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Indonesia:

Higher Education Financing April 17, 2010

Human Development East Asia and Pacific Region

Document of the World Bank

DRAFT FOR DISCUSSION – DO NOT CITE

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ACKNOWLEDGMENTS

The team is grateful to officials and staff in the Ministry of National Education for their

overall support of this study. This report also benefited greatly from inputs and comments by the participants at the “Thematic Education Dialogue” forum on Public-Private Partnership in Education in August 2009.

The report is prepared by a team comprises of Dandan Chen (Task Team Leader, Senior

Economist, Human Development Sector Department, East Asia and Pacific Region (EASHE), World Bank); Siwage Negara (Operations Officer, EASHE) and Imam Setiawan (Research Analyst, EASHE). Important contributions were made by Mr. Chan Basaruddin (Professor, University of Indonesia), Mr. Bagyo Y. Moeliodihardjo (Professor, University of Indonesia), and Mr. Sundani Nurono Soewandhi (Professor, Bandung Institute of Technology).

The preparation of the report was under the overall guidance and support of Mae Chu Chang (HD Sector Coordinator) and Eduardo Velez (Sector Manager). Peer reviewers were: Jamil Salmi (Lead Education Specialist, Human Development Network, World Bank), Richard Hopper (Sr. Education Specialist, Human Development Sector Department, East Europe and Central Asia Region, World Bank) and Donald Winkler (Consultant, World Bank Institute).

Country Director: Joachim von Amsberg Sector Director: Emmanuel Jimenez Sector Manager: Eduardo Velez HD Sector Coordinator: Mae Chu Chang Task Team Leader: Dandan Chen

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AN UPDATE ON BHP LAW

This report was originally aimed at providing basic analysis on higher education financing in Indonesia to prepare for the implementation of the “Education Legal Entity (BHP)” law (No 9/2009). As the report was being finalized, however, the BHP Law was revoked by the Indonesia Constitutional Court on March 31, 2010. The Court considered that the BHP Law was not aligned with the 1945 Constitution and it created legal uncertainty. The verdict was made by 9 judges of the Constitutional Court. In a 403-page decision document, the Court gave the following reasons for the revocation: (1) BHP Law has many shortcomings in terms of juridical clarity, objective, and alignment with other existing laws; (2) BHP Law assumes that the education institutions have the same management and financing capacities, which is not the case in Indonesia; (3) Granting autonomy to education institutions will lead to under-funding of many institutions, and negatively affect education; (4) BHP Law does not guarantee the achievement of national education goals, and it contradicts to the commitment of the 1945 Constitution; and (5) Not-for-profit principle for education institutions can be applied in other legal forms, not necessarily in the form of BHP (http://us.detiknews.com).

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LIST OF ABBREVIATIONS

APBN State Budget (Anggaran Pendapatan Belanja Negara)

BAN-PT National Accreditation Board for Higher Education (Badan Akreditasi Nasional- Pendidikan Tinggi) BBM

Fuel Subsidy Reduction Scholarships (Beasiswa Bahan Bakar Minyak);

BHMN State-owned Legal Entity (Badan Hukum Milik Negara)

BHP Education Legal Entity (Badan Hukum Pendidikan)

BHPP Government Education Legal Entity (Badan Hukum Pendidikan Pemerintah)

BLU Certified Public Service agency (Badan Layanan Umum)

D1, 2, 3, 4

Post-secondary diploma (1-year), (2-year), (3-year), (4-year)

DGHE (DIKTI) Directorate General for Higher Education (Direktorat Jenderal Pendidikan Tinggi)

DIPA Budget Implementation Document (Daftar Isian Pelaksanaan Anggaran)

DPT Board of Higher Education (Dewan Pendidikan Tinggi)

IMHERE Indonesia: Managing Higher Education for Relevance and Efficiency Project

HEI Higher Education Institutions

HELTS Higher Education Long-Term Strategy

LPTK Teacher Training Institute (Lembaga Pendidikan Tenaga Kependidikan)

MoF Ministry of Finance

OECD Organization for Economic Cooperation and Development

PBE Scholarship for extracurricular performance improvement (Beasiswa Peningkatan Prestasi Ekstrakurikuler)

PHKI 1. Institution Competitive Grant Program (Program Hibah Kompetitif Institusi)

PPA Scholarship for academic performance improvement (Beasiswa Peningkatan Prestasi Akademik)

S1 College/university Bachelor’s Degree (Sarjana 1)

Satker Working unit (Satuan kerja)

SUSENAS National Household Socioeconomic Survey (Survei Sosial Ekonomi Nasional)

TPSDP Technological and Professional Skills Development Project

URGE University Research for Graduate Education

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TABLE OF CONTENTS

ACKNOWLEDGMENTS ......................................................................................... I

AN UPDATE ON BHP LAW ................................................................................. II

LIST OF ABBREVIATIONS ................................................................................... III

TABLE OF CONTENTS ......................................................................................... IV

EXECUTIVE SUMMARY .................................................................................... VIII

1 HIGHER EDUCATION IN INDONESIA ............................................................. 1

A. Government policy and strategy on higher education: a historical perspective ........ 1

B. Higher education coverage, quality, relevance and governance: an overview ........... 3

2 HIGHER EDUCATION FINANCING ................................................................. 9

A. Resource mobilization: Is Indonesia investing sufficiently in higher education? .... 9

Total spending on higher education ......................................................................................... 9

Per student (unit) spending on higher education .................................................................. 12

B. Resource allocation: Do public funding mechanisms reward performance and promote accountability? ...................................................................................................... 15

Current public financing system for HEI .............................................................................. 15

Institutional reforms .............................................................................................................. 19

Fiscal Implications of the BHP Law ....................................................................................... 22

C. Resource utilization: Are available resources used in an effective way within higher education institutions?............................................................................................ 26

Efficiency indicators ............................................................................................................... 26

Incentives for efficient institutional spending: funding mechanisms .................................... 27

Internal resource allocation .................................................................................................... 27

D. Equity: Are public funds distributed in an equitable way? ......................................... 28

Access disparities ................................................................................................................... 28

Benefit incidence and affordability ......................................................................................... 32

Student financial aid .............................................................................................................. 33

3 DISCUSSIONS ON FUTURE FINANCING STRATEGIES .................................37

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A. Enhanced support to public HEIs for greater efficiency ............................................... 38

Level of funding ..................................................................................................................... 38

Financing mechanisms........................................................................................................... 39

B. Innovative and integrated support to private institutions ........................................... 39

C. Increased student financial aids to improve equity ....................................................... 40

D. Efficient pathways for future expansion .......................................................................... 41

E. Increased overall public resource allocation to higher education ............................... 41

ANNEX 1: KEY INSTITUTIONAL LEVEL FINANCING DATA ............................44

ANNEX 2: NATIONAL STANDARDS FOR HIGHER EDUCATION ......................56

ANNEX 3. SELECTED EXISTING SCHOLARSHIPS ..............................................59

ANNEX 4: COST PROJECTION ............................................................................61

REFERENCES .......................................................................................................63

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List of Tables: Table 1.1: Evolution of Higher Education Long Term Strategy (HELTS) .......................................... 2 Table 1.2: Higher education enrollment by type of institutions .......................................................... 4 Table 1.3: Number of Higher Education Institutions (HEIs) by type ................................................. 4 Table 1.4: Public and private tertiary education enrollment by discipline (2007/08) ...................... 5 Table 2.1: Summary of Funding Obligations for Higher Education Under BHP Law ................... 21 Table 2.2: Illustration of potential 2009 budget change: Central government allocation .............. 23 Table 2.3: Internal resource allocation by Institution type (2008) ..................................................... 28 Table A.3.1: Financing of non-autonomous public higher education institutions (in millions Rp), 2009 ............................................................................................................................................................ 44 Table A.3.2: Per pupil spending by source (2008) in seven autonomous higher education institutions compared with the average of 75 public non-autonomous institutions .................... 47 Table A.3.3: Change of state financing under BHP law approach A) (in billion Rp) ..................... 48 Table A.3.4: Change of state financing under BHP law approach B) (in billion Rp) ...................... 51 Table A.3.5: Financing changes in seven autonomous universities under the BHP Law .............. 54

List of Figures: Figure E. 1: Trend of gross tertiary enrollment rate in private and public institutions, 2001-2008 .................................................................................................................................................................. viii Figure E. 2: Average number of years for obtaining a tertiary diploma/degree ............................ xii Figure 1.1: Trend of gross tertiary enrollment rate in private and public institutions, 2001-2008 . 6 Figure 1.2: Education attainment of adult population age 25-64 ........................................................ 7 Figure 2.1: Tertiary education spending vs. tertiary graduation rate ............................................... 10 Figure 2.2: Shares of public and private financing for tertiary education ....................................... 11 Figure 2.3: Public and private spending on Tertiary Education as percentage of total GDP........ 11 Figure 2.4: Share of HEI revenues by source, 2009 .............................................................................. 12 Figure 2.5: Estimated 2009 unit spending per pupil ........................................................................... 13 Figure 2.6: Public spending per student in public tertiary institutions ............................................ 14 Figure 2.7: GNI per capita vs. per student spending for tertiary education .................................... 14 Figure 2.8: Budget composition for Directorate General for Higher Education (2009 approved): .................................................................................................................................................................... 17 Figure 2.9: Per student annual recurrent financing by DGHE (in thousand Rp), 2009.................. 18 Figure 2.10: Average number of years for obtaining a tertiary diploma/degree ........................... 26 Figure 2.11: Higher education gross enrollment ratios by island ..................................................... 29 Figure 2.12: Tertiary education gross enrollment rate by household expenditure quintile .......... 29 Figure 2.13: Distribution of HEI applicants and admissions by family monthly income ............. 30 Figure 2.14: Benefit shares of public spending on tertiary education .............................................. 32 Figure 2.15: Household spending per tertiary student as % of total household yearly expenditure ............................................................................................................................................... 33 Figure 2.16: Sources of scholarships ...................................................................................................... 34 Figure 2.17: Number of students receiving scholarships by institution type (2007-2009) ............. 35 Figure 2.18: Coverage of scholarships ................................................................................................... 36 Figure 2.19: Targeting of scholarships by household expenditure quintile ................................... 36 Figure 2.20: Student financial aid among total public financing of higher education ................... 37 Figure 3.1: Continuum of public-private partnerships ....................................................................... 40

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Figure 3.2: Projected DGHE budget as % of GDP and MoNE budget ............................................. 42 Figure A. 1: Potential change of financing shares under the BHP law in 7 autonomous universities ................................................................................................................................................ 55

List of Boxes: Box 1.1: University autonomy ................................................................................................................. 3 Box 2.1: Foreign investment in higher education ................................................................................ 22 Box 2.2: An illustration of unit cost estimate ........................................................................................ 25 Box 2.3: Admission to higher education in Indonesia ........................................................................ 31

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Figure E. 1: Trend of gross tertiary enrollment rate in private and public institutions, 2001-2008

Source: SUSENAS Core Module 2001-2008; Enrollments in private vs. public institutions were only collected in selected years.

5.8% 6.1% 6.3% 6.7%

9.5% 9.8% 9.8% 10.2%

14.9%18.2% 20.1%

26.6%

0

0.05

0.1

0.15

0.2

0.25

0.3

2001 2002 2003 2004 2005 2006 2007 2008

all

private

public

EXECUTIVE SUMMARY

1. Indonesia’s higher education experienced fast expansion since independence.

Currently, the higher education institutions nationwide enrolled nearly 4 million students. The expansion is particularly characterized by the ever more significant provision of higher education by private institutions. Indonesia’s current higher education system consists of approximately over 130 public and over 3,000 private higher education institutions. Although the public institutions only account for 4 percent of the total number of institutions, they account for 32 percent of the total enrollments with the remaining 68 percent enrolled in private institutions. With prominent presence of private providers, Indonesia’s tertiary education enrollment has been able to exceed that of the population growth, resulting in a growing enrollment rate, current enrollment as proportion of population age 18-22 is about 27 percent (Figure E.1).

2. Despite a steady increase in the enrollment rate in the past years, higher education access and participation of rural population and socio-economically disadvantaged groups are still a critical concern in Indonesia. The Government is also concerned with improving the relevance of higher education so that it can provide graduates in the fields which are most needed by an economy that is

growing rapidly and changing structurally in an ever competitive global economy. One indicator of the mismatch between the output of the higher education system and the needs of the economy is the long waiting period between graduation and employment.

3. The financial commitment from Indonesian government to education, including higher education, increased substantially over the past several years. While the emphasis of public finance at basic education level has focused on continued expansion towards 9-year universal basic education, key financing reforms at higher education level have been aimed at strengthening the higher education institutions’ accountability, efficiency, and competitiveness through innovative financing mechanisms, such as competitive grants and performance grants to the institutions, to improve efficiency and reward good performance.

I. Key higher education financing issues

A. Resource mobilization: Is Indonesia investing sufficiently in higher education?

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4. Indonesia’s total spending on higher education, a sum of both private and public

resources, is low as percentage of GDP, together with the low coverage of higher education. Compared with other middle-income countries, Indonesia’s tertiary education coverage is at the lower-middle end. Developed countries such as Denmark and Finland, spend between 2-3 percent of their total GDP on tertiary education and maintained higher levels of tertiary graduation rate. In comparison, Indonesia spends about 1.2 percent of total GDP on tertiary education. Like many other lower-middle income countries, the relatively low percentage of GDP devoted to tertiary education in Indonesia mostly reflect its low coverage of tertiary education.

5. One distinctive feature of tertiary education financing in Indonesia is the large share of financing from households/private source. Out of the 1.2 percent of GDP spent on tertiary education, 0.9 percent of the total GDP, or three quarters of the total spending on tertiary education is contributed from private sources and mostly in the form of tuition and other fees and levies. The private share is one of the highest in the region and world.

6. Total public expenditure on higher education is low in Indonesia, albeit on the rise from 0.25 percent of GDP in 2005 to around 0.3 percent of GDP in recent years. The total amount is largely to finance the 76 non-autonomous public universities and institutes, and seven autonomous universities. There are also subsidies to private universities, but generally in small amount compared with the vast enrollment in private universities.

7. Per student (unit) spending on tertiary education varies largely between public and private higher education institutions. It is estimated that in 2009, the average unit spending at a public institution is about Rp 22 million (US$2,2001) per student, compared with around Rp 12 million (US$ 1,200) per student in private institutions. The sources of financing are also largely different: while around 40 percent, or about US$920 out of the US$2,200 are from the Government budget allocation for public institutions, only 5 percent, or about US$56 out of US$1,200, is from the Government for private higher education institutions. Averaging cross private and public institutions, per tertiary student spending in Indonesia is slightly above US$1,500, of which a quarter, or about US$350 is from the central Government. Although the level of unit cost in the middle-range in the world in absolute terms, it is on the high end as percentage of GNI per capita.

B. Resource allocation: Do public funding mechanisms reward performance and promote accountability?

8. A large amount of DGHE budget goes to supporting public institutions. The 2009

Government budget for higher education is in the amount of 18.5 trillion Rupiah, or US$1.8 billion. Around 85 percent of the budget is to support tertiary education institutions: 69 percent is allocated to 76 non-autonomous public higher education institutions; 11 percent to seven autonomous institutions; and other 6 percent is to subsidize private institutions2.

1 Using July 2009 exchange rate: US$1 is approximately Rp 10,000. 2 Some public servant lecturers and professors also work at private institutions, which is a form of public subsidy to private institutions, but not included in the estimates here.

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In the 2009 State Budget3, about Rp 4.7 trillion, or US$470 million is from the own revenues of the 76 public institutions, which is quite significant considering that it is nearly a quarter of the total higher education APBN.

9. The current public financing arrangement for HEIs does not have an explicit financing formula, nor incorporates strong incentives at the system level to reward good institutional performance. The recurrent budget allocation is mostly incremental, and capital budgeting is mostly on need-basis, and up to various negotiation processes. The per-student financing by DGHE is highly uneven, even across similar institutions. Figure 2.9 shows that, excluding the five fine arts and performing arts institutes, per-student public financing is the highest at agricultural polytechnics. However, the financing amount at the Agricultural Polytechnics at Kupang is only about half of the amount at Samarinda. Similarly the per-student public financing is estimated at Rp. 22 million per year at the State University of Manado, compared with Rp. 5.4 million at the State University of Semarang.

10. The latest Higher Education Long Term Strategy (2003-2010) has continued with key institutional reforms, with Institutional autonomy for HEIs as the cornerstone of the

strategy. The current strategy focuses on decentralizing public HEIs and making them autonomous institutions, changing the role of DGHE from one that tightly regulates HEIs to one that creates the enabling framework and infrastructure for a diverse set of institutions to flourish. In consistence with Indonesia’s broader trend toward the decentralization of public services and democratization, the HELTS aims at bringing decision-making closer to key stakeholders – to give institutions not only the freedom but also the management capacity required to become less bureaucratic, more responsive to change, and better able to become more efficient and improve learning outcomes. The DGHE also seeks to balance the autonomy rights to HEIs and their increased responsibility to the public – thus making HEIs more accountable for the results that they achieve in their use of public resources.

11. The implementation of channeling public expenditure for higher education into a combination of block grants, competitive grants, and performance-based grants has also started. These resource transfers focus on improving not only education quality but also governance, efficiency, and equity. This is followed by the recent introduction of demand-side financing through higher education scholarships to high school graduates that can potentially serve a channel to transfer funds to both public and private HEIs. With its emphasis on reforming governance in the sector and developing innovative public financing tools, this HELTS can also be viewed as a significant experiment in improving the management and governance of public sector organizations.

12. The law on “Education Legal Entity (Badan Hukum Pendidikan, BHP) Law” (No. 9/2009) is intended to fill the regulatory gap and provide an overall legal foundation for institution autonomy in the education sector4. The law was passed in January 2009, about four years after the first draft. The law is widely recognized as “the BHP Law”, with the overall objective of providing a legal base to promote institutional “autonomy in formal

3 Anggaran Pendapatan Belanja Negara (APBN).

4 The Law covers all levels of education. We focus on higher education in this report.

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education management” at basic, secondary, and tertiary education levels, even though it is compulsory for primary schools. The Law further stipulates that the primary and secondary schools that have “A” level accreditation and have been established by the central or regional government, together with all public higher education institutions can immediately become legal entities (Article 8). The Law further institutes the management structure and assets management arrangement that is required for any education legal entities.

13. The law contains detailed financing framework for an “Education Legal Entity”. One of the key chapters (Chapter IV) of the Law is on financing arrangement of the legal entities. It states that “(the) source of fund for formal education services rendered by education legal entities shall be established in view of equality, adequacy and sustainability principles”; and “the funding of formal education delivered by education legal entities shall be under the joint responsibilities of the Government, regional government, and community in accordance with the applicable laws and regulations”. On higher education, it stipulates that “the Government, together with BHPP (Badan Hukum Pendidikan Pemerintah, Government Education Legal Entity) shall bear all investment costs, scholarship and education assistance of BHPP” and “the Government together with BHPP shall bear minimum ½ (half) of operational costs of BHPP delivering higher education based on minimum service standard”. The law further clarifies that costs to students should be according to the capacity of financing, but not exceeding 1/3 of the total operational cost (Article 41). The Law also requires that 20 percent of the poorest incoming students should be entitled to receive Government scholarships (Article 46). This highly prescriptive approach seems to be against the original intention of law in terms of facilitating institutional autonomy. However, it also clearly legalizes continuous Government funding to autonomous institutions, which was not permitted by the previously-existing laws.

14. The Education Legal Entity Law, however, requires that education be provided by non-profit entities, which seems to preclude commercial, for-profit investment in higher education. The private education legal entities can be established by private foundations (“yayasan”). However, the line of ownership appears to be blurred: whether the funding is a “gift”, or investment (i.e. whether it shall be returned when the entity is dissolved) is unclear. In addition, the implementation of the BHP law needs to be clearly laid out to reconcile with the GoI’s 2007 investment Law and its implementation regulations, which allow foreign investment in education through limited liability companies with a 49 percent equity ceiling.

15. The current government’s intention is to establish a unit cost standard based on the minimum service standard of higher education service delivery. The Government Regulation PP 19 / 2005 stipulates that the minimum service standard for national education comprises eight standards, namely content, process, assessment, graduate’s competency, infrastructure and facilities, teacher and other staff, management, and funding. DGHE intended to use these standards to derive a standard unit cost of higher education institutions (HEIs).

16. Whether the larger resource envelope can be effectively used at the HEIs and actually reach the minimum service standard as they currently stand is still a question mark.

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Figure E. 2: Average number of years for obtaining a tertiary diploma/degree

Source: IFLS 4. The small sample size would not allow the authors to estimate the average

study duration for D1, D2, D3 separately.

2.002.62

3.18

1.642.37

3.24

4.50

5.42

5.98

4.00

5.105.70

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

26-3031-3536-40

Ave

rage

nu

mb

er o

f ye

ars

in H

EI

graduates' age in 2008

D1-D3 Public D1-D3 Private

S1/D4 Public S1/D4 Private

Many hardware and software investments obviously are needed to provide enabling environment and conditions to make this happen. This may lead to the first order need of investment spending in many public universities Only when sufficient management capacity is in place at the autonomous HEIs can the GoI introduce the financing innovation to transfer government resources based on promised results for improved service delivery.

C. Resource utilization: Are available resources used in an efficient way within higher education institutions?

17. The average length for obtaining a diploma or degree has decreased in recent years,

possibly reflecting the increased internal management efficiency of tertiary institutions. For example, in public HEIs, the older cohorts (age 36-40 in 2008) spent nearly 6 years for finishing their 4-year Degree (S1) studies. The average duration has been shortened to about four and half years for the latest graduates age 26-30. The similar pattern is also shown for diploma programs. The average length of time in school shortened 50 percent, from over 3 years to 2 years. Compared with public HEIs, the efficiency improvement in private HEIs seems to be faster and more prominent. In a decade’s time, the average length of study in private HEI was shortened from 5.7 years to 4 years for S1 degree, and from 3.24 to 1.64 years for diploma 1, 2, 3 on average. During the same period, it appears that the efficiency gap between public and private HEIs is more obvious. On average, among the most recent graduates, it takes about half a year shorter to get a higher education diploma or degree in private HEIs than in public HEIs.

18. Given the lower unit spending per student per year, and in general shorter graduation time, the cost of producing a Bachelor degree graduate is estimated as 50 percent less in private HEIs than that in public HEIs on average.

19. Resource allocation mechanisms and practices at the institutional level can be generally characterized as more administrative than strategic. However, even at the administrative level, a

benchmark for internal efficiency, such as some key parameters characterizing the compositions of expenditures, together with that of the unit spending per student, is hard to establish for comparisons. This is mainly due to different categorization of expenditures at different institutions. For example, the private university here records expenditures for technicians as part of the cost for running laboratories, while the public universities put the same cost as part of the personnel cost of supporting staff.

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20. Under HELTS, the GoI intends to introduce a new financing innovation: performance-based funding for HEIs. The performance-based funding would tie a portion of public spending for higher education to institutions’ performance, and be applied to the autonomous universities at first. However, its implementation has been impeded by the lack of capacity of the autonomous public HEIs.

D. Equity: Are public funds distributed in an equitable way? 21. The regional disparities have been narrowing, owing to the Government continuous

investment in higher education in disadvantaged areas. However, the disparities in accessing tertiary education are still very large between the rich and poor. Only less than 2 percent of the youth (age 19-22) from the households of the lowest wealth quintile are enrolled in any higher education institutions, compared with over 60 percent of those from the wealthiest households in Indonesia. The biased enrollment favoring the relatively rich further leads to the highly regressive pattern of public spending on tertiary education in Indonesia: over 80 percent of the public spending on tertiary education benefits the better-off 40 percent of the households, and over 60 percent benefits the richest 20 percent.

22. There are currently various schemes of scholarship provided by public and private agencies to the undergraduate students in Indonesia. Non-government sources of funding are significant in providing scholarships at higher education institutions. It is estimated that approximately half of the scholarships at public HEIs, and over 85 percent of the scholarships at private HEIs are provided by private sources.

23. However, on average, less than two percent of the higher education enrollees are beneficiaries of scholarships from various sources, government or non-government. The National Socioeconomic Household Survey (SUSENAS) data shows that among these scholarships recipients, over 60 percent are enrolled in public institutions. If public and private HEIs are examined separately, the scholarships coverage is 2.7 percent in public HEIs, three times as much as the 0.9 percent in private HEI institutions.

24. The scholarships have not been able to benefit the most disadvantaged due to the biased enrollment of higher education. Since most of the children from the poorest households dropped out of the education system before they can even reach higher education, and most of the higher education scholarships are awarded after one is enrolled, there is little chance that the children from the poorest households can benefit the scholarships. Schemes of scholarships that provide financial support to high school leavers who want to pursue higher education but have financial constraints are very rare. This inevitably limits the opportunity for economically disadvantaged students to pursue higher education. A scholarship that was recently started introduced some changes by awarding the scholarships directly to high school leavers. However, as promising as it is, this new scheme mostly promotes outstanding performance or talents such as its awards to the winners of international competitions in science, mathematics, as well as sports. Academic performance remaining a crucial determinant in the selection of recipients to some extent dilutes the targeting effect, giving low socioeconomic status families less advantage. In general, scholarships in public HEIs targets better than those in private HEIs.

II. Way forward

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25. Looking ahead, rationalizing public expenditure at HEIs and increasing the level of

public funding will be key to strengthen the Indonesia’s higher education sector. There are five areas that are important for policy reforms: (1) How to strengthen the support to public institutions for greater efficiency? (2) How to provide integrated support to private institutions? (3) How to make public financing more equitable? (4) How to make future expansion more efficient? (5) How to increase public resource allocation to higher education?

A. Increasing public funding and rationalizing public expenditure for greater efficiency 26. Benchmarking efficiency using service standard and unit cost will be a useful tool for

Institutions to reflect on its internal management issues. This is particularly applicable to the operational or recurrent cost for undergraduate education (i.e. regular program at Degree or Diploma level in case of polytechnics) in higher education institutions. The calculation of the cost can be based on the average standard, and account for several parameters such as curriculum, class-size, student-staff ratio, etc. To reflect the special costs associated with certain types of institution, some weighting will be applied at the later stage. This will include also weighting to recognize different costs for different field of studies as well as variability of the average price index at different parts of the country.

27. HEI’s public funding sources, particularly for research, can be further diversified. The imminent need for investment in improving infrastructure, facilities, and teaching and learning will possibly crowd out other needs such as research funding to some extent. Setting up different funding mechanisms to support these activities can also be considered. In terms of research, one lesson that can be learned from the developed countries is the diversification of government funding sources. Research contracts and grants could be generated from a variety of Government agencies and tied to specific research need in various sectors: health, agriculture, poverty reduction, science and technology, etc. In the US, only less than half of the total federal support to postsecondary education is from the Department of Education.

28. The level of accountability is often regarded as closely linked to the channeling mechanism of government budget to support higher education institutions. “Block grant” has often been mentioned as a simple way to provide institutions with flexibility and to facilitate a shift of focus to results on teaching and research. Depending on the nature of the spending, the block grants are also in various forms: formula funding, competitive funding, or performance-based funding. The Indonesian government has already gradually

introduced a series of block grants as innovative ways to provide support to HEIs. In alignment with the Higher Education Long-term Strategy, the “competitive grants” to public and private HEIs provide financial incentives to the HEIs to improve the quality of their institutions, through either improving education quality or increasing the employment of HEI graduates. To improve institutional accountability for quality, efficiency, and equity, the “performance grants” have also been under implementation to promote good governance in non-autonomous public HEIs. The grants focus on strengthening institutional management and improving the institutional performance of all public HEIs, with the objective of preparing them for the eventual receipt of performance-based financing.

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Meanwhile, the “performance-based contract” has been initiated at 5 out of the 7 autonomous universities, providing them with budget support conditional on meeting agreed performance targets. Currently, these contracts are only piloted at the department/unit level within the universities, where performance can be well defined. How to scale up the performance contract at university level still remains a challenge.

29. The piloting of the innovative funding mechanisms has put Indonesia on the right track of using public financing as an effective leverage for developing a strong system of public HEIs, a system that is characterized by good governance practices and organizational cultures that focus on education quality, institutional efficiency, and active efforts to improve its status in a global setting. The new BHP law has also put a necessary legal framework in place. The 76 public HEIs do not yet have autonomous status but must also begin improving their management capabilities in anticipation of being granted that status in the future. Looking ahead, the key interventions should still strive to improve the institutional capacity to manage finances, personnel, and procurement effectively.

B. Innovative and integrated support to private institutions 30. Strengthened support to private institutions will be key to the overall upgrade of the higher

education system in Indonesia, given their major role in providing access to nearly two-thirds of the current enrollment. Supporting the private sector needs to be integrated and innovative. The “continuum of public-private partnerships” provides a general framework on where Indonesia stands and where Indonesia can go. The movement towards institutional autonomy and the BHP law has put Indonesia on the progression towards “engaged” stage. One stage ahead, a more efficient and equitable step would be to move towards the “integral” stage, focusing more on providing direct and targeted support to families and students.

31. As in the US system, a large proportion of federal support to higher education is through direct support to students: federal grants or loans to cover tuition fees, work-study programs, etc. These sources of support will eventually finance institution’s operations. But the difference is that channeling through the targeted families and students would not only provide families and students with “choices” of institutions and therefore better incentives for institutions to improve service delivery and to compete for students, it would also narrow the existing large gaps between the rich and the poor in tertiary education participation in Indonesia. However, the successful implementation of this would require high administrative capacity and an adequate data system for targeting, tracking, as well as loan collection.

C. Increased student financial aids to improve equity 32. The inequity in access to tertiary education in Indonesia today can only be reduced by

bridging the “wealth divide”. Supply side equity is very much achieved in provision of higher education particularly due to the Government’s decision in the 1960s to have at least one public institution in each of the 27 provinces then. Currently, Indonesia’s levels of cost-recovery are among the world’s highest and continue to rise. In public HEIs, cost recovery from student fees has risen by over 200 percent in real terms in the past five years. Even without any calculation of opportunity costs, the total household direct cost of higher

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education in Indonesia may amount to over US$ 1,000 per year, a major factor leading to the fact that most tertiary students, in both public and private institutions, come from Indonesia’s better-off households. Various students-support schemes exist such as partial or full scholarships and tuition waivers. But overall these benefit only 2-3 percent of total number of students who have been enrolled in HEIs already, most likely not from the poorest households.

33. Improving the efficacy of the efforts to improve access equity will have to overcome the barrier that most children from poorer families presently are not enrolled in HEIs. This can be firstly implemented by changing the financial aid schemes, moving part of the scholarships to enrolled students to direct financial aid to promising secondary school graduates.

34. The coverage financial aid also needs to be increased. One feasible start is to change the Government financing channels to public HEIs: instead of giving HEIs public budget allocation inclusive of scholarships, part of the budget can be allocated as direct student financial aid. The Institutions would then get the funding indirectly through cost-recovery from these students. This change would not only improve the equity, but also create a cultural of competition among institutions, private and public.

35. Administration capacity will have to be strengthened at both central and institution level particularly in the area of targeting and monitoring. This would be pre-requisite for a wider range of instruments to be used. Targeting candidates outside HEIs will need an efficient data system on household conditions. The current system that has been used for the conditional cash transfer program could be basis for it. But it has many weaknesses in implementation. Administration system will also have to be designed to ensure smooth implementation and long-term sustainability. Indonesia’s has had some past effort that has not been sustained: A subsidized student loans scheme was tried years ago but was abandoned because it was difficult to recover the loans.

D. Efficient pathways for future expansion

36. Indonesia will need to explore what type of institutions that should be supported and relied on to expand coverage. Indonesia has already an open university with a large enrollment. Whether more could be established can be further explored. Thailand has a higher level of enrollment than many countries in the region despite a relatively low level of public investment is that a large share of the students (almost half) is enrolled in one of the two open universities. “Community college” can also be considered. They can offer 2-3 year diploma courses with credits recognized by universities if one wants to continue study for a Bachelor’s degree at a university after completion. Community colleges are generally less expensive. They could be most relevant in Indonesian context with the largely decentralized education service delivery up to secondary level currently. There has already been demand from the local governments for permission to establish “local” colleges.

37. On the other hand, there is need to review how to better guide the expansion of private HEIs. A key issue that should be highlighted is the economic consequences of having a lot of small size private institutions. Other countries have found that this could be a serious issue in terms of potential economies of scale and ability to offer good quality education.

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These countries have used accreditation decisions to close down some small private institutions that are sub-standards or to encourage mergers. Indonesia can learn some lessons from this.

E. Increased overall public resource allocation to higher education 38. The policy measures for the way forward would need much increased public resources

devoted to higher education. It is estimated that to better support public and private HEIs, and to make the system more equitable, even with the current enrollment expansion rate, the total amount of public resources needed for higher education would have to be increased from 0.3 percent of GDP to 0.6 percent by year 2020. If education budget remains at 20 percent of total GoI budget, this increased amount would be equivalent to 49 percent of total MoNE budget by 2020.

39. In conclusion, Governments have at their disposal a wide range of financing mechanisms to transfer public resource to the higher education sector. These range from supply-side financing, in which the government transfers funds to institutions directly (through traditional line-item budgeting, block grants, formula funding, competitive funding, or performance-based funding) to demand-side financing, in which the government channels funds to institutions indirectly through students, for example through scholarships, vouchers, subsidized student loans or service commitments. It is clear from experience worldwide that it is desirable to have a variety of different public funding mechanisms for higher education. It gives the government the flexibility to adapt its funding to its own evolving priorities, and gives the government the opportunity to use its funding to promote desired behavior. Indonesia has yet to find the appropriate mix for various funding mechanisms to support the higher education institutions for better efficiency, equity, as well as subtainability.

1

1 HIGHER EDUCATION IN INDONESIA

A. Government policy and strategy on higher education: a historical perspective

1.1 Indonesia’s higher education experienced fast expansion since independence. Indonesia’s higher education institutions (HEI) enrolled approximately 2,000 students at independence in 1945. Currently, the higher education sector consists of nearly 4 million students, and over 3,000 HEIs. During the 1960s and continued into the 1980s, the Government’s strategy was to expand access to public higher education. In 1960s, the political aspiration to have at least one public university in each province was accommodated. No less than 23 new public universities, institutes, and teacher training colleges were established during that period. The policy not only ensured some measure of regional equity, but also provided all provinces with a local source of teachers, civil servants, professionals, technical specialists, and managers. The expansion was planned and managed from the center, in response to the need for nation-building over a vast territory composed of many different ethnic and linguistic groups.

1.2 The expansion is particularly characterized by the ever more significant provision of higher education by private institutions. The period between 1980 and 1990 witnessed an increase in demand for higher education, at a much faster rate than the public sector was willing or able to provide. This resulted in phenomenal growth in the private provision of higher education with the number of private institutions. The expansion of private institutions was most rapid in the early 1980s fueled by successful expansion of basic education in the early years, economic growth following the oil boom, and the emergence of a middle class. These factors led to the ever rising demand for education. Meanwhile, the government loosened its enforcement of regulations on standards for the private sector. While public sector expansion has enabled more equitable regional coverage, private sector higher education is located mainly in the cities. Whereas the public sector tends to stress technological fields such as agriculture, engineering, and teacher education, the private sector focused on both the cheaper fields and those that are on high demand – such as computer science, management, etc.

1.3 Early effort to set quality standard for national higher education system started in 1961, when the government enacted the Law No. 15/1961. This is the first formal law on higher education, which stated the three obligations of higher education (“Tri Dharma Perguruan Tinggi”) of learning; research; and community service. According to Buchori and Malik (2004), the law initiated subsequent higher education developments and reforms in Indonesia, particularly in terms of institutional and organizational reforms. This law also provided the basis for private participation in higher education, allowing every citizen to establish new private higher education institutions.

1.4 In 1975 the first initiative to develop a national higher education long term vision was launched by developing the first Higher Education Long Term Strategy (HELTS) for the period of 1975-1985. The strategy stressed that the national higher education system, comprising both public and private institutions, should focus on improving relevance by

2

establishing strong linkages with the regional and national development. In addition to the introduction of a dual system consisting of academic and professional streams, three program levels in higher education were introduced, i.e. diploma, degree (“Sarjana”), and graduate programs. The organizational and management aspects were given serious attention through the introduction of credit system, student academic evaluation, student load, and staff promotion system (DGHE, 1975).

Table 1.1: Evolution of Higher Education Long Term Strategy (HELTS) Period

covered Focus Key policy reforms

1st HELTS 1975-1985 Emphasized on the aspect of relevance by taking into account the need of strong linkages between higher education and the development programs in the region or nationwide

Academic and professional streams; diploma, degree, and graduate programs; Credit system and standard.

2nd HELTS 1986-1995 Focused on consolidating previous achievement and improvement of quality

National Accreditation Board (Badan Akreditasi National, BAN) established in 1994 under Ministerial Decree No. 0326/U/1994.

3rd HELTS 1996-2005 Focused on three core programs, i.e. implementation of the new paradigm in higher education management, improvement of relevance and quality, and promotion of geographical and social equity

“New paradigm” redefining the roles of the center, and of the individual institutions of higher education; Board of Higher Education (Dewan Pendidikan Tinggi, DPT) was established by Ministerial Decree No. 0121/U/1996; Four public universities granted autonomy; Performance-based resource allocation proposed.

4th HELTS 2003-2010 Focused on the nation’s competitiveness, promotion of decentralization and autonomy and improvement of organizational health

Institutional autonomy is greatly promoted; Three more public universities became autonomous; competitive grant and performance grant launched to public and private institutions

Source: Higher Education Long Term Strategy, DGHE, various years.

1.5 The second HELTS 1986-1995 focused on consolidating previous achievement and improvement of quality. During this period, the National Accreditation Board (Badan Akreditasi National, BAN) was established in 1994 under Ministerial Decree No. 0326/U/1994. However, the economic downturn caused by the sudden drop of oil prices in the early 1980s had prevented the student enrollment to further expand at public HEIs during this period. Nevertheless, the enrollment rate in the private institutions was steadily increased by 9 percent per year (DGHE, 2003). An early attempt to introduce reform in higher education by allowing foreign investment in higher education (under Government Regulation No.30/1990) did not achieve the expected outcome due to inadequate public and political supports.

1.6 The third HELTS (1996-2005) comprises three core programs: implementation of the new paradigm in higher education management; improvement of relevance and quality; and improvement of geographical and social equity. The New Paradigm redefined the roles of the center, and of the individual institutions of higher education; focused on educational outcomes; and provided new mechanisms to enhance university level decentralized planning and performance-based resource allocation. Under the New Paradigm, the role of the central

3

Government will be to set the rules of the game, direct resource to high-priority areas, encourage both public and private institutions to raise their standards, and provide funds for those purposes where there is market failure. The main themes of the emerging role for the public sector include (a) greater decentralization of management for the public system, (b) a continuing role as direct provider of higher education is less-developed regions and in high priority fields, (c) an increase emphasis on economic consideration in determining where public funds should be invested, and (d) an important role in enhancing quality in both public and private institutions. During this period, the Board of Higher Education (Dewan Pendidikan Tinggi, DPT) was established under the Ministerial Decree No. 0121/U/1996. Furthermore, the first four public universities were granted autonomous status.

1.7 The financial crisis, which hit the Indonesian economy in 1997 triggered serious economic, political, and social crises in 1998. In order to respond to the changes in the political, economic, and social structure caused by the crises, a new HELTS was launched in 2003, two years before the end of the third HELTS. The new HELTS 2003-2010 based its strategy on the three main pillars: (1) contributing to the nation’s competitiveness by demonstrating its relevance and sensitivity to natural and social environment; (2) promoting decentralization and autonomy as a new approach for managing the Indonesian higher education sector; and (3) improving organizational health through improving internal management and developing a healthy organization as condition for a successful decentralization and autonomy. Institutional autonomy is the cornerstone of this strategy. During this period, three more public universities became autonomous in 2003, 2004, and 2006 respectively. In addition, innovative funding mechanism, such as competitive grant and performance grant were launched to public and private institutions.

B. Higher education coverage, quality, relevance and governance: an overview

1.8 Indonesia’s current higher education system consists of approximately over 130 public and over 3,000 private higher education institutions. Although the public institutions only account for 4 percent of the total number of institutions, they account for 32 percent of the total enrollments with the remaining 68 percent enrolled in private institutions. Among public universities, nearly half evolved from teacher training institutes (LPTK, FKIP).

Box 1.1: University autonomy In 1999, the Indonesian government enacted a Government Regulation No. 61/1999 in order to facilitate the

plan to transform public universities to be autonomous universities or “state legal entity university” (Universitas Badan Hukum Milik Negara or abbreviated as BHMN). This transformation is meant for developing managerial and accountability capacity of higher education institutions. Four most established public universities, i.e. University of Indonesia, Gadjah Mada University, Bogor Agricultural University, and Bandung Institute of Technology, became the pioneer for the transformation. Ten years after, in December 2000, those four universities formally changed their status to become a public legal entity or BHMN universities ratified by the government regulations, i.e. PP 152/2000, PP 153/2000, PP 154/2000, and PP 155/2000. After the transformation into legal entities, those universities do not get line item budget allocation from the government funding, instead the funding is provided through block grant. The management of these institutions is not under the government or the ministry of national education (MoNE) anymore. Three other public universities were transformed into BHMN universities during 2003-2006. North Sumatera University, Indonesia University of Education (previously Bandung Teacher Training college) and Airlangga University became new legal entities in 2003, 2004 and 2006 respectively.

4

Table 1.2: Higher education enrollment by type of institutions5

MONE MORA

Public Private Public Private

University 1,139,050 1,412,655 70,594 82,968

Institute 39,027 104,924 56,531 23,539

School of higher learning

877 758,620 48,453 286,253

Academy - 245,816 - 1,729

Polytechnic 58,454 45,864 - -

Total 1,237,408 2,567,879 175,578 394,489

Source: Higher education statistics, MoNE, 2007/08.

Table 1.3: Number of Higher Education Institutions (HEIs) by type

MONE MORA

Public Private Public Private

University 48 375 6 86

Institute 6 37 13 25

School of higher learning

2 1,186 33 377

Academy 0 884 - 6

Polytechnic 27 116 - -

Total 83 2,598 52 494

Source: Higher education statistics, MoNE, 2007/08.

1.9 The over 3,000 private institutions comprise a wide variety of academies, schools of religions, colleges, institutes, and universities and cater to nearly 3 million students. Many of these institutions are quite small, offering only one or a few programs. But in recent years, some premier private universities start to emerge.

1.10 There is a widely perceived quality difference between the public and private providers. Buchori and Malik (2004) noted that even though the number of private institution is much higher than that of the public institution, most of them have relatively lower quality due to poor resources. In contrast to the condition of private institutions in developed countries, which in general have high quality learning system and environment and cater to the better-off, the reverse condition applies to private higher education institutions in Indonesia. Except for a few top-quality private universities, most private HEIs in Indonesia are considered “second choice” if one fails to compete for the few places in public universities. Among the public

5 A university grants academic degrees up through S3 (Ph. D.) and has multiple faculties and disciplines; An institute is an institution which grants academic degrees up through S3 (Ph. D.) but in only one discipline, i.e. Institute of Engineering, Institute of Agriculture; A School of higher learning (Sekolah Tinggi) is a one-faculty institution granting academic degrees up through S3 (Ph. D.); An academy is a three-year, professional diploma-granting institution; A polytechnic is a three-year professional diploma-granting institution, primarily in engineering, agriculture and some business fields.

5

higher education institutions, four are considered premier: University of Indonesia, Bandung Institute of Technology; Bogor Agricultural University, and Gajah Mada University.

1.11 With prominent presence of private providers, Indonesia’s tertiary education enrollment has been able to exceed that of the population growth, resulting in a growing enrollment rate (Figure 1.1). Private providers play significant roles in enrollment expansion, which cover over 60 percent of the total tertiary enrollment. Currently, there are around 3,000 private higher education institutions and 135 public ones in the country6. While a majority of public institutions are universities (48 under MoNE and 6 under MoRA) and polytechnics (27), a majority of private institutions are categorized as “school of higher learning” (1,186 under MoNE and 377 under MoRA) or academy (884 under MoNE and 6 under MoRA). In 2007/08, there are over 4 million students enrolled in higher education7.

Table 1.4: Public and private tertiary education enrollment by discipline (2007/08)

public private

Field of Study Enrollment Graduates Enrollment Graduates

Total 1,237,408 88,830 2,567,879 203,655

Total non - Teacher Training 867,949 62,309 2,313,678 183,496

Administration/Business Management 19,738 1,419 30,871 2,447

Administration/Financial Management 10,061 722 8,553 677

Government Administration 41,549 2,983 56,073 4,447

Administration/Office Management 7,295 524 68,069 5,399

Architecture and City Planning 10,732 771 20,209 1,603

Language and Literature 35,867 2,574 72,269 5,732

Economics 187,870 13,485 889,306 70,532

Law 63,465 4,555 204,509 16,219

Humanism 2,878 208 12,617 1,001

Physical Science 47,384 3,402 53,083 4,210

Social and Political Science 27,845 1,999 72,212 5,726

Health and Medical Science 74,566 5,353 46,548 3,691

Forestry 13,116 942 4,615 366

Art 6,567 471 367 29

Communication and Documentation 26,462 1,900 747 60

Mathematics and Computer 32,080 2,303 180,319 14,300

Services 5,268 377 39,211 3,110

Fishery 23,189 1,664 5,729 455

Agriculture 69,816 5,011 48,664 3,859

Carpentry, Handicraft, and Industry 1,246 90 10,801 856

Farming 24,750 1,778 5,442 432

Psychology 10,940 785 56,907 4,514

Engineering/Technology 121,631 8,732 414,755 32,894

Transportation/Communication 3,634 261 11,802 937

Keguruan / Teacher Training 369,459 26,521 254,201 20,159

Language and Literature 48,804 3,504 110,614 8,772

Philosophy/ Humanity 67 4 7,832 621

Physical Science 38,742 2,782

Social Science 62,739 4,504 65,498 5,195

Sport 2,840 204 4,949 393

6 Excluding training institutes outside MoNE and MoRA. 7 There are also 52 public and 488 private higher education institutions under the management of the

Ministry of Religious Affairs. Total enrollment in these institutions is around 570,000 in 2007/08. This paper will focus on the cost and financing issues of the higher education institutions under the Ministry of National Education.

6

Special Program 140,802 10,108 41,897 3,323

Mathematics 17,848 1,282

Sport and Health 19,259 1,382 6,618 524

Art 9,320 669 264 20

Engineering/ Technic 20,154 1,446 9,835 780

Teacher Training science 8,884 636 6,694 531

Source: Higher education statistics 2007/2008, MoNE.

Figure 1.1: Trend of gross tertiary enrollment rate in private and public institutions, 2001-2008

Source: SUSENAS Core Module 2001-2008; Enrollments in private vs. public institutions were only collected in

selected years.

1.12 The overall education attainment of Indonesian population is still low for the goal of a highly productive labor force together with a sizable middle class. For Indonesian adult population between age 25 and 64, only around 7 percent have some post-secondary education and about one-fifth upper secondary education (Figure 1.2). The currently rising enrollment rate for senior secondary and tertiary education is a promising sign that Indonesia is catching up. Ensuring a conducive policy environment for adequate demand and supply of higher level education will be a key challenge.

5.8% 6.1% 6.3% 6.7%

9.5% 9.8% 9.8% 10.2%

14.9%18.2% 20.1%

26.6%

0

0.05

0.1

0.15

0.2

0.25

0.3

2001 2002 2003 2004 2005 2006 2007 2008

all

private

public

7

Figure 1.2: Education attainment of adult population age 25-64

Source: OECD education at a glance 2008 (2006 data); Indonesian data from 2008 Sakernas; Malaysia 2002 data from ILO;

Thailand 2003/04 data from ILO.

1.13 Despite a steady increase in the enrollment rate in the past years, higher education access and participation of rural population and socioeconomically disadvantaged groups are still a critical concern in Indonesia. Admission to public universities is highly competitive. Each year around half million students compete for about 100,000 seats available in the public universities around the country (Nizam, 2006). The highly competitive nature of the national entrance test effectively keeps a majority of children from less well-off families out of the system.

1.14 The Government is also concerned with raising the quality of higher education so that Indonesia can be more competitive globally. There are several factors which constrain improvements in quality. One is the general low level of qualification of teaching staff. Only 30 percent of staff in public institutions and eleven percent of staff in private institutions hold S2 and S3 degrees. In addition to problems with teaching staff, several other factors also affect quality: laboratory facilities are inadequate in most institutions, particularly in private institutions, and library holdings, even in the best institutions, are limited. Still another impacting on the poor quality of learning is the poor quality of secondary school graduates. Except for a few elite institutions, private HEIs have more prominent quality issues, including fewer resources, dependence on part-time staff, primarily from public institutions, and few incentives to invest in additional facilities and equipment, and attract low quality entrants.

1.15 There is also no adequate incentive scheme for instruction and academic work. Some professors delegate large amount of teaching loads to assistants, while looking for other opportunities outside the university. While a national system of academic evaluation has been instituted that gives different amounts of points for various forms of academic work and service – published papers, consulting, teaching, community services, the implementation of it is often characterized by being tainted with favorism and reduced value as motivator. It has been suggested that the private sector does better in holding professors accountable for performing their duties. Without attracting enough students , the program will be dropped. This is a form of pragmatic accountability.

0% 20% 40% 60% 80% 100%

MexicoIndonesia

BrazilThailand

ChileMalaysiaAustralia

OECD averageEU19 averageNew Zealand

KoreaCanada

USRussiaJapan

below upper secondary upper secondary

post-upper secondary /tertiary

8

1.16 Key efficiency concern lies in the inability to graduate on time. The undergraduate program should be completed in four years. However, in both public institutions, taking more than five to six years to complete their studies is not uncommon. In the traditional university system, each faculty offered a rigid curriculum that students were required to move through in lock-step fashion: if a student failed even a single course in a particularly academic year, it was necessary to repeat and pass all of the courses for that year before moving on to the next year. The traditional system, highly formal in nature, placed a number of obstacles in the way of graduation. A recent survey report that students at the most efficient faculties took an average 5.1 year to complete a “four-year” program while those at the least efficient faculty took 8.9 years. In addition, low student-lector ratio of 12:1 limited utilization of physical space, and the low number of student/staff contact hours.

1.17 On relevance, the Government is concerned that the present higher-education system is not providing graduates in the fields which will be most needed by an economy that is growing rapidly and changing structurally. One indicator of this mismatch between the output of the higher-education system and then needs of the economy is the long waiting period between graduation and employment.

1.18 Higher education sector governance mostly relies on the Ministry of National Education as the lynchpin and the core shaper of sector policies. Most public educational institutions, including the public universities, are technically subordinate. For example, the minister of education has the final authority in the appointment of rectors and making the appointments from ranked lists of candidates supplied by the respective institutions. Moreover, the minister can even ignore the recommended candidates. While the minister is technically in charge, universities command considerable independent authority. The Directorate-General for Higher Education (DGHE) represents the government in these negotiations, and most of its key members have a university affiliation of their own. The pattern of heavy university and teacher training institution representation in the Ministry of Education has prevailed since independence.

1.19 The policy advisory role of the Board of Higher Education (BHE) should be strengthened to serve as a linkage between HEIs and DGHE. The BHE is composed of various stakeholders including representatives of private-sector employers, the Ministry of Education, the National Planning Board, and academic community (both public and private HEIs), the National Research Council and the Nation Advisory Board on Education. The BHE has the responsibility in identifying local and national needs and new programs to be financed, and providing a medium to long term perspective to the DGHE; channeling competitive funding for research and graduate education through the existing University Research Council, and providing technical assistance and training to institutions of higher education to strengthen their capacity for decentralized academic planning and management.

1.20 The Government looks to the public sector as the main vehicle for realizing its policy objectives. The Government has a major influence on public sector institutions by virtue of its key role as chief financier. In contrast, private institutions receive most of their funds from nongovernment sources, primarily student tuition and fees. However, the government does offer some resource to the private sector: for example, the government plays the salaries of certain lecturers it “loans” to the private sector. This includes lecturers from private institutions

9

in it domestic faculty upgrading initiatives it sometimes provides fellowships to enable lecturers from private institutions to pursue overseas study. It has various programs to support faculty upgrading by private institutions in such crucial field as mathematics and science. Private HEIs also have equal access to competitive funding.

1.21 While recognizing that public and private institution face different problems, the Government sees that both types of institutions need an incentive to raise quality. One important quality assurance mechanism to this end is the National Accreditation Board (BAN-PT), which periodically inspects and accredits programs of study and institutions of higher education, both public and private, and make the results public. BAN is intended to increase transparency in the Indonesian higher education system, to guide users, to ensure accountability, and to strengthen incentives for individual universities to increase quality standards, efficiency and relevance. However, in recent years, the capacity limit of BAN has posed serious constraint on its effectiveness: the programs being awaiting to be accredited has been long backlogged, and the reforms of BAN-PT itself has become ever more imminent.

2 HIGHER EDUCATION FINANCING

2.1 The financial commitment from Indonesian government to education, including higher education, increased substantially over the past several years. While the emphasis of public finance at basic education level has focused on continued expansion towards 9-year universal basic education, key financing reforms at higher education level have been aimed at strengthening the higher education institutions’ accountability, efficiency, and competitiveness through innovative financing mechanisms, such as competitive grants to the institutions, to improve efficiency and reward good performance. With the backdrop of these reforms, this chapter focuses on analyzing four key questions on higher education financing: (1) Is Indonesia investing sufficiently at the higher education level? (2) Are public resources distributed in a manner that rewards performance in higher education institution? (3) Are available resources used in an effective manner within higher education institutions? (4) Are public funds distributed among various population groups in an equitable way?

A. Resource mobilization: Is Indonesia investing sufficiently in higher education?

Total spending on higher education 2.2 Indonesia’s total spending on higher education, a sum of both private and public resources, is low as percentage of GDP, together with the low coverage of higher education. Compared with other middle-income countries, Indonesia’s tertiary education coverage is at the lower-middle end. One commonly used indicator for measuring tertiary education coverage is “tertiary graduation rate”, which measures the total tertiary graduates as percentage of the population at the typical age of graduation. Figure 2.1 shows that the total amount of national resources devoted to tertiary education does seem to matter for achieving better tertiary education coverage measured by tertiary graduation rate. Developed countries such as Denmark and Finland, spend between 2-3 percent of their total GDP on tertiary education and maintained higher levels of tertiary graduation rate. In comparison, Indonesia spends about 1.2 percent of total GDP on tertiary education. Like many other lower-middle income countries,

10

the relatively low percentage of GDP devoted to tertiary education in Indonesia mostly reflect its low coverage of tertiary education. In addition, less well-off countries (with lower GDP per capita) are also at one disadvantage: they usually have to devote larger share of national resource to maintain the same level of coverage, as tertiary education is the most globalized education sub-sector that include many internationally “tradable” goods and services as inputs8. But this does not exclude some middle income countries, such as Thailand, have high coverage of tertiary education (comparable with OECD country average, in Thailand’s case) with a relatively low proportion of GDP resources devoted to tertiary education.

Figure 2.1: Tertiary education spending vs. tertiary graduation rate9

Source: UNESCO “World Education Indicators” 2007.

2.3 One distinctive feature of tertiary education financing in Indonesia is the large share of financing from households/private source. Out of the 1.2 percent of GDP spent on tertiary education, 0.9 percent of the total GDP, or three quarters of the total spending on tertiary education is contributed from private sources and mostly in the form of tuition and other fees and levies. Figure 2.2 and 2.3 compare the private and public financing shares of tertiary education in selected countries. It is noticeable that there are large variations across countries in the relative shares of public and private financing, which are largely linked to the institutional and historical factors. Within East Asia, Malaysia’s tertiary education has 100 percent of public financing, while that of Republic of Korea has less than 15 percent public financing. Both countries have high tertiary education coverage.

8 Such as training faculty overseas. 9 Tertiary graduates as a percentage of the population at the typical age of graduation (gross ratios).

Indonesia

Peru

UruguayArgentina

Paraguay

Japan

ThailandOECD

Tunesia

Malaysia

USSweden

PolandDenmark

Finland

0%

10%

20%

30%

40%

50%

60%

70%

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Tert

iary

Gra

du

atio

n r

ate

Total (public+private) spending on tertiary education as % of GDP

11

Figure 2.2: Shares of public and private financing for tertiary education

Source: UNESCO “World Education Indicators” 2007 and 2005. Private spending includes household expenditures.

Figure 2.3: Public and private spending on Tertiary Education as percentage of total GDP

Source: UNESCO: World Education Indicators (WEI, 2007). Figures reflect estimates for 2004-05. Indonesian

figure is from 2009 budget.

2.4 Total public expenditure on higher education is low in Indonesia, albeit on the rise from 0.25 percent of GDP in 2005 to around 0.3 percent of GDP in recent years. The total amount is largely to finance the 76 non-autonomous public universities and institutes, and seven autonomous universities. There are also subsidies to private universities, but generally in small amount compared with the vast enrollment in private universities. Compared with other countries, e.g. OECD countries as well as other countries in the region, Indonesia spends very little public resources on higher education as proportion of its GDP. For example, Malaysia’s public spending on higher education amounts to 2.1 percent of GDP, and OECD countries on average devote their public resource up to 1.3 percent of GDP.

14.9

15.5

25.0

40.1

41.5

41.5

45.7

51.4

67.5

75.7

86.1

96.9

100.0

85.1

84.5

75.0

59.9

58.5

58.5

54.3

48.6

32.5

24.3

13.9

3.1

0.0

0% 20% 40% 60% 80% 100%

Korea

Chile

Indonesia

Jamaica

Japan

Peru

Paraguay

Argentina

Thailand

OECD mean

India

Uruguay

Tunisia

Public sources Private sources

0.30.3

0.50.60.60.70.70.7

0.911.1

1.31.8

2.1

0.90.4

2.70.0

3.40.70.81.0

0.40.2

1.60.4

0.00.0

0 1 2 3 4 5

Indonesia Peru Chile

Uruguay Korea

Argentina Paraguay

JapanThailand

India Jamaica

OECD avearageTunisia

Malaysia

% of GDP

public

private

12

2.5 Significant proportions of revenues at public higher education institutions are from fees and other self-generated revenue sources. Figure 2.4 shows the distribution of revenues by source in seven autonomous universities in comparison with other main public HEIs. On average, around 40 percent of the total revenues at the institution level are from fees charged to students, even though variations exist. DGHE in general does not impose any restrictions on fee schedule. On the contrary, given the 2007 MoF new regulation allowing some HEIs with adequate accounting standard to retain and use their own revenues directly, it is commonly understood that the income-generating activities are implicitly encouraged.

2.6 One key difference between autonomous and non-autonomous universities in terms of income-generating is that the autonomous universities generate significant income from sources other than student fees. These include consulting services, and other campus-based businesses such as parking, cafeteria, bookstore, etc. The four premier universities, University of Indonesia, Bogor Agricultural University, Bandung Institute of Technology, and Gadjah Mada University, particularly have large share of revenues from non-student fee sources. For example, nearly 40 percent of Bandung Institute of Technology’s income is self-generated but other than fees and charges to students.

Figure 2.4: Share of HEI revenues by source, 2009

Source: DGHE budget and audit report for autonomous universities.

Per student (unit) spending on higher education

2.7 Per student (unit) spending on tertiary education varies largely between public and private higher education institutions. It is estimated that in 2009, the average unit spending at a public institution is about Rp 22 million (US$2,20010) per student, compared with around Rp 12 million (US$ 1,200) per student in private institutions. The sources of financing are also largely different: while around 40 percent, or about US$920 out of the US$2,200 are from the Government budget allocation for public institutions, only 5 percent, or about US$56 out of US$1,200, is from the Government for private higher education institutions. Averaging cross

10 Using July 2009 exchange rate: US$1 is approximately Rp 10,000.

39%

43%

21%

22%

29%

58%

37%

56%

33%

52%

59%

39%

51%

38%

37%

30%

28%

5%

20%

39%

19%

0%

26%

14%

0% 20% 40% 60% 80% 100%

Universitas Pendidikan Indonesia

Universitas Sumatera Utara

Universitas Indonesia

Institut Teknologi Bandung

Universitas Gadjah Mada

Other 75 HEI average

Institut Pertanian Bogor

Universitas Airlangga

DGHE allocation Student fee Other income Foreign donor project

13

private and public institutions, per tertiary student spending in Indonesia is slightly above US$1,500, of which a quarter, or about US$350 is from the central Government (Figure 2.5).

Figure 2.5: Estimated 2009 unit spending per pupil11

Source: 2009 MoNE Budget. 2006 SUSENAS education module adjusted with 30 percent annual nominal growth

(extrapolated between 2003 and 2006) to reflect 2009 nominal cost.

2.8 Figure 2.6 shows the international comparisons of the unit spending per student. The values are in US$ based on purchasing power parity conversion rate12. The unit spending at Indonesian public tertiary institutions is only slightly lower than countries like Chile, Korea, and Malaysia. However, the unit spending at private institutions is at the lower-middle end. We also included the “ideal” unit spending assessed by MoNE in 2002 for comparison. After converting to 2009 value using BPS annual CPI, it is estimated that this “ideal” unit cost is very similar to OECD countries’ average, 30-40 percent higher than those in Asian countries such as Malaysia or Korea, where relatively better higher education coverage is achieved.

2.9 Unit spending per student also varies largely by the type of HEI in Indonesia. Public polytechnics have the highest per student spending, compared with other public higher education Institution, particularly that of the universities that were evolved from teacher training colleges (“ex-IKIP”). The high unit spending at polytechnics is predominantly financed by public sources. Excluding LPTK, per student spending at public autonomous universities is around 10 percent higher than that at public non-autonomous universities. The difference is mostly due to the higher fees and income sources at these institutions. The average levels of public financing per student are quite similar at these two types of institutions.

11 Private spending includes household out-of pocket expenditure, such as books, transportation, etc. 12

US$1=Rp3,570 in purchasing power parity (The World Bank).

public institions

private institutions

weighted average

HH expenditure per student 12,874,500 11,115,000 11,726,747

Gov. spending per pupil 9,190,907 565,498 3,564,401

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000 R

p. p

er

year

14

Figure 2.6: Public spending per student in public tertiary institutions

Source: UNESCO: World Education Indicators (WEI, 2007). GNI per capita at PPP is from World Bank. *Indonesia “ideal” unit cost includes only operational cost estimate. For Indonesia, “(pub.+priv.)” indicates both public operational and investment spending plus private spending; “(pub. Op + priv.)” excludes public investment spending. It is estimated that around 30-40 percent of public spending for investment purposes.

Figure 2.7: GNI per capita vs. per student spending for tertiary education

Source: WEI 2007 (UNESCO).

1,222 1,661 1,905

2,562 2,654

2,948 2,948

3,272 3,393 3,395 3,668 3,760 3,792

4,412 4,652

5,066 6,831 6,873 7,068

7,741 8,997 9,019

10,084 11,100

12,193 14,036

- 4,000 8,000 12,000 16,000

Peru PhilippinesArgentina

Russian FederationID-ex-LPTK (pub. Op. +priv.)

UruguayParaguay

ID privat Inst.ID-other public (pub. Op. +priv.)

ID-ex-LPTK (pub.+priv.)India

ID-Polytechnics (pub. Op.+priv.)*ID-autonomous (public op+private)

PolandID-other public (pub.+priv.)

ID-autonomous (public+private)ID-Polytechnics (pub.+priv.)

ChileKorea

PortugalMalaysia

BrazilID - "ideal" unit cost*

OECD meanJapan

Australia

US$ using PPP

IndiaRussia

Uraguay

Argentina

Portugal

Philippines

Malaysia Brazil

ID-ex-LPTK

ID-"ideal"OECD

Peru

Japan

Chile

ID-Private Poland

Korea

Australia

ID-Polytechnics

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0 5000 10000 15000 20000 25000 30000 35000 40000

tota

l sp

en

din

g p

er

pu

pil

in p

ub

lic t

ert

iary

inst

itu

tio

n

GNI Per capita PPP

15

2.10 As in relation to GNI per capita, Indonesia’s unit spending on tertiary education is at par with the average. However large variations also exit among different types of institutions (Figure 2.7). It is estimated that the unit spending at private tertiary institutions, ex-IKIP (public) universities, is 80-90 percent of GNI per capita. On the other hand, the per-student spending at public polytechnics is 1.8 times of GNI per capita, and the estimated “ideal” spending is 2.6 times of GNI per capita, which are among the highest ratio in the world.

2.11 In conclusion, Indonesia spend smaller amount of public resources as proportion of GDP on higher education. The country’s sustained growth in tertiary education coverage is contributed significantly by households to public and private institutions equally. In addition, many private tertiary institutions are operating at low unit spending. For public institutions, although the level of unit cost in the middle-range in the world in absolute terms, it is on the high end as percentage of GNI per capita.

B. Resource allocation: Do public funding mechanisms reward performance and promote accountability?

Current public financing system for HEI

2.12 The budget for the public HEIs in Indonesia is allocated through DIPA (budget implementation document) under a consolidated budgetary system. The lowest budget level is a “Working Unit” (Satuan Kerja, or SATKER). Including the seven autonomous universities, all public HEIs under MoNE have their DIPA under the Directorate General for Higher Education (DGHE). However, these 82 institutions carry out their budgeting and reporting activities differently. For the majority non-autonomous universities, line-item budgeting is required, just like what is required for a directorate under DGHE. The institutions have been strictly accountable in terms of these itemized budgets. For the seven autonomous universities, greater discretion is given. They are also eligible to receive block grants without following itemized budget line strictly.

2.13 There are also differences in terms of how these HEIs’ self-generated income is budgeted, used, and reported. Although almost all tertiary institutions have their own revenues from sources other than central budget allocation, these revenues are reported very differently. For the 76 non-autonomous public institutions, their own revenues are projected, and included in the central government budget (ABPN). The seven autonomous universities report their revenues and expenditures through public auditing, with the auditing report usually available at the end of the fiscal year. The private universities are only accountable to their boards of trustees, and financial information is generally not available to the public. For example, for a non-autonomous HEI, any budgeted activities are specifically linked to the funding sources in the DIPA system, with the total amount of self-generated income projected during the budgeting time. In 2007, the Ministry of Finance (MoF) introduced a special accounting system applicable to government implementing units with a potential to generate its own revenue (“Badan Layanan Umum” or BLU). Once a government unit is certified as BLU, the unit could retain and directly use the revenue, but has to submit quarterly financial report to the relevant Minister. Currently 17 public universities have been authorized to operate as BLU. Meanwhile, the seven universities with autonomous status still need to report DIPA utilization following similar format. But they are at discretion in reporting the use of self-generated incomes, with their own accounting system, with separate internal and external auditing

16

arranged, however obligated to submit to DGHE audited annual report. In summary, there are currently three parallel accounting systems used by the 82 public HEIs under MoNE. A uniform accounting coding system is now being developed with the coordination by the DGHE.

2.14 A large amount of DGHE budget goes to supporting public institutions. The 2009 Government budget for higher education is in the amount of 18.5 trillion Rupiah, or US$1.8 billion. Around 85 percent of the budget is to support tertiary education institutions: 69 percent is allocated to 76 non-autonomous public higher education institutions; 11 percent to seven autonomous institutions; and other 6 percent is to the coordinating agencies of the private institutions. In the 2009 APBN, about Rp 4.7 trillion, or US$470 million is from the own revenues of the 76 public institutions (Figure 2.8), which is quite significant considering that it is nearly a quarter of the total higher education APBN.

2.15 In addition to the 6 percent of DGHE budget going to the coordinating bodies of private HEIs at provincial level, some directorates, i.e. Directorate of Institutional Affairs under DGHE, also allocate resources to support private institutions. A small share of civil service lecturers is also teaching at private HEIs. Overall 6-10 percent of public funding is to support the private provision of tertiary education in Indonesia, which is relatively generous considering that very few countries in the world transfer public resource to the private higher education sector.

2.16 The government funding policies tend to reinforce the longstanding hierarchy of higher education institutions. Within the public sector, the leading national universities command comparatively large share of public funds. During the 1970s, these lead universities were designated as officially favored with disproportional funding. Subsequently the official designation was dropped but they continue receiving larger shares mostly due to large enrollment sizes that they can absorb, which is partly contributable to the public-sponsored capacity expansions in the early years.

17

Figure 2.8: Budget composition for Directorate General for Higher Education (2009 approved)13: in total amount: Rp 18. 5 trillion

Source: DGHE.

2.17 The current public financing arrangement for HEIs does not have an explicit financing formula, nor incorporates strong incentives at the system level to reward good institutional performance. The recurrent budget allocation is mostly incremental, and capital budgeting is mostly on need-basis, and up to various negotiation processes. The per-student financing by DGHE is highly uneven, even across similar institutions. Figure 2.9 shows that, excluding the five fine arts and performing arts institutes, per-student public recurrent financing is the highest at agricultural polytechnics. However, the financing amount at the Agricultural Polytechnics at Kupang is only about half of the amount at Samarinda. Similarly the per-student public financing is estimated at Rp. 22 million per year at the State University at Manado, compared with Rp. 5.4 million at the State University at Semarang. Considering that various HEIs have different operational environment that affects costs, the goal is not to have a “one-size fits all” approach for public financing, but rather, to establish efficient, equitable, and transparent criteria for public fund allocation.

13 Among all public higher education institutions, autonomous universities’ own revenues from fees, etc., are not included in the national budget (APBN), while non-autonomous institutions’ revenues are reported in APBN.

directorates15%

seven autonomous universities

11%

coordination of private universities

6%

other0%

State budget63%

Institution revenue (fees, etc)

37%

75 public institutions69%

18

Figure 2.9: Per student annual recurrent financing by DGHE (in thousand Rp), 2009

Source: 2009 DGHE budget.

2.18 Budget allocation is on an annual basis, and for the routine budget, mostly incremental from year to year. In general, investment budget and donor-financed projects involve multi-year planning. However, except for off-budget financing used by some bilateral donors, the annual project budget is based on the annual work plan and consolidated into the regular budget lines. Any changes will be similarly through budget revision process, which can be lengthy before final approval by the parliament. Indonesia’s fiscal year and university academic year do not overlap, with fiscal year starting on January 1st, and academic year starting in August. This creates some difficulties in budgeting. The main constraint in terms of

10,000 20,000 30,000 40,000

UNIVERSITAS PENDIDIKAN INDONESIAUNIVERSITAS INDONESIA

UNIVERSITAS GAJAH MADAUNIVERSITAS SUMATERA UTARA

UNIVERSITAS AIRLANGGAINSTITUT TEKNOLOGI BANDUNG

INSTITUT PERTANIAN BOGORPOLITEKNIK NEGERI JAKARTAPOLITEKNIK NEGERI MEDAN

POLITEKNIK NEGERI PADANGPOLITEKNIK NEGERI SRIWIJAYA

POLITEKNIK NEGERI SAMARINDAPOLITEKNIK ELEKTRONIKA NEGERI SURABAYA

POLITEKNIK NEGERI MALANGPOLITEKNIK NEGERI PONTIANAKPOLITEKNIK NEGERI SEMARANG

POLITEKNIK NEGERI UJUNG PANDANGPOLITEKNIK NEGERI BANJARMASIN

POLITEKNIK NEGERI JEMBERPOLITEKNIK PERIKANAN NEGERI TUAL

POLITEKNIK NEGERI AMBONPOLITEKNIK NEGERI BANDUNG

POLITEKNIK PERKAPALAN NEGERI SURABAYAPOLITEKNIK NEGERI KUPANG

POLITEKNIK MANUFAKTUR BANDUNGPOLITEKNIK NEGERI MANADO

POLITEKNIK NEGERI LHOKSEUMAWEPOLITEKNIK NEGERI LAMPUNG

POLITEKNIK PERTANIAN NEGERI KUPANGPOLITEKNIK NEGERI BALI

POLITEKNIK PERTANIAN NEGERI PANGKAJENE KEPULAUANPOLITEKNIK PERTANIAN NEGERI PAYAKUMBUH

POLITEKNIK PERTANIAN NEGERI SAMARINDAUNIVERSITAS NEGERI SEMARANG

UNIVERSITAS NEGERI JAKARTAUNIVERSITAS NEGERI MEDAN

UNIVERSITAS NEGERI SURABAYAUNIVERSITAS NEGERI YOGYAKARTA

UNIVERSITAS NEGERI MALANGUNIVERSITAS NEGERI PADANG

UNIVERSITAS NEGERI GORONTALOUNIVERSITAS NEGERI MAKASSAR

UNIVERSITAS NEGERI MANADOUNIVERSITAS SULTAN AGENG TIRTAYASA

UNIVERSITAS JENDERAL SUDIRMANUNIVERSITAS JEMBER

UNIVERSITAS SYIAH KUALAUNIVERSITAS PENDIDIKAN GANESHA

UNIVERSITAS SEBELAS MARETUNIVERSITAS RIAU

UNIVERSITAS MULAWARMANUNIVERSITAS DIPONEGORO

UNIVERSITAS LAMPUNGUNIVERSITAS PAJAJARANUNIVERSITAS BRAWIJAYA

UNIVERSITAS TANJUNGPURAUNIVERSITAS JAMBI

UNIVERSITAS BENGKULUUNIVERSITAS SRIWIJAYA

UNIVERSITAS MALIKUSSALEHUNIVERSITAS KHAIRUN

UNIVERSITAS HALU OLEOUNIVERSITAS TRUNOJOYO

UNIVERSITAS HASANUDDINUNIVERSITAS ANDALAS

UNIVERSITAS TADULAKOUNIVERSITAS PALANGKARAYA

UNIVERSITAS LAMBUNG MANGKURATUNIVERSITAS UDAYANA

UNIVERSITAS NEGERI PAPUAUNIVERSITAS MATARAM

UNIVERSITAS PATTIMURAUNIVERSITAS CENDRAWASIH

UNIVERSITAS NUSA CENDANAUNIVERSITAS SAM RATULANGI

Au

ton

om

ou

sP

oly

tech

nic

se

x-LP

TKo

ther

Pu

blic

19

budget management, however, lies in the delayed fund release. A large proportion of government funding is released during the last quarter of the year, a common issue across the sectors in Indonesia.

2.19 Distinct from the public sector are the large number of private institutions of higher education that depend almost exclusively on non-government sources for their funding. The private institutions are known to be more efficient than the public institutions in their use and payment of faculty, staff, and buildings. On the other hand, many private institutions, in order to minimize costs, are totally devoid of a research program and do not offer courses in fields thought to be essential for development in areas such as agriculture, forestry, and public health. In other words, recent experience suggest major trade-offs between efficiency and other priorities.

Institutional reforms

2.20 The higher education system in Indonesia has experienced some major changes in governance arrangement since mid-90s, towards the overall direction of greater degree of autonomy and strengthened accountability of higher education institutions in order to achieve better quality and efficiency. In 1994, the Ministry of National Education (MoNE) introduced a “new paradigm” for higher education management, starting with the establishment of the Board of Higher Education (DPT), together with three Councils (Education, Research, and Development) and the National Accreditation Board for Higher Education (BAN-PT). The DPT has the responsibility to provide strategic recommendation and to bridge between MoNE and external funding bodies as well as between MoNE and the universities. Meanwhile, the BAN-PT is mandated to independently arrange and conduct the accreditation of academic programs of private and public higher education institutions. Moreover, BAN-PT is aimed to improve transparency of higher education system in Indonesia, to provide public information, to promote accountability, and to strengthen incentives for individual universities to raise quality standards, efficiency and relevance.

2.21 The latest Higher Education Long Term Strategy (2003-2010) has continued with key institutional reforms, with Institutional autonomy for HEIs as the cornerstone of the strategy. The current strategy focuses on decentralizing public HEIs and making them autonomous institutions, changing the role of DGHE from one that tightly regulates HEIs to one that crates the enabling framework and infrastructure for a diverse set of institutions to flourish. In consistence with Indonesia’s broader trend toward the decentralization of public services and democratization, the HELTS aims at brining decision-making closer to key stakeholders – to give institutions not only the freedom but also the management capacity required to become less bureaucratic, more responsive to change, and better able to become more efficient and improve learning outcomes. The DGHE also seeks to balance the autonomy rights to HEIs and their increased responsibility to the public – thus making HEIs more accountable for the results that they achieve in their use of public resources.

2.22 In the move toward decentralization, the Government granted autonomous status to a few key public HEIs. In 1999, a new government regulation (PP 61/1999) was introduced to lay down the path to transform state/public universities into autonomous universities called “state legal entity university” (Universitas Badan Hukum Milik Negara, or BHMN). This path represents a new relationship between the Government and the universities: Government has become a

20

“purchaser of services” rather than the “owner” of these universities. To implement the new regulation, the Government requested the four most established universities (University of Indonesia, Gadjah Mada University, Bandung Institute of Technology, and Bogor Afgricultural University) to submit proposals to transfer their status. Each piloted university prepared the proposal in 1999-2000 and subsequently, in December 2000, four new state legal entity universities were established under government regulations (PP 152, 153, 154, and 155/2000). Currently, there are seven autonomous universities in the country, with three more universities added to the list: Airlangga University, North Sumatera University, and Indonesia University of Education. As a legal entity, the university is separated from the government bureaucracy and becomes more accountable to the public and not the Ministry.

2.23 The granting of autonomous status to these universities, however, was first made in the absence of the comprehensive changes to the legal framework. The existing regulatory environment at the time of the BHMN establishment did not permit and could not sustain the ambitious governance and finance innovations in the higher education subsector. For example, State Finance Law 17/2003 does not recognize the public funding for autonomous institutions, yet Education Law 20/2003 requires all public HEIs to be given autonomous status. The legal gap could prevent autonomous HEIs from receiving government funds and from managing their finances unless an intermediary law is put in place. In addition, HEI’s limited capacity to manage their own human resources is exacerbated by limitations imposed on them by the Civil Service Law 43/1999. Despite of their legal independence, the staff of the autonomous HEIs continues to be employed as civil servants, which limits the extent to which these institutions could adopt flexible human resource policies and fiscal rewards for staff performance. Thus, it is vital that the legal framework for higher education be adjusted to facilitate the introduction of autonomy and performance-based funding in HEIs.

2.24 The implementation of channeling public expenditure for higher education into a combination of block grants, competitive grants, and performance-based grants has also started. These resource transfers focus on improving not only education quality but also governance, efficiency, and equity. This is followed by the recent introduction of demand-side financing through higher education scholarships to high school graduates that can potentially serve a channel to transfer funds to both public and private HEIs. With its emphasis on reforming governance in the sector and developing innovative public financing tools, this HELTS can also be viewed as a significant experiment in improving the management and governance of public sector organizations.

2.25 The law on “Education Legal Entity” (UU BHP No. 9/2009) is intended to fill the regulatory gap and provide an overall legal foundation for institution autonomy in the education sector14. The law was passed in January 2009, about four years after the first draft. The law is widely recognized as “the BHP Law”, with the overall objective of providing a legal base to promote institutional “autonomy in formal education management” at basic, secondary, and tertiary education levels. The Law further stipulates that the primary and secondary schools that have “A” level accreditation and have been established by the central or regional government, together with all public higher education institutions can immediately become

14 The Law covers all levels of education. We focus on higher education in this report.

21

legal entities (Article 8). The Law further institutes the management structure and assets management arrangement that is required for any education legal entities.

2.26 The law contains detailed financing framework for an “Education Legal Entity”, striving to fill the legal gaps between institution autonomy and Government funding to institutions, which could not co-exist according to the previous legal framework. One of the key chapters (Chapter IV) of the Law is on financing arrangement of the legal entities. It states that “(the) source of fund for formal education services rendered by education legal entities shall be established in view of equality, adequacy and sustainability principles”; and “the funding of formal education delivered by education legal entities shall be under the joint responsibilities of the Government, regional government, and community in accordance with the applicable laws and regulations”. On higher education, it stipulates that “the Government, together with BHPP shall bear all investment costs, scholarship and education assistance of BHPP” and “the Government together with BHPP shall bear minimum ½ (half) of operational costs of BHPP delivering higher education based on minimum service standard”. The law further clarifies that costs to students should be according to the capacity of financing, but not exceeding 1/3 of the total operational cost (Article 41). The Law further states that 20 percent of the poorest incoming students should be entitled to receive Government scholarships (Article 46). Table 2.1 below summarizes these arrangements.

Table 2.1: Summary of Funding Obligations for Higher Education Under BHP Law

Investment Scholarships Operational

Government and Institution

100 percent 100 percent (for 20 percent of

the students )

50 percent up to 100 percent

Students Less than 33 percent

Source: Education Legal Entity” Law, (BHP, No.9/2009).

2.27 The Education Legal Entity Law, however, requires that education be provided by non-profit entities, which seems to preclude commercial, for-profit investment in higher education. The private education legal entities can be established by private foundations (“yayasan”). However, the line of ownership appears to be blurred: whether the funding is a “gift”, or investment (i.e. whether it shall be returned when the entity is dissolved) is unclear. In addition, the implementation of the BHP law needs to be clearly laid out to reconcile with the GoI’s 2007 investment Law and its implementation regulations, which allow foreign investment in education through limited liability companies with a 49 percent equity ceiling.

22

Fiscal Implications of the BHP Law

2.28 The latest BHP law signifies another large push towards autonomy of education service delivery at institution level. Its coverage is even wider, from basic education to higher education, and from central level to regional and community levels. If implemented fully, it could hugely reshape the overall landscape of education system financing and service delivery arrangement in Indonesia in the future. In terms of financing higher education, in addition to the changing financing shares from various funding sources as directly stipulated by the Law, one additional question that follows naturally is whether the current level of spending on higher education is adequate. The current funding level in some universities, for example, has already surpassed what was recommended in a unit cost study by MoNE in 200215, while some other universities (including a large majority of private universities) are still operating below that level.

15 “Higher Education Provider’ Unit Costs: Calculation Models for Undergraduate Program (S1)”, MoNE, 2002.

Box 2.1: Foreign investment in higher education

International trade in higher education services has mushroomed in recent years under very diverse arrangements. In the parlance of the WTO’s General Agreement on Trade and Services, international trade in education occurs via: (1) cross border supply; (2) consumption abroad; (3) commercial presence; and (4) movement of natural persons. Students traveling abroad and the movement of teachers are probably the most important. Cross border supply via distance learning is also growing rapidly as many schools, including top tier universities, have found this to be a lucrative market and now offer programs. Commercial presence through direct foreign investment is politically sensitive in many countries. It is perhaps the least common mode of international trade in higher education. Discussions on education are invariably tinged with nationalistic sentiments and concerns about competition from foreigners, and with concerns about the commercialization of a sector that is also the responsibility of the public sector. As a result, many countries face a difficult balancing act of finding new, politically acceptable models for upgrading their educational systems in the face of severe financial constraints. These new models often involve some degree of commercialization and foreign presence.

There are numerous types of institutional arrangements between foreign and domestic providers of higher

education, including twinning, joint degrees, branch campuses, franchises, commercial joint ventures, and articulation. Many of these arrangements now exist in Asia. In Indonesia, many foreign universities operate through joint degree and twinning arrangements. For example, the Faculty of Economics at the University of Indonesia has twinning/linkage/double degree programs with several Australian universities and with universities from New Zealand, the United States, and the Netherlands. However, no foreign university has been issued a permit to establish its own program in Indonesia. China has declared education to be a strategic driving force for economic growth and desires to accelerate investment in higher education. It is developing a wide range of alternatives to state institutions, including private universities, foreign universities, and distance learning using online and broadcast technologies. Although universities must be non-profit, they appear de facto to operate for-profit because of ambiguities in the law. Singapore aims to be a center of education excellence and to attract 150,000 international students by 2012. There are no foreign equity limits. Foreign universities with campuses already established or planned include: Johns Hopkins, University of Chicago, Stanford, MIT, INSEAD, and the University of New South Wales. The Government also encourages foreign institutions as twinning partners. Malaysia also aims to become a centre of education excellence and actively encourages foreign universities to setup branch campuses. In 2007, there were some 46,000 foreign students in Malaysia from 130 countries. A foreign university is required to collaborate with a local partner in order to maximize knowledge transfer and to facilitate in meeting local regulatory requirements. There is a foreign equity limit of 49 percent.

Source: Indonesian National Team for the Enhancement of Exports and Investment and World Bank (2009).

23

2.29 Using the current cost structure comprising investment, operational costs, and current spending level and shares of public and non-public funding, the fiscal impact on national budget can be summarized in Table 2.2. The minimum level indicates the central government financing amount if private can contribute the 1/3 of the operational cost, the max level under the BHP law. The maximum level indicates that government finances 100 percent of the operations cost. The change of the central government financing amount will largely determined by the split of investment and operational cost, and the financing arrangement. The more the private sources are financing now, the more increase should be expected for government financing under the BHP law. Similarly, the larger the share of investment spending, the larger the potential increase of the government financing. For example, for Bandung Institute of Technology, 78 percent of spending is financed by fee now, and 80 percent of the total spending is on operational activities. After the Law, the fee can cover only 1/3 of the operational spending need, and the gap would have to be filled by the government obligations. Since in general the autonomous universities have larger shares of operational spending financed by the fees, the biggest financing changes could be foreseen in these institutions if the Law is enforced.

Table 2.2: Illustration of potential 2009 budget change: Central government allocation in Rp if not otherwise indicated

2009 Government budget- central

allocation

Central Government financing obligation under BHP law

Min Max

(a) If BHP Law does not affect the current financing arrangement of 7 autonomous universities:

13,775,905,495,780 14,410,959,537,080 18,475,301,398,000

+4.6% +34.1%

(b) If BHP Law affects 7 autonomous universities

13,775,905,495,780 14,725,654,245,638 20,436,593,404,848

+6.9% +48.4%

Reference items:

76 public U. 8,001,674,103,780 8,636,728,145,080 12,701,070,006,000

7 autonomous U. 1,944,242,423,000 2,258,937,131,558 3,905,534,429,848

2.30 Using the current spending level and financing arrangement as the cost benchmark and baseline, the potential increase of central government financing is estimated at 4.6 percent at minimum and 34 percent at maximum if the seven autonomous universities’ financing arrangement is assumed to remain the same. If we include the seven autonomous universities, the government’s financing obligation can be between 7 to 48 percent, depending on private and institution financing capability (Table 2.2).

24

2.31 Looking at the national average alone would mask the deeper and broader financing restructuring implied at the individual institution level, given the large disparities of funding across all public higher education institutions. To estimate the financing implications to individual institutions, there are two approaches that can be taken to estimate the fiscal impact of the BHP Law:

Approach (a): Use current spending level at each individual institution as “de-facto” benchmark cost, comprising investment, operational, and scholarship cost, to analyze the change of the financing shares of public and private sources after the BHP law at each individual institution level.

Approach (b): Use current average spending level across institutions as the benchmark cost. Under this scenario, we can estimate the fiscal implications for polytechnics and universities separately as they may have very different cost structures.

2.32 Note that Approach a) and Approach b) are equivalent in terms of estimating the total/aggregated fiscal impact at the national level. However the implications for individual institutions are very different. Obviously approach a) is less equitable. For example, some top universities operate at a higher level of unit cost, which could reflect its quality premium or just simply inefficiency. Therefore government financing share based on the current actual cost will reinforce the quality disparity, or encourage inefficiency. (See details in Annex 1, Figure A1 and A2 illustrate the different results at institutional level for 76 non-autonomous public institutions (detailed numbers can be found in the annex).

2.33 The current government’s intention is to establish a unit cost standard based on the minimum service standard of higher education service delivery. The Government Regulation PP 19 / 2005 stipulates that the minimum service standard for national education comprises eight standards, namely content, process, assessment, graduate’s competency, infrastructure and facilities, teacher and other staff, management, and funding. A detailed description of higher education minimum standard can be found Annex 1. DGHE intended to use these standards to derive a standard unit cost of HEIs. One example is illustrated in Box 2.2.

2.34 Using a standard unit cost is similar to use approach b). In the long run, it will provide a more equitable and possibly also more efficient public financing framework to HEIs. However, two key issues need to be resolved first. First, given that a majority of public HEIs are still operating at the unit cost below what is implied by the minimum standard, this would lead to a bigger resource envelope needed overall. Second, whether the larger resource envelope can be effectively used at the HEIs and actually reach the minimum service standard as they currently stand is still a question mark. Many hardware and software investments obviously are needed to provide enabling environment and conditions to make this happen. This may lead to the first order need of investment spending in many public universities.

25

Box 2.2: An illustration of unit cost estimate Assumptions: (a) Curriculum for Sarjana program consists of 144 credit units (or 110 c.u. for polytechnics). Additional 20%

of elective courses is offered. One course is offered once a year. One academic calendar year consists of two semesters. One semester consists of 16 weeks. Each credit unit will be implemented in a session of 50 minutes classroom activity each week.

(b) Thus, the total number of session per year is therefore = 16 * Total-Credit *( 1+20%), which is for Sarjana program is 2,765 (or 2,112 for polytechnics), and is referred to as TotalSession

(c) Class size is 40 students for Sarjana program (or 24 for polytechnics), and is referred to as Class-Size.

(d) The retention rate (RR) is assumed to be 95% and 50% of graduates are assumed to complete their study on time (OT). Based on this the total student body (enrolment) is calculated as a function of class-size, i.e: enrolment = Class-size*Year-of-program*RR+(1-OT)*Class-Size*RR. The second term depicts the back-log. This means that that the annual intake is assumed to be steady.

(e) Lecturers are having Master (S2) qualification and with teaching load of 10 credit units (10 sessions per week).

(f) The proportion of Variable cost ranges between 70 to 80 % of the total, which implies the Fixed cost to assume value between 20 to 30% of the total cost.

(g) As described earlier, the Variable cost comprises:

Personnel: (P)

Instructional materials (I)

O&M of classroom equipment (O)

Utilities (U) Therefore, the total cost per session is defined as:

TCpS P I O U

(h) The fixed cost component will be noted as C.

The Unit cost per student per year is therefore:

*

TotalSession TCpS CUC

Enrolment

Based on the above formula, the unit costs for various disciplines are estimated as the following (in thousand Rupiah):

Price index bands

Range (reference: regional minimum wage)

R1 (619)

R2 (732)

R3 (854)

R4 (944)

R5 (1048)

R6 (1192)

D: All other subjects 8,085 9,572 11,155 12,340 13,694 15,569

C: Subjects with a studio, laboratory, or fieldwork

10,510 12,444 14,502 16,042 17,802 20,239

B: Laboratory based science 13,744 16,272 18,964 20,978 23,280 26,467

A: clinical medicine, dentistry, veterinary 32,339 38,288 44,621 49,361 54,775 62,275

Polytechnics 14,303 16,934 19,735 21,831 24,226 27,543

Source: Moeliodihardjo et al (2009).

26

C. Resource utilization: Are available resources used in an effective way within higher education institutions?

Efficiency indicators

2.35 The average length for obtaining a diploma or degree has decreased in recent years, possibly reflecting the increased internal management efficiency of tertiary institutions (Figure 2.10). For example, in public HEIs, the older cohorts (age 36-40 in 2008) spent nearly 6 years for finishing their S1 degree studies. The average duration has been shortened to about four and half years for the latest graduates age 26-30. The similar pattern is also shown for diploma programs. The average length of time in school shortened 50 percent, from over 3 years to 2 years. The main reason behind this is the recent reforms aiming at more flexible curriculum delivery structure. For example, “shorter semester” has been introduced in recent years, which is usually open during the inter-semester break. In addition, with ever increasing tuition fees and living costs, there is growing awareness amongst students that the longer they stay the higher the financial and opportunity cost.

Figure 2.10: Average number of years for obtaining a tertiary diploma/degree

Source: IFLS 4. The small sample size would not allow the authors to estimate the average study duration for D1,

D2, D3 separately.

2.36 Compared with public HEIs, the efficiency improvement in private HEIs seems to be faster and more prominent. In a decade’s time, the average length of study in private HEI was shortened from 5.7 years to 4 years for S1 degree, and from 3.24 to 1.64 years for diploma (Table 2.3). During the same period, it appears that the efficiency gap between public and private HEIs is more obvious. On average, among the most recent graduates, it takes about half a year shorter to get a higher education diploma or degree in private HEIs than in public HEIs. The currently available data does not allow for in-depth analysis on whether these efficiency gains have been achieved at the expense of quality. For example, the current shorter time to graduate at private HEIs may reflect the quality differences between private and public universities.

2.37 Given the lower unit spending per student per year, and in general shorter graduation time, the cost of producing a Bachelor degree graduate is estimated as 50 percent less in private HEIs than that in public HEIs on average.

2.002.62

3.18

1.642.37

3.24

4.50

5.42

5.98

4.00

5.105.70

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

26-3031-3536-40A

vera

ge n

um

ber

of

year

s in

HEI

graduates' age in 2008

D1-D3 Public D1-D3 Private S1/D4 Public S1/D4 Private

27

Incentives for efficient institutional spending: funding mechanisms

2.38 Currently, a majority of Indonesia’s public HEIs still receive public funds through line-item budgeting. Once the budget and related activities are set, there are no innate incentives to maximize the efficiency of fund utilization. In recent years, a significant share of the investment budget allocation from the GoI to HEIs is awarded on a competitive basis, starting to introduce incentives for more efficient fund utilization. This funding mechanism, however, is most applicable to a set amount of resources dedicated to achieve a specific objective or purpose. Under this mechanism, the government invites HEIs to or their individual departments to submit grant proposals. The proposals are then considered in a transparent, peer-reviewed, and merit-based selection process. The pluralistic approach to grant selection has drawn a wider range of participants into the decision-making process, and promoted collaboration among the central authority, the institution, the faculty, administrators, and students. In many cases it has also encouraged teamwork and innovation between different academic disciplines that have traditionally worked in relative isolation. This has served to rationalize pockets of public expenditure by involving the end users and the frontline service providers in designing, financing and executing of activities and investments with the goal of improving education quality.

2.39 Under HELTS, the GoI intends to introduce a new financing innovation: performance-based funding for HEIs. The performance-based funding would tie a portion of public spending for higher education to institutions’ performance, and be applied to the autonomous universities at first. However, its implementation has been impeded by the lack of capacity of the autonomous public HEIs, which include on strategic planning, budgeting, financial management, as well as designing and executing innovative learning and research programs to improve internal accountability and incentives for better performance outcome. Only when sufficient management capacity is in place at the autonomous HEIs can the GoI introduce the financing innovation to transfer government resources based on promised results for improved service delivery. For non-autonomous universities, they still need to overcome the regulatory hurdle to be eligible for performance-based grants.

Internal resource allocation

2.40 Resource allocation mechanisms and practices at the institutional level can be generally characterized as more administrative than strategic. Strategic adjustments usually starts at DGHE, and channeled thought public HEIs. With a given budget envelope, sometimes even together with an enrollment quota, the non-autonomous public HEI’s budget is normally an administrative task, compiling individual departments and faculties’ submissions that cost the given tasks. With significant self-generated resources and decision-making power, the seven autonomous universities currently are more incentivized to set institutional goals and allocate resources efficiently to achieve these goals.

2.41 The comparison of the compositions of expenditures at different institutions, together with that of the unit spending per student, can sometimes provide a benchmark for internal efficiency. Table 2.3 shows the resource allocations within three different institutions: a reputable private university, a non-autonomous public university that is used to be a teacher training college (LPTK), and a premier autonomous university. Due to different categorization of expenditures, some line items may not be strictly comparable. For example, the private university here records expenditures for technicians as part of the cost for running laboratories,

28

while the public universities put the same cost as part of the personnel cost of supporting staff. Aside from this exception, the overall expenditure shares of different categories are very similar between the private and the autonomous public university. However, the private university spends more consumables, while the autonomous public university spends more personnel. Overall, the unit spending per student is about 15 percent higher in the autonomous public university.

Table 2.3: Internal resource allocation by Institution type (2008) Expenditure One private

university One public university

(previously teacher training college)

One Autonomous University

Personnel expenditure 50.7% 39.8% 56.1%

Maintenance 6.8% 4.1% 7.7%

Consumables 12.7% 21.6% 3.0%

Overhead cost for support staff, etc. 3.0% 15.3% 28.6%

Laboratory consumables and technicians 26.9% 11.2% 4.5%

Regular non-degree training for staff 0.0% 7.9% 0.2%

Total 100% 100% 100%

Number of students 9,650 20,702 15,106

Student-lecture ratio 17:1 20:1 13:1

Unit cost per student per year:

in Rp. 000 20,358 11,065 23,540

in USD 2,000 1,100 2,340

Source: The private university and previous LPTK data is from field visit; The autonomous university data is from audit report.

2.42 The non-autonomous public university examined seems to have very different expenditure structure. A large amount of budget is spent on staff training and consumables, and smaller shares on personnel cost and maintenance. This may reflect the currently low staff qualification, and low asset level the institution, and its efforts to upgrade itself. The very low unit cost may also a reflection of its high student-lecture ratio, and a general concern of its overall quality of teaching and learning.

D. Equity: Are public funds distributed in an equitable way?

Access disparities

2.43 The regional disparities have been narrowing, owing to the Government continuous investment in higher education in areas. Figure 2.11 shows that public higher education has higher coverage in relatively less populated islands

29

Figure 2.11: Higher education gross enrollment ratios by island

Source: SUSENAS 2006.

2.44 The disparities in accessing tertiary education are still very large in Indonesia, particularly between the rich and poor. Figure 2.12 shows that only less than 2 percent of the youth (age 19-22) from the households of the lowest wealth quintile are enrolled in any higher education institutions, compared with over 60 percent of those from the wealthiest households in Indonesia. In some public higher education institutions, this proportion is slightly higher, but still below 5 percent (Moeliodihardjo et al, 2009). The proportions of enrollment in private and public institutions are similar across the expenditure quintiles. This may indicate that private institutions do not particularly cater certain socioeconomic strata, but to broadly fill the demand gap for tertiary education that is left by the public institutions.

Figure 2.12: Tertiary education gross enrollment rate by household expenditure quintile

Source: 2006 SUSENAS education Module.

5% 4%7% 8%

7% 6%

8% 10% 5%

8%

4%8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

private

public

0.35% 1.06%2.35%

6.06%

22.53%

0.75% 1.66%3.29%

12.19%

38.89%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

poorest Q2 Q3 Q4 wealthiest

Private

Public

30

2.45 The enrollment disparities at tertiary level seem to be mostly inherited from the previous education cycles, rather than through screening at higher education entrance exams. Figure 2.13 compares the composition of the applicants and admissions16 by family income level, based on the national entrance exams report. It shows that the distribution of the socio-economic profile of the incoming students is mostly shaped during the application stage. There is very little change in the distribution of incoming students by family income level, even though the selection is usually very competitive. Among the approximately 30 percent of the students entering public university come from low income family with monthly income of Rp. 1 million or less, about 5 percent came from parents with income bracket of less than Rp 250,000 (US$25) per month.

Figure 2.13: Distribution of HEI applicants and admissions by family monthly income

Applicants Admitted candidates

Source: Moeliodihardjo et al (2009), based on National university entrance exam report 2008.

2.46 Although there are a few pro-poor policies for tertiary education admission, the existing practices that favor the better-off mostly off-set the impact of these policies. For example, with the objective to provide equal opportunities, some national universities send invitations to high schools particularly in the remote parts of Indonesia to identify students with good academic track record for advanced admission. In the meantime, most universities often have their own admission tests before the national higher education entry examinations. For University of Indonesia, for example, over 50 percent of the students are given admission through this channel. One particular feature of this channel is that the required entry score is flexible contingent on several conditions. It can be lowered to a large extent for those who can

provide a cash donation to the university (Box 2.3.) .

16 For public HEIs only.

31.6%

56.4%

9.0%

2.7% 0.4%

<=1 million Rp 1-5 million 5-10 million

>10 million n.a.

29.8%

59.0%

8.6%

2.3% 0.4%

<=1 million Rp 1-5 million 5-10 million

>10 million n.a.

31

Box 2.3: Admission to higher education in Indonesia

The following is the several common ways of selecting and admitting new students. In general, HEIs have large discretion in admission practices. National Selection for Public Universities Admission (Seleksi Nasional Masuk Perguruan Tinggi Negeri, SNMPTN)

Previously known as selection for new university students (Seleksi Penerimaan Mahasiswa Baru, SPMB), this is the only selection mechanism which was carried out jointly by all public universities in an integrated system using the same or equivalent test instrument and conducted simultaneously across the country. SNMPTN is coordinated by the Council of Indonesian Public Universities Rector (Majelis Rektor Perguruan Tinggi Negeri Indonesia, MRPTNI) and DGHE. It is usually conducted around July-August of each year. In 2009, there were 57 Public Universities participated in SNMPTN. The result of SNMPTN is announced through website, local community bulletin board, all participating universities, and national and local newspapers. Selection Admission for Regional Cooperation and Industry Program (Kerja Sama Daerah dan Industri, KSDI)

Local governments and industry can identify potential high school graduates in their area to be sent to study at some universities. The next stage of selection, after the district government or industry has sent their candidates, is conducted by the university. The local government or industry should sign an agreement on a cooperation scheme set forth in the Memorandum of Understanding (MoU) with the university. Source of funds can be derived from the regional budget (APBD), donations from industry, charity, or individual philanthropists. If a candidate accepted into the program of cooperation with the regional governments, he/she must sign a contract to go back to his/her respective area. Meanwhile, for the cooperation scheme with the industry, the funding comes from industry, the participants bound to pursue their career in the respective industry or area.

Achievement and Equity for Learning Opportunity (Prestasi dan Pemerataan Kesempatan Belajar, PPKB, formerly

known as PMDK)

With the objective to provide equal opportunity to study at the university, some universities send invitations to high

schools in remote or less-developed parts of the country (e.g. eastern Indonesia) to identify students with good academic

track record. For students who are accepted, they must attend a matriculation program for approximately four weeks, to

standardize the quality. Priority are given to schools that have little representation as source of students at the

university.

Institutional Selection (HEI Independent Admission test)

Many universities open their own selection for admission. This is a predominant way of admission for large and prestigious universities such as University of Indonesia. Candidates are required to fill minimum donation that they will contribute in order to get the university seat. There is a positive correlation between the size of cash donation and the probability of the student being accepted from this channel. The following is an example of University of Indonesia (UI)’s admission practices. One of the top universities in Indonesia, it recruited around 5,500 new students each year. In 2009, UI opened 7 channels for student admission:

Admission channel % as of total admission

SNMPTN 5 UI selection entry (SIMAK-UI) 56 PPKB, UI sends invitations to high-achieving high school students across Indonesia to become UI students 10 Joint Admission Test (UMB). This is a selection examination organized by UI in collaboration with the Association of SPMB Nusantara (a private legal entity). Candidates have to pay slightly higher fee compared with the SNMPTN fee, i.e. IDR 175,000 for science (IPA) or social science (IPS) group and IDR 200,000 for combination of science and social science, IPC ( IPA + IPS)

5

Achievement and Regional Cooperation and Industry (KSDI). UI signed MoU with district government outside Java-Bali, which will send their local students to study and worked in their original area upon completion of their study

20

Parallel admission test 4 Selection Admission for S1 International Program. This is a sandwich program, in which student will earn double degree from UI and foreign University

<1

Source: http://www.ui.ac.id/id/admission/; Media Indonesia (newspaper), January 9, 2009.

32

Benefit incidence and affordability

2.47 The biased enrollment favoring the relatively rich further leads to the highly regressive pattern of public spending on tertiary education in Indonesia: over 80 percent of the public spending on tertiary education benefits the better-off 40 percent of the households, and over 60 percent benefits the richest 20 percent (Figure 2.14).

Figure 2.14: Benefit shares of public spending on tertiary education

Source: Susenas 2006, Education Module.

2.48 The high private financing share and thus the high cost to the households for participating in tertiary education constitute one of the major factors of inequitable tertiary education access. The large share of private financing of tertiary education in Indonesia would naturally lead to the concern of affordability. It is estimated that on national average, a household would have to spend a third of its total yearly expenditure on a household member enrolled in a tertiary education. Being enrolled in public higher education institutions cost more than that in private ones (Figure 2.15). This to some extent explains the highly skewed distribution of tertiary education participating across household wealth levels. Even though few datasets exist to estimate how many students are being excluded from entering and completing tertiary education, analysis of household survey data shows that household wealth is a key determinant of an individual’s tertiary education enrollment, even after his or her senior secondary school performance (i.e. national examination scores), and other household characteristics (e.g. parental education, household locality, etc.) are controlled for.

poorest, 1.9%Q2, 5.1%

Q3, 10.4%

Q4, 21.3%

Richest, 61.3%

33

Figure 2.15: Household spending per tertiary student as % of total household yearly expenditure

Source: 2006 SUSENAS, education module.

Student financial aid

2.49 The student financial aid for higher education in Indonesia is mostly channeled through various schemes of scholarships, provided by both public and private agencies. A student loan scheme was introduced a few years ago, but stopped due to the ineffective repayment collection mechanisms. Scholarships remain the main stay currently, with a growing coverage, to financially support students directly. In addition to the government, major providers for the scholarships are private companies and philanthropic foundations domestic as well as overseas (see Annex 3). Some institutions allocate a special function for managing as well as generating funds for scholarship. At some more established HEIs, scholarship fund is specially allocated from the self-generated revenue. In most cases, however, institutions’ roles are limited to channeling scholarships provided by external providers to students.

2.50 Non-government sources of funding are significant in providing scholarships at higher education institutions. It is estimated that approximately half of the scholarships at public HEIs, and over 85 percent of the scholarships at private HEIs are provided by private sources.

public, 45.0%

private, 25.6%

all, 32.3%

34

Figure 2.16: Sources of scholarships

a. Scholarships in public HEIs b. Scholarships in private HEIs

Source: SUSENAS 2006.

2.51 From the coverage stand point, scholarships provided for undergraduate students can be divided into two main categories: full-scholarship and partial scholarship. Full scholarship covers supports for tuition and living cost (monthly allowance). Tuition component is set at cost as per the fee set forth by the institution. Living cost is normally set based on the consumer price index for the region where the students pursue their study. This type of scholarship is suitable for supporting students coming from underprivileged group (fifth quintile). Currently, full-scholarship is provided only by a few agencies particularly from private companies and philanthropic foundations. Unfortunately this type of scholarship usually requires a very high standard of academic performance and thus less effective in rectifying financial problems of underprivileged group of students. In addition, the number of available scholarships of this type is very limited. Partial scholarship is intended to partially support students’ financial needs. It is usually provided for topping up students’ living allowance, and is uniformly set at a fix amount without taking into account the consumer price index. Most scholarships currently available for undergraduate students fall within this category.

2.52 In addition to the new full-scholarship, other scholarships under the management of DGHE generally have mixed objectives of rewarding performance and alleviating financial burden to households. Main scholarships programs under DGHE include: (1) Scholarship for academic performance improvement (Beasiswa Peningkatan Prestasi Akademik, PPA); (2) Fuel Subsidy Reduction Scholarships (Beasiswa Bahan Bakar Minyak, BBM); (3) Scholarship for extracurricular performance improvement (Beasiswa Peningkatan Prestasi Ekstrakurikuler, PBE)17. PPA is intended to provide partial support in the form of monthly stipend for students coming from economically disadvantage family but demonstrate good academic performance (with cumulative GPA of 2.75 or above). The amount of support provided is Rp. 250,000 per month. BBM was initiated by the government as a compensation for fuel subsidy reduction, and is therefore provided for underprivileged students. The amount is the same as that of PPA, i.e. Rp. 250,000 per month. Unlike PPA, this scholarship does not put academic performance as one of the eligibility criteria, and thus any students with financial difficulty can be the beneficiary of

17 See Annex 3 for more details and other types of scholarships.

Gov't , 32.4%

HEI, 18.8%

Private, 48.9%

Gov't , 12.6%

HEI, 37.6%

Private, 49.8%

35

this scholarship. PBE is provided to encourage students participating in extracurricular activities. The eligibility for receiving this scholarship does not include the low income status.

Figure 2.17: Number of students receiving scholarships by institution type (2007-2009)

Source: Moeliodijardjo et al (2009).

2.53 In recent years, there are also experiments of putting scholarships as part of the competitive grants. Under some competitive grants provided by the DGHE the proposing institution may propose to include scholarship as one the expenditure items in the grant, particularly in relation to the DGHE strategy to promote access to higher education for underprivileged or under-represented groups. Examples of such grants are: TPSDP, IMHERE, and PHKI. Under this scheme, however, only students of the awardees institutions are eligible for the scholarship. The amount of support provided in the scholarship is to be proposed by the institution as part of the grant proposal. The scholarship shall include tuition fee waivers and monthly stipend which is determined based on the standard living cost in the region.

2.54 On average, less than two percent of the higher education enrollees are beneficiaries of scholarships from various sources, government or non-government. Household survey SUSENAS data shows that among these scholarships recipients, over 60 percent are enrolled in public institutions18 (Figure 2.18 a). If public and private HEIs are examined separately, the scholarships coverage is 2.7 percent in public HEIs, three times as much as the 0.9 percent in private HEI institutions (Figure 2.18 b).

18 This figure is based on 2006 Susenas education module. According DGHE, in 2009, total scholarships programs covered around 6 percent of the total enrollment.

Pu

blic

Pu

blic

Pu

blic

Pu

blic

Pu

blic

Pu

blic

Pu

blic P

ub

lic

Po

ly

Po

ly Po

ly

Po

ly

Po

ly Po

ly

Po

ly

Po

ly

Private

Private

Private

Private

Private

Private

Private

Private

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

BBM PPA PPE BBM PPA PPE BBM PPA PPE

2007 2008 2009

36

Figure 2.18: Coverage of scholarships

a. Scholarships coverage by public and

private enrollment b. Coverage in private and public

institutions

Source: Susenas 2006, Education Module.

2.55 The scholarships have not been able to benefit the most disadvantaged due to the biased enrollment of higher education. Since most of the children from the poorest households dropped out of the education system before they can even reach higher education, and most of the higher education scholarships are awarded after one is enrolled, there is little chance that the children from the poorest households can benefit the scholarships. Schemes of scholarships that provide financial support to high school leavers who want to pursue higher education but have financial supports are very rare. This inevitably limits the opportunity for economically disadvantaged students to pursue higher education. A scholarship that was recently started introduced some changes by awarding the scholarships directly to high school leavers. However, as promising as it is, this new scheme mostly promotes outstanding performance or talents such as its awards to the winners of international competitions in science, mathematics, as well as sports. The second factor that to some extent dilutes the targeting effect is that academic performance (e.g. GPA greater than 2.75) remaining a crucial determinant in the selection of recipients, giving low socioeconomic status families less advantage. In general, scholarships in public HEIs targets better than those in private HEIs (Figure 2.19).

Figure 2.19: Targeting of scholarships by household expenditure quintile

1.0%

0.6%

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

public private

2.7%

0.9%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

public private

37

a. Total coverage by public and private

enrollment b. Coverage in private and public

institutions

Source: SUSENAS 2006, Education Module.

2.56 In conclusion, the current financial aid to the higher education students is mainly in the form of scholarships awarded to higher education enrollees. The coverage is narrow, and amount is relatively small, particularly in comparison with more advanced countries (Figure 2.20). In addition, the design and overall implementation does not seem to benefit the poorest households. To increase the coverage will need to consider introducing changes of financing mechanisms, on which some detailed discussions will be provided in the next section.

Figure 2.20: Student financial aid among total public financing of higher education

a. Indonesia b. US (Federal+State)

Source: DGHE, MoNE for Indonesian data; US data from “State Higher Education Finance”, State Higher

Education Executive Officers (SHEEO, 2007).

3 DISCUSSIONS ON FUTURE FINANCING STRATEGIES

0.00% 0.00%

1.71%

1.02% 0.95%

0.00% 0.00%

0.00%

0.71%0.66%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

Poorest Q2 Q3 Q4 Richest

public private

0.00% 0.00%

4.10%

3.07%

2.60%

0.00%

1.06% 1.04%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Poorest Q2 Q3 Q4 Richest

public private

Scholarships3%

Others97%

student aid

26%

other74%

38

3.1 Looking ahead, rationalizing public expenditure at HEIs and increasing the level of public funding will be key to strengthen the Indonesia’s higher education sector. There are five areas that are important for policy reforms: (1) How to strengthen the support to public institutions for greater efficiency? (2) How to provide integrated support to private institutions? (3) How to make public financing more equitable? (4) How to make future expansion more efficient? (5) How to increase public resource allocation to higher education?

A. Enhanced support to public HEIs for greater efficiency

3.2 The current discussion on higher education in Indonesia has been largely around the topic of institutional autonomy, and how a publicly-supported autonomous institution can be held accountable for the public funding that they receive. To chart out the way forward, two factors should therefore be considered: (1) How to set the criteria for the level of public financing? (2) What innovative fund flow mechanisms could provide better institutional incentives for efficiency and equity?

Level of funding

3.3 Benchmark needs to be set up in terms of service standard and funding level. The first area is to establish explicit and measurable service standard. The Government Regulation PP 19 / 2005 stipulates that the minimum service standard for national education comprises eight standards, namely content, process, assessment, graduate’s competency, infrastructure and facilities, teacher and other staff, management, and funding. Except for funding, the details of these standards have been elaborated further in the Ministerial Decrees (See Annex 1 for a summary). In the context of higher education, not all standards are applicable. Standards on content and assessment are more appropriate to be defined by each institution, in line with the spirit of autonomy. In the case of professional fields, such as medical and engineering, graduate’s competency is more appropriate to be set by the respective professional association. To a certain extent the standards for process of education could be defined as a platform for developing the minimum service standards.

3.4 Benchmarking efficiency using service standard and unit cost will be a useful tool for Institutions to reflect on its internal management issues. This is particularly applicable to the operational or recurrent cost for undergraduate education (i.e. regular program at Sarjana or Diploma level in case of polytechnics) in public higher education institutions. The calculation of the cost can be based on the average standard, and account for several parameters such as curriculum, class-size, student-staff ratio, etc. To reflect the special costs associated with certain types of institution, some weighting will be applied at the later stage. This will include also weighting to recognize different costs for different field of studies as well as variability of the average price index at different parts of the country. One example is shown in the textbox below.

3.5 One key area that is still envisaged to need more public investment is HEI’s facilities and infrastructure. Many HEIs are still below the minimum standard, which is a prerequisite for the institutions to operate at an adequate quality level. This is also a pre-context that the unit operational cost illustrated above can be applicable. Public institutions that have not met these standards need to be given high priority in budget allocation for investment to be able to achieve it.

39

3.6 HEI’s public funding sources, particularly for research, can be further diversified. The imminent need for investment in improving infrastructure, facilities, and teaching and learning will possibly crowd out other needs such as research funding to some extent. Setting up different funding mechanisms to support these activities can also be considered. In terms of research, one lesson that can be learned from the developed countries is the diversification of government funding sources. Research contracts and grants could be generated from a variety of Government agencies and tied to specific research need in various sectors: health, agriculture, poverty reduction, science and technology, etc. In the US, only less than half of the total federal support to postsecondary education is from the Department of Education.

Financing mechanisms

3.7 The level of accountability is often regarded as closely linked to the channeling mechanism of government budget to support higher education institutions. “Block grant” has often been mentioned as a simple way to provide institutions with flexibility and to facilitate a shift of focus to results on teaching and research. Depending on the nature of the spending, the block grants are also in various forms: formula funding, competitive funding, or performance-based funding.

3.8 The Indonesian government has already gradually introduced a series of block grants as innovative ways to provide support to HEIs. In alignment with HELTS, the “competitive grants” to public and private HEIs provide financial incentives to the HEIs to improve the quality of their institutions, through either improving education quality or increasing the employment of HEI graduates. To improve institutional accountability for quality, efficiency, and equity, the “performance grants” have also been under implementation to promote good governance in non-autonomous public HEIs. The grants focus on strengthening institutional management and improving the institutional performance of all public HEIs, with the objective of preparing them for the eventual receipt of performance-based financing. Meanwhile, the “performance-based contract” has been initiated at 5 out of 7 autonomous universities, providing it with budget support conditional on meeting agreed performance targets.

3.9 The piloting of the innovative funding mechanisms has put Indonesia on the right track of using public financing as an effective leverage for developing a strong system of public HEIs, a system that is characterized by good governance practices and organizational cultures that focus on education quality, institutional efficiency, and active efforts to improve its status in a global setting. The new BHP law has also put a necessary legal framework in place. The 76 public HEIs do not yet have autonomous status but must also begin improving their management capabilities in anticipation of being granted that status in the future. Looking ahead, the key interventions should still strive to improve the institutional capacity to manage finances, personnel, and procurement effectively.

B. Innovative and integrated support to private institutions

3.10 Strengthened support to private institutions will be key to the overall upgrade of the higher education system in Indonesia, given their major role in providing access to nearly two-thirds of the current enrollment. Supporting the private sector needs to be integrated and innovative. The “continuum of public-private partnerships” as charted out in Figure 3.1 below provides a general framework on where Indonesia stands and where Indonesia can go. The movement towards institutional autonomy and the BHP law has put Indonesia on the

40

progression towards “engaged” stage. One stage ahead, a more efficient and equitable step would be to move towards the “integral” stage, focusing more on providing direct and targeted support to families and students.

3.11 As in the US system, a large proportion of federal support to higher education is through direct support to students: federal grants or loans to cover tuition fees, work-study programs, etc. These sources of support will eventually finance institution’s operations. But the difference is that channeling through the targeted families and students would not only provide families and students with “choices” of institutions and therefore better incentives for institutions to improve service delivery and to compete for students, it would also narrow the existing large gaps between the rich and the poor in tertiary education participation in Indonesia.

Figure 3.1: Continuum of public-private partnerships

Source: The role and impact of public-private partnership in Education (The World Bank, 2009).

C. Increased student financial aids to improve equity

3.12 The inequity in access to tertiary education in Indonesia today can only be reduced by bridging the “wealth divide”. Supply side equity is very much achieved in provision of higher education particularly due to the Government’s decision in the 1960s to have at least one public institution in each of the 27 provinces then. Currently, Indonesia’s levels of cost-recovery are among the world’s highest and continue to rise. In public HEIs, cost recovery from student fees has risen by over 200 percent in real terms in the past five years. Even without any calculation of opportunity costs, the total direct cost of higher education in Indonesia may amount to over US$ 1,000 per year, a major factor leading to the fact that most tertiary students, in both public and private institutions, come from Indonesia’s better-off households. Various students-support schemes exist such as partial or full scholarships and tuition waivers. But overall these benefit only 2-3 percent of total number of students who have been enrolled in HEIs already, most likely not from the poorest households.

3.13 Improving the efficacy of the efforts to improve access equity will have to overcome the barrier that most children from poorer families presently are not enrolled in HEIs. This can be firstly implemented by changing the financial aid schemes, moving part of the scholarships to enrolled students to direct financial aid to promising secondary school graduates.

Lacks

•Strictly public systems (regulation, finance, provision

Nascent

•Private school exist

Emerging

•Subsidies to inputs in private schools

Moderate

•Contract with private schools to provide a portion of education

Engaged

•Private management of public institutions

Integral

•Vouchers, Funding follows students

41

3.14 The coverage financial aid also needs to be increased. One feasible start is to change the Government financing channels to public HEIs: instead of giving HEIs public budget allocation inclusive of scholarships, part of the budget can be allocated as direct student financial aid. The Institutions would then get the funding indirectly through cost-recovery from these students. This change would not only improve the equity, but also create a cultural of competition among institutions, private and public.

3.15 Administration capacity will have to be strengthened at both central and institution level particularly in the area of targeting and monitoring. This would be pre-requisite for a wider range of instruments to be used. Targeting candidates outside HEIs will need an efficient data system on household conditions. The current system that has been used for the conditional cash transfer program could be basis for it. But it has many weaknesses in implementation. Administration system will also have to be designed to ensure smooth implementation and long-term sustainability. Indonesia’s has had some past effort that has not been sustained: A subsidized student loans scheme was tried years ago but was abandoned because it was difficult to recover the loans19.

D. Efficient pathways for future expansion

3.16 Indonesia will need to explore what type of institutions that should be supported and relied on to expand coverage. Indonesia has already an open university with a large enrollment. Whether more could be established can be further explored. Thailand has a higher level of enrollment than many countries in the region despite a relatively low level of public investment is that a large share of the students (almost half) is enrolled in one of the two open universities. “Community college” can also be considered. They can offer 2-3 year diploma courses with credits recognized by universities if one wants to continue study for a Bachelor’s degree at a university after completion. Community colleges are generally less expensive. They could be most relevant in Indonesian context with the largely decentralized education service delivery up to secondary level currently. There has already been demand from the local governments for permission to establish “local” colleges.

3.17 On the other hand, there is need to review how to better guide the expansion of private HEIs. A key issue that should be highlighted is the economic consequences of having a lot of small size private institutions. Other countries have found that this could be a serious issue in terms of potential economies of scale and ability to offer good quality education. These countries have used accreditation decisions to close down some small private institutions that are sub-standards or to encourage mergers. Indonesia can learn some lessons from this.

E. Increased overall public resource allocation to higher education

3.18 The above measures all need increased public resources. With the following assumptions, total public resources needed are estimated:

19 The earlier student loan scheme was introduced during the “campus normalization” era post Asian Financial Crisis. It aims at addressing the concern of campus stability rather than equitable and sustainable higher education financing. It was called a “loan” but with no enforceable design of loan collection mechanism.

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Unit spending: The current estimate is approximately 100 percent of GDP per capita. We assume this is the target ratio by 2020;

70 percent of the unit cost will be financed by budget allocation, 30 percent will be through cost recovery;

Poorest students share increases from 1-2 percent to 15 percent in 2020; they receive full government scholarships in the amount of unit cost, and thus there is no cost recovery from the poorest student;

Overall enrollment increase keeps the same enrollment/adult population ratio;

Private subsidy gradually increases from 2 percent of GDP per capita to 10 percent of GDP per capita by 2020.

DGHE Administration overhead reduces from 25 percent of total DGHE budget to 15 percent by 2020.

3.19 With these assumptions, it is estimated that higher education budget as percentage of GDP would be increased from 0.26 percent to 0.59 percent by year 2020; and its budget share out of total MoNE central budget will be from 26 percent to 49 percent by 2020 (Figure 3.2)20. MoNE central budget constitutes about 40 percent of the total education budget in Indonesia, since a large share of spending is allocated to local government, including the bulk of teacher salaries. Therefore, this estimated public spending level would result in about 20 percent of total education spending being allocated to higher education.

Figure 3.2: Projected DGHE budget as % of GDP and MoNE budget

Source: Author estimation.

3.20 In conclusion, Governments have at their disposal a wide range of financing mechanisms to transfer public resource to the higher education sector. These range from supply-side financing, in which the government transfers funds to institutions directly (through traditional line-item budgeting, block grants, formula funding, competitive funding, or performance-based funding) to demand-side financing, in which the government channels funds to institutions indirectly through students, for example through scholarships, vouchers, subsidized student loans or service commitments. Each mechanism has benefits and drawbacks, though some methods have proved to be more effective than others depending on their intended purpose. Each scheme also incurs certain transaction costs related to the method of allocation; some of these costs are financial and related to administration and are borne by

20 Detailed figures and other assumptions are included in Annex 4.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

0.20%0.25%0.30%0.35%0.40%0.45%0.50%0.55%0.60%0.65%

Total Cost as % of MONE Total Cost as % of GDP

43

different points in the system whereas other costs are political. As countries move away from funding public higher education through traditional line-item and negotiated budgets and toward block grants and other methods, they generally experiment with various financing innovations over time and develop a unique blend that endeavors to combine supply-side with demand-side financing.

3.21 It is clear from experience worldwide that it is desirable to have a variety of different public funding mechanisms for higher education. There are several reasons for this. First this gives the government the flexibility to adapt its funding to its own evolving priorities (for example, financial awards that can be modified to encourage institutions to invest in important public goods or to support public objectives like ensuring the survival of areas of study that might not have immediate benefits for the labor market in the short term but that are vital for the country’s long-term development). Second, it gives the government the opportunity to use its funding to promote certain kinds of behavior at both the central and institutional levels (such as collaboration, transparency, account ability, and the inclusion of stakeholders). Thus, the government can use certain funding mechanisms to reward institutions for quality outputs or to signal to stakeholder the quality of an institutions’ output. Third, having a variety of funding mechanisms can prevent budget instability at the institutional level, which can occur when government tie too large a proportion of institutional budget to only one sort of resource-distribution procedure. It is in the Government’s interest to develop stable, more sustainable public institutions; infusing public higher education with a variety of effective and efficient funding mechanism is one way to support that objective. There is no ideal mix, and each country must determine what works the best.

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ANNEX 1: KEY INSTITUTIONAL LEVEL FINANCING DATA

Table A.3.1: Financing of non-autonomous public higher education institutions (in millions Rp), 2009

Government Financing Self Financing

University Name Enroll-ment

Investment Operational Investment Operational

UNIVERSITAS NEGERI JAKARTA 19,734 62,923 79,251 26,110 77,803

UNIVERSITAS PAJAJARAN 34,819 150,079 171,907 83,581 439,085

SEKOLAH TINGGI SENI INDONESIA BANDUNG 746 12,215 18,156 1,121

UNIVERSITAS DIPONEGORO 29,223 262,833 134,324 81,818 168,367

UNIVERSITAS NEGERI SEMARANG 23,580 40,554 87,582 9,728 75,679

UNIVERSITAS SEBELAS MARET 30,832 53,609 136,131 49,802 144,852

UNIVERSITAS JENDERAL SUDIRMAN 20,852 43,971 81,590 8,751 55,851

INSTITUT SENI INDONESIA SURAKARTA 1,007 19,668 28,045 220 1,762

UNIVERSITAS NEGERI YOGYAKARTA 21,737 46,641 93,331 23,320 84,783

UNIVERSITAS HALU OLEO 10,886 26,940 74,545 6,872 18,383

INSTITUT TEKNOLOGI SEPULUH NOPEMBER 15,154 65,875 87,350 18,385 117,895

UNIVERSITAS NEGERI SURABAYA 17,958 42,487 76,681 15,500 102,781

UNIVERSITAS BRAWIJAYA 27,311 95,451 138,751 81,992 262,431

UNIVERSITAS JEMBER 19,009 56,036 80,044 19,017 74,515

UNIVERSITAS NEGERI MALANG 19,071 64,766 86,361 42,150 108,588

UNIVERSITAS SYIAH KUALA 25,206 56,190 109,401 10,069 60,388

UNIVERSITAS NEGERI MEDAN 19,096 35,529 79,360 5,697 49,702

UNIVERSITAS ANDALAS 17,874 83,786 127,409 47,048 96,271

UNIVERSITAS NEGERI PADANG 19,012 37,528 86,151 41,219 73,291

SEKOLAH TINGGI SENI INDONESIA PADANG PANJANG

633 11,564 18,674 832

UNIVERSITAS RIAU 19,546 32,463 88,640 6,182 46,512

UNIVERSITAS JAMBI 10,359 31,380 56,744 3,047 23,195

UNIVERSITAS SRIWIJAYA 17,057 48,750 101,194 1,659 33,648

UNIVERSITAS LAMPUNG 18,808 56,214 86,639 4,086 54,419

UNIVERSITAS TANJUNGPURA 16,146 39,303 85,311 10,436 44,483

UNIVERSITAS PALANGKARAYA 7,979 43,907 59,605 536 15,044

UNIVERSITAS LAMBUNG MANGKURAT 10,378 41,325 84,379 4,570 23,512

UNIVERSITAS MULAWARMAN 15,635 32,175 71,187 1,198 66,574

UNIVERSITAS SAM RATULANGI 9,589 61,144 145,668 6,920 49,448

UNIVERSITAS NEGERI MANADO 4,672 21,894 80,884 2,748 20,965

UNIVERSITAS NEGERI GORONTALO 6,610 29,083 42,086 7,460 17,620

UNIVERSITAS TADULAKO 11,921 49,766 86,854 26,187

UNIVERSITAS HASANUDDIN 23,270 316,777 165,387 32,994 131,555

UNIVERSITAS NEGERI MAKASSAR 11,948 51,066 82,138 5,655 41,327

UNIVERSITAS PATTIMURA 8,492 53,091 86,465 2,783 17,494

UNIVERSITAS UDAYANA 16,263 49,918 138,775 12,758 90,031

INSTITUT SENI INDONESIA DENPASAR 886 19,177 23,531 1,165

UNIVERSITAS MATARAM 8,281 36,117 83,210 5,778 27,457

45

Government Financing Self Financing

University Name Enroll-ment

Investment Operational Investment Operational

UNIVERSITAS NUSA CENDANA 6,174 34,849 72,344 660 19,931

UNIVERSITAS CENDRAWASIH 5,302 70,501 56,495 720 16,780

UNIVERSITAS NEGERI PAPUA 3,708 60,568 35,926 4,108

UNIVERSITAS BENGKULU 9,811 44,989 58,141 21,624 56,068

INSTITUT SENI INDONESIA YOGYAKARTA 1,694 22,241 31,100 604 6,820

UNIVERSITAS TERBUKA 165,118 17,598 88,129 299,740 655,895

UNIVERSITAS PENDIDIKAN GANESHA 8,962 30,968 39,182 1,808 25,909

POLITEKNIK NEGERI LHOKSEUMAWE 1,653 23,437 26,969 3,603

POLITEKNIK NEGERI MEDAN 4,112 27,575 27,517 11,144

POLITEKNIK NEGERI PADANG 3,003 31,116 22,972 360 12,858

POLITEKNIK PERTANIAN NEGERI PAYAKUMBUH 497 26,669 16,033 1,862

POLITEKNIK NEGERI SRIWIJAYA 3,915 25,159 30,163 3,150 11,239

POLITEKNIK NEGERI LAMPUNG 1,029 27,006 17,129 2,243

POLITEKNIK NEGERI JAKARTA 19,734 36,352 30,717 4,451 37,893

POLITEKNIK NEGERI BANDUNG 3,498 39,034 44,824 3,258 29,000

POLITEKNIK MANUFAKTUR BANDUNG 741 27,881 11,234 138 8,008

POLITEKNIK NEGERI SEMARANG 3,478 32,775 33,709 1,150 19,527

POLITEKNIK ELEKTRONIKA NEGERI SURABAYA 1,642 26,792 14,418 600 13,728

POLITEKNIK PERKAPALAN NEGERI SURABAYA 1,090 23,410 14,111 2,000 5,392

POLITEKNIK NEGERI MALANG 3,521 34,390 31,760 9,008 22,301

POLITEKNIK NEGERI JEMBER 2,001 33,936 21,009 500 20,865

POLITEKNIK NEGERI BALI 1,360 27,606 25,744 495 6,674

POLITEKNIK NEGERI PONTIANAK 1,951 29,371 18,565 5,700

POLITEKNIK NEGERI BANJARMASIN 1,674 25,685 16,772 4,159

POLITEKNIK PERTANIAN NEGERI SAMARINDA 417 23,163 14,129 488

POLITEKNIK NEGERI SAMARINDA 2,371 19,766 20,818 150 8,957

POLITEKNIK NEGERI UJUNG PANDANG 2,156 50,124 21,148 820 6,188

POLITEKNIK PERTANIAN NEGERI PANGKAJENE KEPULAUAN

578 27,155 15,723 1,129

POLITEKNIK NEGERI KUPANG 1,122 24,159 16,667 128 2,012

POLITEKNIK PERTANIAN NEGERI KUPANG 830 23,805 15,040 1,423

POLITEKNIK NEGERI AMBON 1,666 13,548 20,708 1,666

POLITEKNIK NEGERI MANADO 1,720 22,879 26,654 446 5,239

UNIVERSITAS SULTAN AGENG TIRTAYASA 8,948 34,068 25,835 400 21,552

UNIVERSITAS KHAIRUN 4,143 29,482 28,165 1,000 6,708

POLITEKNIK PERIKANAN NEGERI TUAL 467 23,125 5,675 938

UNIVERSITAS TRUNOJOYO 2,838 37,313 19,506 7,536

UNIVERSITAS MALIKUSSALEH 3,757 18,578 25,140 4,031

POLITEKNIK NEGERI MEDIA KREATIF 76 23,007 16,993

Note on data: Based on the budget allocation data released by the Directorate General of Higher

Education (DGHE), public HEIs can have four funding sources: the State Non-Tax Revenue (PNBP, mostly HEI’s self-generated income through fees and services), Rupiah Allocation from

46

Domestic Sources (RM), Revenue from Foreign (Project) Sources (PHLN), and Project Counterpart Funding in Rupiah (RMP). These sources are further classified as “tied” or “untied” according to the degree of discretion in use. For the use of income include Capital, Goods, Social Assistance, and Personnel.

Expenditure Categories

Capital Goods Social Assistance Personnel

Inco

me

Ca

teg

ori

es

PNBP Investment Operational Operational Operational

HEI own Financing

RM Tied = Operational while Untied = Investment Government

Financing RMP Investment Investment Investment Investment

PHLN Investment Investment Investment Investment

In discussion with DGHE, the classification for operational/recurrent and investment

spending is shown the table above. Government allocation for investment spending consists of all RMP, PHLN sources and the Tied RM fund. Government operational spending consists of Tied RM. For HEI self-generated income PNBP, the spending on capital is investment funding while the PNPB for goods, social assistance and personnel are operational/recurrent expenditure.

47

Table A.3.2: Per pupil spending by source (2008) in seven autonomous higher education institutions compared with the average of 75 public non-autonomous institutions

DIPA Fee Institution income

Foreign

Universitas Pendidikan Indonesia

3,913,346 3,283,519 2,824,509 -

Universitas Sumatera Utara 5,961,075 7,224,091 693,628 -

Universitas Indonesia 6,722,777 18,723,820 6,193,857 -

Institut Teknologi Bandung 7,641,077 13,309,131 13,487,724 -

Universitas Gadjah Mada 8,147,697 14,384,894 5,412,253 29,798

Institut Pertanian Bogor 12,704,755 12,683,438 9,115,179 -

Universitas Airlangga 14,126,349 410,301 3,414,943 -

Other 75 U. average (2009) 8,417,920 5,465,346 58,346 478,276

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Table A.3.3: Change of state financing under BHP law approach A) (in billion Rp)

lower bound Upper bound

POLITEKNIK PERTANIAN NEGERI SAMARINDA -7 0

SEKOLAH TINGGI SENI INDONESIA PADANG PANJANG -9 1

POLITEKNIK PERIKANAN NEGERI TUAL -2 1

SEKOLAH TINGGI SENI INDONESIA BANDUNG -9 1

LITEKNIK PERTANIAN NEGERI PANGKAJENE KEPULAUAN -7 1

INSTITUT SENI INDONESIA DENPASAR -11 1

POLITEKNIK PERTANIAN NEGERI KUPANG -7 1

POLITEKNIK NEGERI AMBON -10 2

POLITEKNIK PERTANIAN NEGERI PAYAKUMBUH -7 2

INSTITUT SENI INDONESIA SURAKARTA -13 2

POLITEKNIK NEGERI KUPANG -7 2

POLITEKNIK NEGERI LAMPUNG -7 2

POLITEKNIK NEGERI LHOKSEUMAWE -12 4

UNIVERSITAS MALIKUSSALEH -11 4

UNIVERSITAS NEGERI PAPUA -16 4

POLITEKNIK NEGERI BANJARMASIN -6 4

POLITEKNIK NEGERI MANADO -10 6

POLITEKNIK NEGERI PONTIANAK -6 6

POLITEKNIK NEGERI UJUNG PANDANG -7 7

POLITEKNIK NEGERI BALI -9 7

POLITEKNIK PERKAPALAN NEGERI SURABAYA -2 7

INSTITUT SENI INDONESIA YOGYAKARTA -12 7

UNIVERSITAS TRUNOJOYO -6 8

UNIVERSITAS KHAIRUN -10 8

POLITEKNIK MANUFAKTUR BANDUNG -1 8

POLITEKNIK NEGERI SAMARINDA -6 9

POLITEKNIK NEGERI MEDAN -8 11

POLITEKNIK NEGERI PADANG -5 13

POLITEKNIK ELEKTRONIKA NEGERI SURABAYA 14

POLITEKNIK NEGERI SRIWIJAYA -6 14

UNIVERSITAS PALANGKARAYA -22 16

UNIVERSITAS CENDRAWASIH -19 18

UNIVERSITAS PATTIMURA -32 20

UNIVERSITAS NUSA CENDANA -26 21

POLITEKNIK NEGERI SEMARANG -6 21

POLITEKNIK NEGERI JEMBER 21

UNIVERSITAS SULTAN AGENG TIRTAYASA -2 22

UNIVERSITAS NEGERI MANADO -27 24

UNIVERSITAS NEGERI GORONTALO -5 25

UNIVERSITAS HALU OLEO -21 25

UNIVERSITAS TADULAKO -30 26

UNIVERSITAS JAMBI -14 26

UNIVERSITAS PENDIDIKAN GANESHA -5 28

49

lower bound Upper bound

UNIVERSITAS LAMBUNG MANGKURAT -26 28

POLITEKNIK NEGERI MALANG 4 31

POLITEKNIK NEGERI BANDUNG -5 32

UNIVERSITAS MATARAM -22 33

UNIVERSITAS SRIWIJAYA -32 35

POLITEKNIK NEGERI JAKARTA 8 42

UNIVERSITAS NEGERI MAKASSAR -15 47

UNIVERSITAS RIAU -15 53

UNIVERSITAS TANJUNGPURA -10 55

UNIVERSITAS NEGERI MEDAN -9 55

UNIVERSITAS SAM RATULANGI -41 56

UNIVERSITAS LAMPUNG -12 59

UNIVERSITAS JENDERAL SUDIRMAN -4 65

UNIVERSITAS MULAWARMAN -1 68

UNIVERSITAS SYIAH KUALA -14 70

UNIVERSITAS BENGKULU 21 78

UNIVERSITAS NEGERI SEMARANG 4 85

UNIVERSITAS JEMBER 16 94

UNIVERSITAS UDAYANA -12 103

UNIVERSITAS NEGERI JAKARTA 25 104

UNIVERSITAS NEGERI YOGYAKARTA 19 108

UNIVERSITAS NEGERI PADANG 35 115

UNIVERSITAS NEGERI SURABAYA 29 118

INSTITUT TEKNOLOGI SEPULUH NOPEMBER 34 136

UNIVERSITAS ANDALAS 31 143

UNIVERSITAS NEGERI MALANG 53 151

UNIVERSITAS HASANUDDIN 16 165

UNIVERSITAS SEBELAS MARET 54 195

UNIVERSITAS DIPONEGORO 99 250

UNIVERSITAS BRAWIJAYA 144 344

UNIVERSITAS PAJAJARAN 217 523

UNIVERSITAS TERBUKA 584 956

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Figure A.1: Potential government financing changes in 75 public higher education institutions under BHP (in billion Rp): Approcah (a)

*There are 76 higher education institutions. One excluded here is “Politeknik Negeri Media Kreatif” which was newly established in 2009.

-500 500 1500

POLITEKNIK PERTANIAN NEGERI …SEKOLAH TINGGI SENI INDONESIA …

POLITEKNIK PERIKANAN NEGERI …SEKOLAH TINGGI SENI INDONESIA …

POLITEKNIK PERTANIAN NEGERI …INSTITUT SENI INDONESIA …

POLITEKNIK PERTANIAN NEGERI …POLITEKNIK NEGERI AMBON

POLITEKNIK PERTANIAN NEGERI …INSTITUT SENI INDONESIA …

POLITEKNIK NEGERI KUPANGPOLITEKNIK NEGERI LAMPUNG

POLITEKNIK NEGERI LHOKSEUMAWEUNIVERSITAS MALIKUSSALEHUNIVERSITAS NEGERI PAPUA

POLITEKNIK NEGERI BANJARMASINPOLITEKNIK NEGERI MANADO

POLITEKNIK NEGERI PONTIANAKPOLITEKNIK NEGERI UJUNG …

POLITEKNIK NEGERI BALIPOLITEKNIK PERKAPALAN NEGERI …

INSTITUT SENI INDONESIA …UNIVERSITAS TRUNOJOYO

UNIVERSITAS KHAIRUNPOLITEKNIK MANUFAKTUR …

POLITEKNIK NEGERI SAMARINDAPOLITEKNIK NEGERI MEDAN

POLITEKNIK NEGERI PADANGPOLITEKNIK ELEKTRONIKA NEGERI …

POLITEKNIK NEGERI SRIWIJAYAUNIVERSITAS PALANGKARAYAUNIVERSITAS CENDRAWASIH

UNIVERSITAS PATTIMURAUNIVERSITAS NUSA CENDANA

POLITEKNIK NEGERI SEMARANGPOLITEKNIK NEGERI JEMBER

UNIVERSITAS SULTAN AGENG …UNIVERSITAS NEGERI MANADO

UNIVERSITAS NEGERI GORONTALOUNIVERSITAS HALU OLEOUNIVERSITAS TADULAKO

UNIVERSITAS JAMBIUNIVERSITAS PENDIDIKAN GANESHA

UNIVERSITAS LAMBUNG …POLITEKNIK NEGERI MALANG

POLITEKNIK NEGERI BANDUNGUNIVERSITAS MATARAMUNIVERSITAS SRIWIJAYA

POLITEKNIK NEGERI JAKARTAUNIVERSITAS NEGERI MAKASSAR

UNIVERSITAS RIAUUNIVERSITAS TANJUNGPURAUNIVERSITAS NEGERI MEDAN

UNIVERSITAS SAM RATULANGIUNIVERSITAS LAMPUNG

UNIVERSITAS JENDERAL SUDIRMANUNIVERSITAS MULAWARMAN

UNIVERSITAS SYIAH KUALAUNIVERSITAS BENGKULU

UNIVERSITAS NEGERI SEMARANGUNIVERSITAS JEMBER

UNIVERSITAS UDAYANAUNIVERSITAS NEGERI JAKARTA

UNIVERSITAS NEGERI YOGYAKARTAUNIVERSITAS NEGERI PADANG

UNIVERSITAS NEGERI SURABAYAINSTITUT TEKNOLOGI SEPULUH …

UNIVERSITAS ANDALASUNIVERSITAS NEGERI MALANG

UNIVERSITAS HASANUDDINUNIVERSITAS SEBELAS MARET

UNIVERSITAS DIPONEGOROUNIVERSITAS BRAWIJAYAUNIVERSITAS PAJAJARAN

UNIVERSITAS TERBUKA

lower bound

upper bound

51

Table A.3.4: Change of state financing under BHP law approach B) (in billion Rp)

Institution lower bound Upper Bound

UNIVERSITAS HASANUDDIN -275 -171

UNIVERSITAS SAM RATULANGI -121 -78

UNIVERSITAS CENDRAWASIH -80 -56

UNIVERSITAS NEGERI PAPUA -63 -47

UNIVERSITAS NEGERI MANADO -61 -40

POLITEKNIK PERTANIAN NEGERI PAYAKUMBUH -34 -31

POLITEKNIK PERTANIAN NEGERI PANGKAJENE KEPULAUAN -33 -29

POLITEKNIK PERTANIAN NEGERI SAMARINDA -30 -27

UNIVERSITAS PATTIMURA -64 -26

UNIVERSITAS NUSA CENDANA -52 -25

INSTITUT SENI INDONESIA SURAKARTA -31 -22

POLITEKNIK MANUFAKTUR BANDUNG -26 -22

POLITEKNIK NEGERI BALI -30 -21

POLITEKNIK NEGERI UJUNG PANDANG -34 -21

INSTITUT SENI INDONESIA DENPASAR -28 -20

POLITEKNIK NEGERI LAMPUNG -26 -20

POLITEKNIK PERTANIAN NEGERI KUPANG -24 -19

UNIVERSITAS TRUNOJOYO -32 -19

POLITEKNIK PERIKANAN NEGERI TUAL -21 -18

POLITEKNIK NEGERI KUPANG -21 -14

SEKOLAH TINGGI SENI INDONESIA PADANG PANJANG -20 -14

POLITEKNIK PERKAPALAN NEGERI SURABAYA -19 -12

SEKOLAH TINGGI SENI INDONESIA BANDUNG -18 -12

POLITEKNIK NEGERI LHOKSEUMAWE -22 -12

INSTITUT SENI INDONESIA YOGYAKARTA -25 -11

POLITEKNIK NEGERI MANADO -20 -9

UNIVERSITAS MATARAM -46 -9

POLITEKNIK NEGERI JEMBER -20 -8

UNIVERSITAS DIPONEGORO -137 -6

POLITEKNIK NEGERI BANJARMASIN -13 -3

POLITEKNIK ELEKTRONIKA NEGERI SURABAYA -13 -3

UNIVERSITAS KHAIRUN -21 -2

POLITEKNIK NEGERI PONTIANAK -14 -2

POLITEKNIK NEGERI BANDUNG -23 -2

UNIVERSITAS PALANGKARAYA -32 3

POLITEKNIK NEGERI AMBON -5 5

UNIVERSITAS MALIKUSSALEH -10 7

UNIVERSITAS LAMBUNG MANGKURAT -33 13

POLITEKNIK NEGERI SAMARINDA 1 15

POLITEKNIK NEGERI SEMARANG -6 15

POLITEKNIK NEGERI PADANG -2 17

POLITEKNIK NEGERI MALANG -5 17

UNIVERSITAS NEGERI GORONTALO -12 17

UNIVERSITAS TADULAKO -30 23

52

Institution lower bound Upper Bound

UNIVERSITAS NEGERI MAKASSAR -27 27

UNIVERSITAS ANDALAS -52 28

UNIVERSITAS BENGKULU -16 28

UNIVERSITAS UDAYANA -44 29

POLITEKNIK NEGERI SRIWIJAYA 13 37

POLITEKNIK NEGERI MEDAN 17 42

UNIVERSITAS HALU OLEO -4 44

UNIVERSITAS PENDIDIKAN GANESHA 10 50

UNIVERSITAS JAMBI 4 51

UNIVERSITAS SULTAN AGENG TIRTAYASA 20 60

UNIVERSITAS SRIWIJAYA 2 78

UNIVERSITAS TANJUNGPURA 19 91

UNIVERSITAS NEGERI MALANG 19 104

UNIVERSITAS MULAWARMAN 36 106

UNIVERSITAS LAMPUNG 25 109

UNIVERSITAS JEMBER 33 118

UNIVERSITAS NEGERI SURABAYA 41 121

UNIVERSITAS NEGERI JAKARTA 34 122

UNIVERSITAS NEGERI PADANG 46 131

UNIVERSITAS BRAWIJAYA 9 131

UNIVERSITAS RIAU 53 140

UNIVERSITAS NEGERI MEDAN 55 141

UNIVERSITAS PAJAJARAN -12 144

UNIVERSITAS NEGERI YOGYAKARTA 54 151

UNIVERSITAS JENDERAL SUDIRMAN 60 153

UNIVERSITAS SYIAH KUALA 59 172

UNIVERSITAS NEGERI SEMARANG 82 187

UNIVERSITAS SEBELAS MARET 85 223

INSTITUT TEKNOLOGI SEPULUH NOPEMBER 101 228

POLITEKNIK NEGERI JAKARTA 277 397

UNIVERSITAS TERBUKA 1366 2104

53

Figure A.2: Potential state financing changes in 75 public higher education institutions under BHP (in billion Rp) : Approach (b)

-1000 1000 3000

UNIVERSITAS HASANUDDINUNIVERSITAS SAM RATULANGI

UNIVERSITAS CENDRAWASIHUNIVERSITAS NEGERI PAPUA

UNIVERSITAS NEGERI MANADOPOLITEKNIK PERTANIAN NEGERI …POLITEKNIK PERTANIAN NEGERI …POLITEKNIK PERTANIAN NEGERI …

UNIVERSITAS PATTIMURAUNIVERSITAS NUSA CENDANA

INSTITUT SENI INDONESIA SURAKARTAPOLITEKNIK MANUFAKTUR BANDUNG

POLITEKNIK NEGERI BALIPOLITEKNIK NEGERI UJUNG PANDANGINSTITUT SENI INDONESIA DENPASAR

POLITEKNIK NEGERI LAMPUNGPOLITEKNIK PERTANIAN NEGERI …

UNIVERSITAS TRUNOJOYOPOLITEKNIK PERIKANAN NEGERI TUAL

POLITEKNIK NEGERI KUPANGSEKOLAH TINGGI SENI INDONESIA …POLITEKNIK PERKAPALAN NEGERI …SEKOLAH TINGGI SENI INDONESIA …

POLITEKNIK NEGERI LHOKSEUMAWEINSTITUT SENI INDONESIA YOGYAKARTA

POLITEKNIK NEGERI MANADOUNIVERSITAS MATARAM

POLITEKNIK NEGERI JEMBERUNIVERSITAS DIPONEGORO

POLITEKNIK NEGERI BANJARMASINPOLITEKNIK ELEKTRONIKA NEGERI …

UNIVERSITAS KHAIRUNPOLITEKNIK NEGERI PONTIANAK

POLITEKNIK NEGERI BANDUNGUNIVERSITAS PALANGKARAYA

POLITEKNIK NEGERI AMBONUNIVERSITAS MALIKUSSALEH

UNIVERSITAS LAMBUNG MANGKURATPOLITEKNIK NEGERI SAMARINDAPOLITEKNIK NEGERI SEMARANG

POLITEKNIK NEGERI PADANGPOLITEKNIK NEGERI MALANG

UNIVERSITAS NEGERI GORONTALOUNIVERSITAS TADULAKO

UNIVERSITAS NEGERI MAKASSARUNIVERSITAS ANDALAS

UNIVERSITAS BENGKULUUNIVERSITAS UDAYANA

POLITEKNIK NEGERI SRIWIJAYAPOLITEKNIK NEGERI MEDAN

UNIVERSITAS HALU OLEOUNIVERSITAS PENDIDIKAN GANESHA

UNIVERSITAS JAMBIUNIVERSITAS SULTAN AGENG …

UNIVERSITAS SRIWIJAYAUNIVERSITAS TANJUNGPURA

UNIVERSITAS NEGERI MALANGUNIVERSITAS MULAWARMAN

UNIVERSITAS LAMPUNGUNIVERSITAS JEMBER

UNIVERSITAS NEGERI SURABAYAUNIVERSITAS NEGERI JAKARTAUNIVERSITAS NEGERI PADANG

UNIVERSITAS BRAWIJAYAUNIVERSITAS RIAU

UNIVERSITAS NEGERI MEDANUNIVERSITAS PAJAJARAN

UNIVERSITAS NEGERI YOGYAKARTAUNIVERSITAS JENDERAL SUDIRMAN

UNIVERSITAS SYIAH KUALAUNIVERSITAS NEGERI SEMARANG

UNIVERSITAS SEBELAS MARETINSTITUT TEKNOLOGI SEPULUH …

POLITEKNIK NEGERI JAKARTAUNIVERSITAS TERBUKA

lower bound

upper bound

54

Table A.3.5: Financing changes in seven autonomous universities under the BHP Law

current after law

State+institution fee State+institutin fee

Universitas Indonesia 469,597,142,622 680,723,197,263 742,198,280,192 301,650,837,504

Institut Teknologi Bandung 319,171,670,727 201,047,735,166 371,758,407,680 137,751,674,880

Universitas Pendidikan Indonesia

222,665,898,164 108,510,454,865 194,542,297,088 95,401,418,752

Institut Pertanian Bogor 310,955,892,688 180,751,674,435 378,497,916,928 70,462,758,912

Universitas Gadjah Mada 568,350,438,702 601,605,024,756 673,788,452,864 173,422,952,448

Universitas Airlangga 391,170,823,003 9,149,719,039 226,773,704,704 96,171,393,024

Universitas Sumatera Utara 165,356,067,735 179,504,201,324 255,823,196,160 90,125,910,016

55

The BHP implications for the seven autonomous universities are shown in Figure 16. As expected, except for Airlangga University, government financing share will have to increase in all the other six institutions.

Figure A. 1: Potential change of financing shares under the BHP law in 7 autonomous universities

0%

20%

40%

60%

80%

100%

Before

0%

20%

40%

60%

80%

100%

Universitas Indonesia

Institut Teknologi Bandung

Universitas Pendidikan Indonesia

Institut Pertanian

Bogor

Universitas Gadjah Mada

Universitas Airlangga

Universitas Sumatera

Utara

After

Gov+Inst. fee

56

ANNEX 2: NATIONAL STANDARDS FOR HIGHER EDUCATION

The Government Regulation PP 19 / 2005 stipulates that the minimum service standard for national education comprises eight standards, namely content, process, assessment, graduate’s competency, infrastructure and facilities, teacher and other staff, management, and funding.

Process:

Curriculum: standards for curriculum are implemented using semester system comprising between 16 weeks per semester. The undergraduate curriculum comprises 144 credit-units (Sarjana) or 110 credit-units (D3) with an additional 20 percent credits are offered for elective courses. Each course is only offered once a year. Course offering more than once a year will not be considered as the minimum service.

Efficiency & Productivity: at least 50 percent of students complete their study on time. Retention rate is expected at least 90 percent (at least 90 percent of students will graduate eventually), or attrition rate of 5 percent to 10 percent. On average, the Student-to-Staff Ratio (SSR) is 20-30 : 1, except for some particular disciplines such as arts. Class size should be between 40 and 50, except in the case of polytechnics whereby class size is in the range of 24 to 30. These standards are also not applicable for special programs in the art institute.

Student teacher interaction: classroom-based lecture sessions are scheduled for 16 weeks. The length of each session is derived from the number of credit (sks) assigned for the particular course. The minimum service standard set for the scheduled interaction is 80 percent in each semester.

Assessments: The minimum service standards require that student assessment to be conducted at least twice, mid and final-term. Lecturer’s feedback on students’ work is to be given to students during the period of the semester. Final examinations shall be conducted according to the published course plan, which describes the schedule, weight, and materials covered. The final result of marking shall be announced before the registration deadline for the subsequent semester.

Practical works: Standards for practical works, field works, and other similar activities are not defined in this document, and should refer to the respective curriculum and syllabi for each course. The internal quality assurance unit and the Accreditation Board will be responsible to assess whether the implementation conforms to the published document.

Facilities and infrastructure:

The minimum standards for facilities and infrastructure will become the benchmark for government support. Public institutions that have not met these standards need to be given highest priority in budget allocation for investment to be able to achieve it.

Building: The minimum standard service for building is the provision of classrooms that met the standard for class A building codes as required by the Ministry of Public Works. It should

57

include the provision of adequate space, air circulation, lavatory, corridor, the necessary safety measures (fire safety, etc) in each building.

Teaching equipment: The minimum standard service for teaching equipment is overhead or LCD projector, screen, and black or white board, in addition to consumables such as chalk and marker.

Common facilities: The minimum service standard for common facilities includes the provision of open public space (estate, landscape, etc), canteen for student and staff.

Utilities: The minimum standard services for utilities include electricity, water, communication line, and internet bandwidth.

Library: Library is the lifeline of academic life that the minimum standard services should include the provision of library services. It includes the provision of building, staff, and collection. The cost of library service is calculated based on the cost of each transaction. It should take into account the maintenance and operational cost of building and staff, whilst the construction of the building is considered more as investment. The cost of acquiring new collection is considered as investment, whilst the subscription of journal is considered as recurrent.

Other facilities: The maintenance and operational cost of other facilities and infrastructure such as laboratory and its equipment, are not elaborated since the calculation is applied for academic disciplines in group D. The maintenance and operational cost of other facilities and infrastructure such as laboratory and its equipment are calculated according to the assigned weight.

Management

Information system: The information system should provide at least cumulative and semester graduate point average for each student, student and staff personal profile, alumni profile, and statistics on student academic performance.

Planning: The minimum service standard in planning includes the development of institutional strategic plan for 5 year period, annual activity and budget plan, and staff development plan.

Management: The minimum service standard in management includes a well implemented financial management system, asset and inventory system, staff recruitment system, and student admission system.

Quality assurance system: The minimum service standard in quality assurance includes the well functioning of a monitoring and evaluation system. Periodically it needs to produce a comprehensive self evaluation report. The accreditation result provides an external assessment mechanism.

Human resources

58

Lecturers: According to the Law 14/2005, lecturers should hold at least S2 degree.

Support staff: Support staff includes technicians, librarians, administrative staff, and other non teaching personnel. The minimum qualification of these staff should meet the regulations described in the institutional personnel guidelines.

59

ANNEX 3. SELECTED EXISTING SCHOLARSHIPS

Name of Scholarship/ Provider

Amount/Coverage Eligibility

1 PPA / GoI Rp 250,000 per month, annual Undergraduate student, low income family background

2 BBM / GoI Rp 250,000 per month, annual Undergraduate student, low income family background

4 KS4 / Private Foundation

Rp 500,000 per month, annual Low income, GPA >2.75

5 KS4 / Private Foundation

Rp 900,000 per month, annual min 3rd semester, GPA >= 3.00, low income

6 GE Foundation Scholar-Leaders Program

Full scholarship; tuition at cost Low income, GPA>3.0, English proficiency, active at students organization, min 3rd semester

7 PEMDA Jabar Rp 4,400,000 (one-time) New students, low income, average high-school exams mark at least 7; Extension: GPA >3.0

8 Bank KEB Rp 5,000,000 (one time) Low income, GPA >3.0

9 Lippo Bank Full scholarship Low income, outstanding academic achievement

10

Unggulan Depdiknas - CIMB Niaga

Full scholarship Medalist of Olympiad competition; annually review based on GPA

11

Unggulan - MONE Tuition and fees Undergraduate and Master with GPA >3.0

12

Bank Mayapada Full scholarship Low income, min 2nd semester, GPA >3.0

13

Yayasan Dana Bhakti Pendidikan UI (YDBP-UI)

Soft loan; repayment after 10 years of graduation.

Any student can apply

14

Accenture Tuition and fees for 2 years; + trainings GPA >3.5.

15

PPSDMS Nurul Fikri

Full Scholarship Male students, min at 3rd semester, GPA >3.0; leadership capacity

16

Beasiswa Skripsi Posco Full scholarship Final year students, GPA > 2.75

17 Indocement Tunggal Prakarsa

Full scholarship 3rd year students of above, GPA>27.5

18 Beasiswa Astra Daihatsu Motor

Full scholarship 3rd year students or older, GPA>2.75

19 Shell Rp 500,000 per month, +training Low income, GPA > 2.75; active at students organization

20 Polygon Bicycle Polygon, Rp 500,000 per month for 6 months

Students who ride bike, GPA min 3.00

21 BCA Finance BOP per semester, Rp 200,000 per month, + training

min at 3rd year; GPA min 3.00, low income

22 Djarum Bakti Pendidikan Rp 600.000 per month for 1 year, + trainings.

Low income, GPA > 3.0

23 Unilever Rp 250,000 per month Min earned 90 SKS; GPA min 3.00

24 Supersemar Rp 100,000 per month Low income, GPA > 2.75

25 BTN Rp 750,000 per month Low income, GPA > 3.0

26 BI Rp 250,000 per month Low income, GPA> 2.75

27 BNI Rp 250,000 per month Low income, GPA > 3.0

60

Name of Scholarship/ Provider

Amount/Coverage Eligibility

28 UFJ Bank of Tokyo Rp 300,000 per month Low income, min 3rd year, GPA>3.0

29 Tanoto Full scholarship GPA > 3.25; past academic performance at high school

30 Limas Full scholarship GPA > 3.00; past academic performance at high school

31 Ekacipta Tuition and fees, Low income

32 Sumitomo Rp 60.000 per month Low income

33 Pertamina Tuition + monthly allowance Based on GPA: 2.75 - 2.99 : Rp 300,000 3.00 - 3.24 : Rp 350,000 3.25 - 3.49 : Rp 400,000 3.50 - 3.74 : Rp 450,000 3.75 - 3.99 : Rp 500,000 4.00 : Rp 550,000

Low income

34 PEMDA Aceh Full scholarship Determined by local government

35 PPE / GoI Rp 500,000 per month for 1 year Students with excellent performance in extracurricular activities

Source: Moeliodihardjo et al (2009).

61

ANNEX 4: COST PROJECTION

2009 2011 2013 2015 2017 2019 2020

Population Population 230,274,090 236,253,327 241,995,683 247,877,612 253,286,464 258,813,342 261,621,842

Population Growth (BPS Forecast)

1.37% 1.21% 1.21% 1.21% 1.09% 1.09% 1.09%

Enrollee in Higher Education

Public 1,246,595 1,260,128 1,273,809 1,287,638 1,301,617 1,315,748 1,322,871

Public as % of Population 0.54% 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%

Private 2,325,515 2,372,722 2,420,888 2,470,032 2,520,173 2,571,332 2,597,299

Private as % of Population 1.01% 1.01% 1.01% 1.01% 1.01% 1.01% 1.01%

poorest as % of total 1.00% 3.55% 6.09% 8.64% 11.18% 13.73% 15.00%

total number of poorest 35,721

128,801

225,041

324,526

427,346

533,590

588,025

Cost Administration 2,682,993,927,000 3,325,489,265,133 4,030,405,726,739 4,782,829,900,404 5,540,992,353,403 6,267,318,187,227 6,607,560,624,692

Administration/ (Institutional Subsidies)

0.25 0.23 0.21 0.19 0.18 0.16 0.15

Public Institution(Rupiah) 9,797,424,570,000 12,533,945,823,988 15,947,744,492,523 20,142,432,171,501 25,152,639,927,959 31,063,972,714,872 34,401,395,431,689

Private Institution (Rupiah) 1,146,995,583,000 2,061,282,322,863 3,194,691,354,086 4,607,174,192,522 6,339,354,528,967 8,440,144,854,491 9,649,008,732,924

subsidy to poorest 549,054,809,829 1,207,477,831,749 2,175,659,397,489 3,539,181,478,180 5,399,024,267,985 6,553,572,207,567

Total Public Allocation (Rupiah)

13,627,414,080,000 18,469,772,221,813 24,380,319,405,097 31,708,095,661,916 40,572,168,288,508 51,170,460,024,575 57,211,536,996,872

Total Cost as % of GDP 0.26% 0.33% 0.38% 0.44% 0.50% 0.56% 0.59%

Total Cost as % of MONE 21.94% 27.04% 31.92% 36.74% 41.60% 46.43% 48.84%

Public HEI Income (Excluding Autonomous University)

4,847,887,859,000

Per Student Subsidy:

Public 7,859,349 9,946,562 12,519,731 15,642,933 19,324,150 23,609,369 26,005,111

62

Public Unit Cost as % of GDP/Capita

35.13% 41.47% 47.81% 54.15% 60.49% 66.83% 70.00%

Private 493,222 868,741 1,319,636 1,865,229 2,515,444 3,282,402 3,715,016

Private Unit Cost as % of GDP/Capita

2.20% 3.62% 5.04% 6.46% 7.87% 9.29% 10.00%

additional subsidy to poorest 4,262,812

5,365,599

6,704,114

8,281,779

10,118,301

11,145,048

Resource Envelope

GDP (Rupiah) 5,152,190,056,000 5,666,873,233,834 6,337,264,337,397 7,160,912,246,064 8,091,608,849,773 9,143,267,160,369 9,719,292,991,472

(in thousands) GDP/Capita (Rupiah) 22,374,163 23,986,427 26,187,510 28,888,903 31,946,472 35,327,650 37,150,159

GDP Growth (IMF Forecast) 3.99% 5.00% 6.00% 6.30% 6.30% 6.30% 6.30%

Total Gov. Revenue + Grant (Rupiah)

985,725,300,000 1,084,195,314,569 1,212,455,620,282 1,370,037,264,795 1,548,099,638,063 1,749,304,599,922 1,859,510,789,717

Total Central Gov. Revenue + Grant as % of GDP

19.13% 19.13% 19.13% 19.13% 19.13% 19.13% 19.13%

Total Central Gov. Spending (Rupiah)

322,317,408,076 354,515,627,873 396,454,826,651 447,981,664,016 506,205,392,906 571,996,401,617 608,032,174,918

Total Central Gov. Spending as % of GDP

6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3%

MONE Budget (Rupiah) 62,098,268,498 68,301,637,128 76,381,720,800 86,308,976,671 97,526,468,060 110,201,885,587 117,144,604,379

63

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