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Policy Briefs The Cost of Public Primary Education in Indonesia: Do Schools Need More Money?1 No. 4 - 2008
Quality of Public Education and Government Agenda in the Sector The Indonesian government has done an impressive job of increasing school enrollments over the past three decades. The net enrollment rate in primary school rose from 72 percent in 1975 to 93 percent in 2005. However, the quality of local primary education in Indonesia is still widely held to be sub-standard, at least when seen in the international context. With a view to increasing enrollments even further while at the same time improving the quality of education, government has embarked on an ambitious reform agenda. The assumption of oďŹƒcials at all levels of government is that a signiďŹ cant increase in education spending will be required to successfully implement the reform program. Currently, central government allocates only about 7.4 percent of its expenditures to education and sub-nationals dedicate just approximately
6.1 percent of their expenditure budgets to education, not including teacher salaries. Based on recent changes to the constitution and education sector legislation, central and local governments are now required to spend a minimum of 20 percent of budgetary resources on education, exclusive of teacher salaries. At the same time, government expects to at least double the salaries of teachers in the aggregate in the near future.
Alternative Policy Directions The analysis in this paper shows that money does, in fact, matter for the attainment of education goals. But the relevance of funding in this regard is perhaps weaker than anticipated. There is no apparent relation between school spending and test scores, for example, and the association between spending and pass rates is weak. Furthermore, the examination estimates that an increase in total routine school spending of only around seven percent might be required
Policy Briefs
to meet substantially improved education outcomes regarding test scores, pass rates, and enrollments, under current conditions. Interestingly, this investigation also shows that rising teacher wage rates are associated with lower student performance, as measured by test scores and pass rates. The analysis suggests that this perverse outcome may arise because higher wages are awarded to relatively less qualified teachers, at least at the primary school level. Government should bear this in mind as it rethinks its teacher qualification and basic wage policy. Setting aside the question of the magnitude of envisioned teacher salary increases, early indications are that central policy is largely on track to better reward teacher qualifications and performance. School administrators should also consider restructuring their incentive payments to teachers with a view to rewarding performance, as opposed to other teacher attributes such as seniority (in and of itself ). This would be more likely to happen if local governments were to provide guidance on appropriate policies, closely monitor allowance distribution, and employ sanctions where necessary. The examination provides some empirical evidence to suggest that local public education services are more than a little inefficiently delivered in Indonesia. The paper estimates that actual primary school spending exceeds optimal levels by 23 percent, on average, and at current levels of performance. The available evidence demonstrates that high teacher absenteeism and the over and under supply of teachers are two leading causes of technical and allocative inefficiencies.
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Better remuneration of teachers may help reduce absenteeism to a certain extent. But improved monitoring and the actual employment of already existing disciplinary sanctions would undoubtedly be useful as well. More broadly, the reform of civil service regulations is required to put hiring and firing decisions in the hands of local governments. Progress on the latter will likely be slow, given resistance by central authorities currently charged with such responsibilities, and as such should be considered a long-term goal. The problem related to the over- and undersupply of teachers might be mitigated if the central-local block grant could be redesigned to avoid automatic payments to local jurisdictions to cover teacher and other civil servant wages. Local governments need to assume more responsibility for payment of civil servant salaries (along with hiring and firing decisions). The Ministry of Finance will soon begin drafting revisions to the fiscal decentralization covering legislation and so the proposed reform of intergovernmental transfer arrangements would appear to be timely. Such reform, long discussed at the central level, will, however, be vigorously resisted by sub-nationals and other central agencies. Past experience suggests that the adoption of appropriate policies in this regard will come with great difficulty. Finally, the analysis in this paper demonstrates that schools might be able to reach significantly improved education outcomes related to test scores, pass rates, and enrollments and simultaneously decrease total spending by up to 12.5 percent if productive inefficiencies could be eliminated. As such, in the drive to
The Cost of Public Primary Education in Indonesia: Do Schools Need More Money?
Policy Briefs
improve education quality, reducing technical and allocative inefficiencies would appear to be a very important, if neglected, objective. More generally, the empirical results offered in this study do not offer much support for government’s apparent view that large and rapid education spending increases are the sine qua non of improving performance in the sector.
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Lewis, B. D. and Pattinasarany, D. The Cost of Public Primary Education in Indonesia: Do Schools Need More Money?. DSF, February 2008. The full report can be downloaded from www.dsfindonesia.org. Original title is The Cost of Public Primary Education in Indonesia: A Stochastic Frontier Analysis. The views expressed in this paper are solely those of its author(s).
The Cost of Public Primary Education in Indonesia: Do Schools Need More Money?
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