The government is debating a potential increase in the level of the grant, as MoNE requested an increase for primary students to Rp. 300,000, and for junior secondary students to Rp. 420,000. Given the fact that the current numbers are based on unit cost calculations at 2003 fixed nominal prices, increasing the level of the per-pupil funds is desirable.<sup>16</sup> What is problematic is that the amount per student is set nationally and does not take into account regional price fluctuations. Although this is only a problem in certain regions, it can significantly reduce the purchasing power of the transfer. For example, in Aceh, where inflation fluctuates around a level of 20 percent, the **Box 1 What can BOS Funds be used for?** province’s BOS funds will in effect finance around • Operational costs related to the registration 20 percent less operational goods and services than it of new students would elsewhere. • Text books and reference books

|**Box**<br>•|**1 What can BOS Funds be used for?**<br>Operational costs related to the registration<br>of new students|
|---|---|
|•|Text books and reference books|
|•|Stationary and other daily school needs|
|•|Remedial teaching programs, sports, art|
|•|School examination costs and student report<br>cards|
|•|Teacher development and training|
|•|School repairs and maintenance|
|•|Electricity, water, telephone|
|•|Remuneration of honorarium teachers|
|•|Transport costs for poor students|
|•|Religious equipment and dormitory facilities|
|•|BOS program operational costs|
|•|If BOS has already been used for all of the<br>components above, funds can be used to buy<br>sporting<br>equipment,<br>study<br>materials,<br>furniture.|
|_Sour_|_ce_: MoNE(2006)––BOS Guidelines|

BOS funds are to cover operational costs and are • Remedial teaching programs, sports, art intended to thereby lower or even eliminate school • School examination costs and student report cards fees. There are guidelines on the use of the funds, but • Teacher development and training the schools still have a fair amount of discretion on • School repairs and maintenance how the funds are spent. Schools in which the total • Electricity, water, telephone amount collected in school fees is lower than the • Remuneration of honorarium teachers amount received in BOS grants are mandated to • Transport costs for poor students eliminate school fees all together. Schools that • Religious equipment and dormitory facilities • BOS program operational costs collect more in school fees are supposed to eliminate • If BOS has already been used for all of the fees in an amount equivalent to the grant received, components above, funds can be used to buy while giving priority to poor students. This latter sporting equipment, study materials, provision avoids discouraging schools with fee furniture. collections higher than BOS from receiving the grant. The reason is that if these schools were also _Source_ : MoNE (2006)––BOS Guidelines required to completely eliminate school fees, the grant would actually lead to a decrease in the operational budget.

One recent evaluation of the program indicates that it had a positive impact and was successful in various areas. Nonetheless, it still has many issues to overcome.<sup>17</sup> From a financing standpoint, the method of allocation has had both positive and negative effects. They include:

- The direct transfer of funds allows for little leakage, as almost all schools received their full funds (although sometimes with delays). However, the evaluation of the program points toward problems with channeling in some areas. Although the provinces are designated to appoint the channeling institution for the funds, this arrangement has not always resulted in the most efficient and practical outcomes. In several regions, schools had to open new accounts; in other regions, they were allowed to use an existing school account. The opening of a new account was an extra burden for schools, as sometimes even an initial deposit is required. In addition, it was reported that, sometimes, due to a lack of socialization for banks, the BOS accounts were signed and accessible solely by the principal of the school without the treasurer. Allowing only one person access with no supervision could have led to the misuse of funds.

- Lower fees due to the program may encourage more children from poor households to attend school. While desired, the latter is an indirect effect as the program does not directly target poor households, schools, or districts. Although the BOS program encourages giving priority to the poor when spending the resources (transportation, school uniforms), the evaluation found that almost all schools gave the same treatment to students from well off and less welloff families in terms of sharing the burden of school costs.

> 16 These unit costs cover operational expenses only. The salary component of traditional unit cost calculations (approximately 80 percent) is omitted here.

> 17 This report was conducted by SMERU in conjunction with the World Bank.

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