upper-middle-income countries like Thailand or Malaysia. Although wholesale curricula reforms have yet to take shape, the government has signalled its intention to expand and revamp the range of subjects offered to school students, and has expressed an interest in introducing coding into the school curriculum in an effort to build the talent pool for both local and international technology companies.


In 2018 the Indonesian government allocated a total of Rp444.13trn ($31.5bn) to the education sector, or around 20% of its total state budget of Rp2220trn ($157.4bn), in line with the constitutional mandate. The 2019 budget is more generous still, allocating the sector Rp492.56trn ($34.9bn). This is indicative of President Widodo’s renewed commitment to developing Indonesia’s human capital in tandem with investments in infrastructure, with the intention of unlocking the economic potential of even the most remote regions of the archipelago. According to figures released by the World Bank, basic education received the greatest share of the overall education budget allocation in 2017, at 56%, which is almost double the amount that secondary education receives. By comparison, vocational education – a smaller segment in terms of enrolment – received 9% of the total education budget. Indonesia’s secular school system begins at primary, which comprises grades one to six; the next stage is junior secondary, grades seven to nine; followed by senior secondary, grades 10-12; and finally higher education. After completion of secondary school, students that opt for higher education undertake national exams that are used for university admission. Private education accounts for about 48% of schools, 31% of students and 38% of teachers. As the world’s most populous Muslim nation, Indonesia also has an extensive religious education system. Islamic religious schools, or madrasas, fall under the jurisdiction of the Ministry of Religious Affairs and include vocational and technical schools, most of which are privately run.

Pupil Performance & Teaching Quality

The Indonesian government’s injection of capital into the sector has yet to translate into significant improvements in international rankings. Indonesian students continue to underperform at both the primary and secondary level, and the country lacks a top-ranking university. A 2018 report by the Australia-based Lowy Institute suggested that, in spite of successfully providing pupils with places in schools and keeping these pupils in education, teaching quality in Indonesia generally lags behind its economic and regional peers.

While official literacy rates in Indonesia are high, at 95.38%, according to the most recent figures from the World Bank, pupil progress and teaching quality need to be improved. In the most recent standardised international test, the Programme for International Student Assessment (PISA) in 2015, 42% of 15-year-old Indonesian students failed to meet minimum standards in all three of the domains examined: reading, mathematics and science. Overall, Indonesian students were outperformed by those in neighbouring Singapore, Malaysia, Vietnam and Thailand. Although Indonesia’s PISA scores did rise between 2001 and 2017, the nation requires faster progress to catch up with its peers: the World Bank remarks that at its current rate of improvement, Indonesia will not reach the average OECD country score for another 60 years.

Teacher Recruitment

Indonesia may soon be faced with a teacher shortage. The current cohort of teachers was hired under a government recruitment drive in 1985, but they are now approaching retirement. Recruitment into the state education system remains a challenge, with stiff competition from the private sector in terms of salaries and benefits. Indeed, teachers at state institutions may also hold side jobs to meet their financial needs, which may detract from the input they are able to provide to pupils. Nonetheless, Indonesia could capitalise on the prospect of a fresh wave of teachers to reform its curriculum by integrating more analysis and abstract thinking.

Many teachers would prefer to work in major urban centres rather than rural provinces, which may result in disparities in teaching quality. This aggravates the already stark disparity in wealth and development between Java and Sumatra, and the rest of Indonesia. “It is most challenging to work in remote areas because of the infrastructure gaps and accessibility problems,” Adrian told OBG. “Students sometimes cannot read or write properly by 10th grade. In this case, it is mostly the teaching quality that is the problem and not the students themselves.” The government could go some way towards tackling this problem by offering monetary incentives to teachers willing to relocate to rural areas.

Teacher Compensation

Teacher performance is being enhanced through a financial bonus system that rewards those who earn certificates. The minimum requirement for becoming a teacher is to complete a four-year university degree, or four years of higher education followed by a teaching certificate. However, many teachers who have been in the profession for a long time do not possess the minimum requirements, despite having years of experience. According to a piece of legislation that was first enacted in 2005, the so-called Teacher Law, teachers can claim bonuses if they have a bachelor’s degree and pass a competency exam. Figures compiled by the World Bank demonstrate that spending on teachers’ professional allowances increased almost five-fold in real terms in the 2010-16 period. In 2008 the average salary of a teacher started at 60% less than the country’s per capita income. This caused a brain drain in the school system, as qualified teachers sought jobs in the private sector. Particularly in remoter provinces, there were reports of absenteeism as teachers simply failed to show up for work. The study adds that the total proportion of teacher salaries and allowances grew to over 60% of total education spending in 2017, from just over 50% in 2009. Teacher bonuses have helped to reduce the disparity between private and public sector salaries, thus making the industry a more financially viable and competitive employment route. The programme has yet to translate into measurable improvements in student results, however, and it has placed strain on the overall education budget.

Further & Higher Education

Indonesia’s higher education sector has considerable room to grow. The country’s top post-secondary institution is the University of Indonesia, which was ranked number 292 in the QS World University Rankings 2019. The university is large by international standards, with more than 43,000 students. There have been suggestions that its overall ranking might be improved by a performance-based promotion system with regard to teaching quality.

Students face a shortage of local university places with 67,136 students applying for just 1554 spots at the University of Indonesia in 2015. The shortage of high-quality local universities is one reason that an increasing number of Indonesian students are opting to study abroad. This has caught the attention of international university recruiters who see the country as one of the world’s most promising growth markets. Indonesia combines a large population, high GDP growth and a shortage of international-quality, post-secondary institutions – fertile ground for international recruiters.

The leading destination for Indonesian students is Australia, which, along with Singapore, Japan, Malaysia and New Zealand, has been aggressively promoting its institutions through roadshows and incentives. For Australia, this translated into 8% growth in Indonesian student enrolment in 2017 over the previous year, to a total of 20,000. Meanwhile, nearly 9000 students from Indonesia are currently enrolled in American universities, a nearly 27% increase on the total in 2010.

Foreign Investment

Perhaps the most important development in private education came in April 2018, when the authorities announced their intention to allow 100% foreign ownership in universities and let foreign universities open campuses in Indonesia for the first time. However, by March 2019 the regulations that would open up the higher education sector to foreign investment had yet to be finalised and were not expected to be published until after the April elections. Speaking to local media in March 2019, Thomas Lembong, head of the Investment Coordinating Board, indicated that the new regulations would allow foreign universities to own up to 67% of shares in campuses, and up to 100% of shares in campuses in special economic zones. Several Australian universities are reported to be ready to enter the market when the regulations are eventually finalised.

Vocational schools have also begun to capture the attention of foreign investors. The most common type of vocational schools are English-language schools, which attract large numbers of students and are less regulated in terms of rules governing local content in curricula. One example of these regulations is that all schools are required to dedicate 15% of their curriculum to Indonesia-specific content, such as religious studies and national ideology. This regulation also applies to private schools with many international students (the term international school was banned in 2014 in an effort to foster national cohesion).

The need for better English instruction is highlighted by the poor language ranking of Indonesian students. Recent studies show that 55% of Indonesian children have low reading comprehension, and English-language scores remain among the lowest in South-east Asia. Although the public school system is seeking to address this issue, private English-language schools are expected to figure prominently, as they do in many other South-east Asian countries.

Alongside private and foreign investors, non-profit organisations also have a role to play in expanding access to education and training, particularly in remote regions. “Foundations and the private sector working in rural areas need to provide more opportunities for local communities, as this benefits both their company and the country’s citizens,” Victor Hartono, president director of Djarum Foundation, a non-profit focused on human resources, told OBG.


Although Indonesia has a long way to go in terms of delivering quality education at all levels and in all regions, gradual improvements are being made, backed by significant annual budgetary funding allocations. As the Making Indonesia 4.0 initiative boosts demand for technology training and grassroots innovation, Indonesia’s pupil progress will need to improve at a faster pace. With the central government constitutionally mandated to allocate at least 20% of its budget to the sector, much will depend on the ability of policymakers to ensure this funding is used to effect real change in what and how students learn, to ensure they are equipped for the demands of a rapidly evolving economy. As a vibrant democracy that is already home to dynamic digital industries, the time is right for the creation of a classroom environment that promotes critical analysis and abstract ideas. If the country can overcome the challenges of a decentralised system and a legacy of didactic teaching approaches, Indonesia has the potential to develop into a regional leader in innovation and creativity over the medium to long term.