Indonesia: Education reform

Foreign institutions are to be targeted to help fill major gaps in Indonesia’s skill base as a result of a weak and undersupplied education system. A recent bill opens tertiary education to overseas interests but the challenge will lie in balancing the goals of social equality with the mandate to promote high-quality education at a low cost.

Under the bill, state universities can designate themselves as “legal entities”, which would give them more autonomy and the right to seek alternative funding. Opponents of the law have charged that this will allow state schools to raise their fees arbitrarily, although the government counters that fees would be carefully regulated. The bill also mandates that 20% of seats in all faculties be allocated to low-income students, who are often priced-out or tested-out of state universities.

Other portions of the bill open the door for foreign universities to set up branches in Indonesia, albeit in strict compliance with government regulations. Incoming universities will face limitations on where they can operate and what programmes they can offer. They will have to enter into partnerships with Indonesian institutes and give preference to hiring local staff.

Although great progress has been made in recent decades on boosting enrolment in primary schools, Indonesia’s secondary and tertiary educational institutes are lagging in both quality and quantity of students. Government statistics show that nearly 95% of appropriate-age Indonesians are enrolled in primary school, but the ratio drops to 68% for junior high and 46% for senior high school.

The real challenges, however, present themselves in tertiary education, where just 23% of eligible students are enrolled, compared to 29% in the Philippines, 40% in Malaysia, and 46% in Thailand. This low enrolment is not due to a lack of interest in attending university but rather owes to the limited supply of university spots. Just 22% of the more than 500,000 students who took the state entrance exam in 2011 were accepted for enrolment in a public university.

This shortfall of public supply has led to the proliferation of private institutions, including both universities and vocationally focused polytechnics and academies, which grant a professional diploma. Around 68% of Indonesia’s 4m higher education students attend these institutions, despite costs that can be more than double those of public schools: $16,000 for a four-year private degree, compared with up to $7000 for an equivalent public degree.

Limited resources in the state university system and low standards for private institutions result in workers lacking skills. The varying aptitude levels of graduates and their suitability for the job market produces both a shortage and a mismatch of skills. A World Bank survey found that up to 25% of the fresh work force needed to be retrained on the job.

“There are data on the number of newly graduated students who are unemployed. The problem lies with the quality of the students, not the availability of jobs. There's often a wide gap between a corporation's standards and the qualifications of the graduates,” said Nenny Soemawinata, the managing director of the Putera Sampoerna Foundation.

A skills mismatch is evident in the insufficient number of higher education graduates in manufacturing, despite a clear demand for such workers. The Indonesian graduates who refuse to work in these in-demand fields often find themselves in hot competition for other jobs that correspond with their skills, or let their skills go unused entirely. According to a 2010 World Bank report, more than 50% of tertiary-educated workers were “overqualified” for their positions, while nearly 10% were unemployed. The report recommended increasing linkages between industry and universities, and strengthening the accreditation process to reduce the number of low-quality private institutions. A mismatch between graduate skills and job opportunities is by no means confined to Indonesia, although its significance is heightened by the country’s ambition to become a top-10 economy by 2025, a feat that requires annual growth of 7-9%.

The new higher education bill will likely lead to a proliferation of foreign universities within Indonesia, which should have a positive impact on competition within the sector and help weed out less successful institutions. Local private universities, however, are worried that teaching talent will migrate to better-funded foreign competitors, highlighting the need to boost both the quantity and quality of teachers.

It is unclear whether accreditation standards for private universities will be affected by the new law. Ultimately, while “more competition” should certainly help boost the quality of Indonesian tertiary education, it is not per se a panacea for the challenges that befall the sector. Better teaching, more market-relevant course provisions and higher standards are all key to making higher education an engine of economic growth.