16 August 2008

Funding the Knowledge Nation

The funding of education is an issue that has gained increasing prominence over the past several years, particularly exactly how much of the State and Regional Budgets must be allocated. The allocation issue has been one that has made its way to the Constitutional Court. The Constitutional Court handed-down a decision that stipulated that there was a constitutional requirement that the government ensure that at least 20% of the State budget was allocated to education. The ball is essentially back in the government’s court with regards to ensuring that they comply.

Nevertheless, the Constitutional Court decision is the easy part. The more difficult part is finding the money to reach the 20% allocation threshold considering the competing needs that the Indonesian government finds itself facing. The sky-rocketing price of oil in world markets and the government’s decision to reduce fuel subsidies has had, and will continue to have, an impact on the lives of ordinary Indonesians. Even though world oil prices have eased in recent weeks from record highs, the government’s insistence on maintaining even reduced subsidies continues to put pressure on the budget’s bottom line (photo).

If the government intends to comply with the 20% allocation for education in the sooner rather than later time frame, then perhaps the government will have to tap into its large foreign reserves. This is particularly so if the government intends to run a budget that is predicted to be in deficit to the tune of some IDR 100 trillion through 2009. Furthermore, it is worth considering how the 20% funding allocation is to be made up. For example, is it to include salaries of teachers and administrative staff?

It is worth noting that the Government Regulation, No. 48 of 2008, is not a specific response to the Constitutional Court decision but rather it is aimed at enforcing Articles 46(3), 47(3), 48(2), and 49(5) of Law No. 20 of 2003 on the National Education System.

Where the Funding Burden Lies
Interestingly, the Regulation characterizes the funding of education as a joint endeavor not just between the central and regional governments but also with the help of the community. The sharing of the burden and the involvement of the community is designed to foster an education management budget and structure that is fair, efficient, transparent, and accountable.

This is intended to ensure that the burden is shared but the involvement of the community and that community picking up part of the tab for education is perhaps the first step towards the complete privatization of the educational sector. Complete privatization would be many years into the future and would be unlikely to ever succeed unless there were specific provisions in place that would cater for those that would not have access to private education, the poor and disenfranchised.

The simple math would suggest that the smaller the number of public education facilities the larger the Rupiah amount of a 20% allocation to the funding of public education. This would seem to be a good thing as then the government could conceivably allocate more of the obligatory 20% of the State budget to acquiring more land and building more schools. This would then allow the government to also come good on its promise of providing a basic nine-year education that is free of fees to all Indonesian children.

The Regulation defines the community in terms of educational units established and managed by the community, participants in education programs or their parents or guardians, and the all capturing “anyone else” with an interest and a role to play in education. The ‘anyone else’ is further defined in the Elucidations to this particular article as being business people, alumni, and social organizations.

Articles 3, 4, and 5 of the Regulation list a whole series of fees that are associated with education including the investment in land and buildings, investment in operations, and the investment in teacher and administrative staff salaries and allowances. For example, the Regulation is explicit that these fees are to include the basic salaries and allowances for teaching and lecturing staff.

These fees are the responsibility of the relevant governments. The fees which have been noted in some detail are the responsibility of the governments involved and as such the numbers must be formulated and then allocated in the budget as educational expenditure.

Investments by the Government
The investments noted above are then enumerated in detail in the articles that follow. These investments include capital expenditures in the procurement of land and the subsequent building of schools on that land. However, the investments are also to include development of human resources.

The investments can be in the form of grants from the Central Government to the Regional Government or vice versa where the purpose of the grant is clearly identified as being for an educational purpose.

Regulatory Framework
Each of the provisions includes a statement that all of this investment is to be carried out pursuant to any prevailing laws and regulations. It is therefore expected that there will be additional regulations and Ministerial directives issued in order to set out in ever greater detail the means of implementing the provisions of this Regulation.

Foreign Aid & Assistance
The Regulation permits foreign parties to provide assistance for education initiatives, such as the procurement of land and buildings. This assistance can presumably include expert human resources provided these human resources comply with prevailing labor laws and regulations.

However, the assistance or aid provided must be non-binding. In essence, the provision of aid does not entail that the foreign party has any say in the administration of any educational facility that may benefit from the foreign assistance.

Funding Sources & Management
Chapters V and VI of the Regulation provide extensive lists with regard to what the valid sources of education funding are and how these funds are to be managed.

Generally, these sources include:
1. Central Government budget;
2. Regional Government budget;
3. Foreign aid and assistance; and
4. Other legitimate sources.

For private educational institutions the sources of funding includes:
the founder(s) of the institution;
1. community donations, and fees from students;
2. income from courses; plus
3. Central and Regional Governments;
4. Foreign aid and assistance; and
5. Other legitimate sources.

The management of education funds is divided into two basic principles:
1. General; and
2. Special.

The general principles envisaged in the Regulation include the principles of fairness, efficiency, transparency, and accountability. Each of these principles is further enumerated in the Regulation. For example, efficiency refers to the need to optimize access, quality, relevance, and competitiveness in the provision of educational services.

The special principles stipulate that allocated funds are to be managed in accordance with the government’s budgetary system and pursuant to the prevailing laws and regulations. This is to be interpreted as requiring proper book keeping and reporting with respect to the management of education funding. Therefore, there is an expectation that proper accountancy standards will be followed.

The second part of the special principles section is the requirement for planning. Planning requires the Central Government to allocate funding based on considerations such as the long and medium term national development plans. The Central Government must also consider the strategic national education plan. On the regional government level the general considerations are the same. However, a Regional Government must also consider the regional strategic plan.

The Percentage of the Budget to be Allocated
The Regulation does stipulate in Article 80 that at least 20% of the State Budget must be allocated to education on an annual basis. This is contained in a solitary sentence and is then followed by another sentence which states that the Minister of Finance is to issue further regulations to set out how the government will comply with this obligation.

The most interesting consideration to be determined in this regard is whether or not the 20% allocation is to include the salaries of teaching and administrative staff. If the allocation is to include salaries and other entitlements, then the majority of regional governments and the central government itself would seem to be close to this level of allocation already.

Article 81 requires that Regional Governments also allocate at least 20% of their respective budgets to education. The precise manner and mechanisms for this are to be regulated in an as yet to be issued Minister of Finance regulation.

The enactment of this Regulation is a positive sign that the government is taking seriously the need to develop and maintain an education system that is not only competitive but a world leader. The provisions of this Regulation set out a framework within which this particular dream can conceivably be realized. Nevertheless, this relies on more than just the government paying lip service to education funding, it requires the government to not only make the necessary allocations in the budget, but requires the government to ensure that the allocations are dispersed as they are meant to be.

If both the Central and Regional Governments were to allocate at least 20% of their respective budgets to the education sector then in a very short span of time Indonesia must become the “knowledge nation”.

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