**Table 8** Education Spending as a Percentage of Central Sub-National and National Spending _Percentage, 2006_ _<u>central, 2005 subnational</u>_

||**Education spending share**<br>**(excluding salaries)**|**Education spending**<br>**share (incl. salaries)**|**Share of level of**<br>**government in total**<br>**national spending**|
|---|---|---|---|
|Central government|6.7|8.5|64|
|Sub-nationalgovernments|5.7|26.5|36|
|**Total National**|**6.9**|**16.5**|**100**|

_Source:_ World Bank staff estimates _Note_ : See Annex 8 for alternative definitions and computations of the 20 percent rule.

The 20 percent earmark puts pressure on the central government to engage in education spending at the district level, which is not consistent with decentralization. The target stipulated for both levels of government is not based on an estimation of the financing needs arising from the intergovernmental distribution of education functions or the vertical distribution of fiscal resources. When MoNE is supposed to have devolved most of its functions to local governments, earmarking 20 percent of the APBN may be well intentioned but has disadvantages. Earmarking forces MoNE to develop its own spending programs in the regions. This dynamic implies that most of the capital investments in education would be centralized and outside the control of district governments.

# **3. Education Public Expenditures and Equity**

_Equity in Enrollment Rates across Levels and Regions_ Education expenditures in Indonesia are mostly directed to the primary school level, which usually tends to be pro-poor. Primary school level absorbs more than half of the education expenditures by central, provincial, and district governments combined. Spending on this level tends to be pro-poor, as a larger proportion of the poor attending school are at the primary level. In contrast, only six percent of the junior secondary level belongs to the poorest quintile of the population, whereas the analogous figure at the secondary level is approximately three percent.

Figure 5 Net Enrollment Rates Time Trend <!-- Start of picture text --> 80.25<br>60.25<br>40.25<br>20.25<br>0.25<br>1995 1998 2000 2002 2004 2005<br>Primary level Junior secondary level Senior secondary level<br>Net Enrollment Rates<br><!-- End of picture text --> Source: World Bank staff calculations based on data from Susenas 1998–2005.

Indonesia’s past enrollment expansion reduced the enrollment gap across income groups at the primary education level. However, striking inequalities remain at the junior secondary and senior secondary levels (Figure 5). In 2005, the primary school enrollment rates were 105 percent gross and 91 percent net. Problems with access become more significant at the junior secondary school level, at which the gross enrollment rate was 81 percent and net enrollment rate declined to 62 percent. Officially, basic education (grades 1–9) is compulsory for children aged 7–15. However, this law is not strictly enforced. While access to primary schooling may still be a problem in remote areas, for most of the poor in Indonesia the most pressing educational access issue concerns the transition to junior secondary schooling.

However, enrollment rates in Indonesia still vary widely by region and these regional gaps are pronounced than the enrollment gaps in income levels. The poor’s likelihood of enrollment varies by region, even within the same income quintile. The poor in Papua have low net enrollment rates even at primary school level (80 percent). In fact the regional differences dominate conditions to such an extent that the richest quintile in Papua still has lower enrollment rates (92 percent) than 14