1. MEMO
To: Wendy Duncan, ADB Southeast Asia Department
From: Jonathon Flegg, Indonesian Ministry of National Education
Date: 25/05/11
Subject: ADB Educational Loan Assistance
1. What are major problems in primary and secondary education in Indonesia? How serious are these
problems?
At the national-level education is administered by both the Ministry of National Education (MONE) and
the Ministry of Home Affairs (MOHA). However since 2001 the whole Indonesian education system has
undergone major decentralisation in an attempt to make the system more accountable and to realise
efficiency benefits. While district-level governments have access to adequate fiscal resources, overall the
administration of education remains complex and lacks policy direction between the different agencies
involved. Decentralisation has presented problems of:
 Lack of district-level technical capacity for administering education.
 Unclear division of responsibilities and power between different levels of government.
 Constraints on the spread of information between districts about best practice.
While universal primary enrolment has been largely achieved, the delivery of education remains very
inefficient and uneven. Teacher-student ratios are among the world‟s lowest (20.3 in primary and 14.2 in
secondary), yet average educational outcomes in core competencies remains quite low. The main
problems identified by MONE that have led education spending to become inefficient are:
 Poor teacher quality, including poor tertiary training and remuneration.
 High rates of teacher absenteeism.
Responsibility for delivering junior secondary education rests with MONE and this level remains the
major focus for our improvement efforts. The significant issues facing junior secondary education are in
sharp contrast to the successes seen in achieving universal primary education in recent years. Specifically
the major concerns are:
 High student fall-out rate in the transition from primary to junior secondary level.
 Differentially higher fall-out rate among rural, poorer households.
All these problems are quite serious for two reasons: they are causing significant cost inefficiencies and
they are inconsistent with Indonesia‟s overall development strategy. Lewis and Pattinasarany (2008) have
found that actual school spending, at current levels of performance, exceeds optimal levels by 60 percent.
Such a significant failure to spend public funds in a cost efficient way demands immediate attention.
Also Indonesia‟s economy is rapidly developing, and achieving quality basic education outcomes across
all provinces is vital to the nation‟s growth strategy. Indonesia‟s uneven economic development has been
quite centralised around Java, and there is a strong economic imperative to promote human capital
development in outer provinces.
2. What are root causes of these problems and why?
Possible causes of problems concerning decentralisation. Decentralisation of education is not necessarily
a „policy panacea‟ and could result in greater inefficiencies if not implemented correctly. The constraints
on successful decentralisation identified above are caused by problems with a lack of centre-district
communication, legislation, and migration. Communication networks are not regularised, with district-
level administrators working without enough technical assistance from the Jakarta. Also governance at

2. the district-level remains quite poor with a failure of skilled administrators and teachers to migrate to
provincial areas. Finally, the division of responsibilities in the legislation that was hurriedly drafted after
President Suharto left office remains unclear1. For instance, as teachers are civil servants, the Indonesian
Government set their salaries, yet the districts are responsible for paying them.
Possible causes of poor teacher quality and absenteeism. Recent increases in enrolment and the failure of
tertiary teacher training to keep pace have led to lower average standards for teacher qualifications. Only
60-70% of teachers current have the necessary tertiary qualifications required by law2. Poor quality might
also be a reflection of poor incentives to teach.
International evidence suggests that remuneration only bears a small relation to teacher absenteeism3.
Rather absenteeism is more closely linked to whether there is sufficient school-based monitoring of the
teacher‟s classroom presence, and whether the teacher‟s performance is subject to performance review by
either the principal or a PTA.
Possible causes of post-primary dropout rates. According to the ILTS2 family survey, over 70% of
students who fail to make the transition from primary to junior secondary do so because of the „need to
work‟4. However this response may mask other economic reasons, as only one in five respondents
actually did work. The costs of schooling, including excessive transportation costs, are likely the major
reason for high dropout rates at the beginning of secondary school.
3. How would you compare them against each other based on the importance and seriousness of the
issues?
Any comparison should be on the basis of the most cost efficient way of achieving a given improvement
in educational outcomes, with due consideration for strategic complementarities with other educational
improvement programs. Given Indonesia‟s level of development, outcomes should be primarily be
considered to be core competencies in literacy and numeracy. Some emphasis on outcomes in English and
computing skills might also be warranted as valuable educational outputs.
Complementarities may exist with other recent programs initiated by either the Indonesian Government or
their international partners such as the World Bank, USAID and AusAID. There is no rationale in
duplicating efforts that have already been initiated but may not yet have had time to produce a noticeable
effect on outcomes.
4. What specific problem area(s) should the proposed ADB loan project target and why?
Firstly it must be considered that significant funds from Indonesia‟s international partners have been
implemented in ongoing SBM and teacher training programs, with particular reference to USAID‟s DBE
and the World Bank BERMUTU program5. Also recently MONE has thoroughly addressed the issue of
increasing teacher remuneration.
ADB loan funds can be most efficiently allocated to a new program seeking to introduce:
 Technology-based monitoring of teachers in schools to reduce absenteeism. Duflo and Banerjee (2006) have
documented a number of randomised trials that have shown supplying classrooms with digital cameras for
twice-daily photographing of teachers is an efficient method of significantly reduce teacher absenteeism.
1
Laws 22/1999 and 25/1999, in addition to Education Law 20/2003, have established educational decentralisation.
2
Weston, S. (2008). “A Study of Junior Secondary Education in Indonesia”, pg. 24. Retrieved from: ddp-
ext.worldbank.org/EdStats/IDNdprep08.pdf.
3
Banerjee and Duflo (2006) “Addressing Absence”. J Econ Perspect 20(1): 117–132.
4
Weston, pg 3.
5
For a full list of donor programs see: Weston, pg 32.

3.  A migration assistance package eligible for skilled administrators or secondary teachers to incentive
relocating from highly-staffed to low-staffed districts. In aggregate, Indonesia does not have a shortage of
administrators or secondary teachers, however currently very few of them are located in the provincial areas.
To redress the capacity and teacher gap in provincial districts a financial incentive should be offered to
qualified individuals to migrate out of high-staffed areas. It will also assist in raising the level of qualifications
among teachers in provincial areas, and in will eventually assist in improving outcomes so that they catch up
to those in high-performing districts.
 A randomised trial of conditional transfers for poor households who retain their children in attendance
throughout junior secondary school. Poor households incur implicit costs in sending their children to school,
whether they are transportation or tuition costs, or the opportunity cost of retaining their child in the
workforce. A conditional transfer scheme should address all these costs of attending6. A trial could be
implemented in provincial districts using a multi-stage sample selection process, and if dropout rates fall then
the trial could be extended. Students already receiving JSE scholarships would be ineligible for a conditional
transfer.
 School bus funding program. Where necessary provincial high schools could also apply to MONE for funding
to purchase school buses. School buses will reduce the implicit transportation costs for poorer rural
households to send their children to high school.
5. What information (data) should be collected to provide more conclusive evidences to answer questions
above? How would such information (data) be collected?
 A national randomised survey of teachers ascertaining their school district, qualifications, salary, job
satisfaction, salary satisfaction and preparedness to relocate. If teachers are willing to relocate, they should be
asked where they are prepared to relocate to and what obstacles they envision in making such a move.
 Perform a Dif-in-Dif examination of absenteeism within a small number of schools to examine whether the
recent salary changes had a noticeable effect on reducing absenteeism. Using the recent change in salary
structure as a natural experiment, a study could compare absenteeism before and after the salary change with
that of teachers who did not receive a salary change. This examination could identify if there is any predicted
effect of salary on absenteeism. Alongside this study a further Dif-in-Dif examination could be performed
which randomly treats teachers with technology-based monitoring and compares their change in absenteeism
with a control group.
 A household survey that is more comprehensive that the ILTS2 family survey should be conducted to
ascertain the underlying reasons behind the higher dropout rate among poorer, rural households. The
survey should include stated preferences on school district, household income, school attendance,
known school attendance costs, and reason for sending or not sending children to school. Additional
data should also be collected on the geographic proximity to a school and most likely mode of
transport to that school.
 Finally the trial of conditional transfers is a data collection exercise in itself, and should follow best
practice for experimental procedure. Recipients should be randomly selected in a multi-stage
sampling process for provinces and districts and should be conditional only upon low household
income. The drop-out rate for non-qualifying students, and a control group of qualifying students
who do not receive transfers should also be collected for comparison puposes.
6
Suryadarma et al, 2006. “Causes of Low Secondary School Enrolment in Indonesia”. Retrieved from:
www.smeru.or.id/report/workpaper/lowschoolenroll/Enrollmenteng06.pdf .