Human Capital Development focus of Jokowi’s 2019 Budget

On the eve of Independence Day celebration, President Joko Widodo delivered the annual “State of the Nation” speech to outline the government’s achievements in the preceding year and its priorities for the following year, as reflected in the draft Budget (RAPBN).

In late 2017, the President announced that the Government would shift its focus to human capital development, after focusing the first 3.5 years on an aggressive pursuit of infrastructure development.

This shift in priority is well and truly reflected in the President’s annual speech and the Government’s 2019 draft budget. The official theme of the 2019 budget is “to drive investment and competitiveness through human capital development”.

The major themes in human capital development outlined in the speech include the following:

1. Creating work-ready graduates through vocational education & certification

The Ministry of Manpower has launched the 3R program (Reorientation, Revitalization, and Rebranding) for the national network of Work Training Centres (Balai Latihan Kerja – BLK). The Centres are vocational educational institutions supported by the Ministry with local authorities to provide competencies-based training and certification to the local workforce. There are over 300 Centres located across the country with over 280,000 students.

The President has set a target of establishing community training centres within 1,000 Islamic boarding schools (pesantren) by the end of next year.

2. Matching vocational schools education with industry-relevant skills

The Ministry of Industry has already launched the Industry Vocational Education program, which has connected over 1,500 vocational high schools (SMK) with at least 560 industry partners across Java and Sumatra, to adopt the German model of dual vocational training.

3. Call for universities to innovate and create new areas of study in response to global trends

The President has previously called for universities to create a Faculty of Digital Economy, with majors in e-commerce and logistics & supply chain management.

Five out of 26 programs in the Government’s E-Commerce Roadmap focus on human capital development: Improving public awareness of e-commerce platforms; developing policymakers’ knowledge of the e-commerce ecosystem; establishing incubator programs for startups; realigning formal education curriculum with digital economy; training facilitators of digital economy educators and training facilitators of digital economy educators.

4. Emphasises Indonesia’s need to respond in the race to adapt to the Fourth Industrial Revolution trends (e.g. artificial intelligence, internet of things)

The Ministry of Industry has launched its Indonesia 4.0 strategy, which focuses on developing the capabilities to adopt fourth industrial revolution technologies (artificial intelligence, internet of things, advanced robotics, wearables, and 3D printing) within five priority manufacturing sectors: Food & Beverage, Textile and Apparel, Automotive, Biochemistry, and Electronics.

The full transcript of the President’s speech (in Indonesian) can be read here.

2019 Draft Budget (RAPBN)

The Government has set the total Budget spending at Rp 2,439.7 trillion (AUD 228.9 billion), just under half of the Australian Federal Government’s projected spending of AUD 488.58 billion in the 2018-2019 financial year.

The Government has projected an annual GDP growth of 5.3% with an inflation rate of 3.5%. The budget deficit stands at 1.84% of GDP, the lowest since 2012, with tax revenue targeted to increase by 15% to Rp1.781,0 trillion (AUD 166.9 billion).

Rp 1,607.3 trillion (AUD 150.7 billion), or approximately 65.88% of the total spending, will be allocated to National Government spending, with the remaining Rp 832.3 trillion (AUD 78.2 billion) allocated to Fiscal Transfer to Regional Governments (Transfer ke Daerah) and Village Fund (Dana Desa).

The five priorities of the 2019 draft budget include:

1. Increasing investment in education to improve quality of human capital by strengthening Smart Indonesia Program (Program Indonesia Pintar), School Operational Aid (Bantuan Operasional Sekolah), scholarships, vocational education, and acceleration of school rehabilitation.

2. Strengthening the social safety net through expansion of National Health Guarantee (Jaminan Kesehatan Nasional – universal health care program) and benefits increase of the Conditional Cash Transfer Program (Program Keluarga Harapan).

3. Continuing infrastructure development to ensure equitable development, including 2,0007 km new roads, 7,512 new public housing units, 48 new dams, and 4 new airports.

4. Strengthening bureaucracy reform to improve accessibility of public service and investment, including 5% salary increase of public service workers and 25% increase of retirees allowance.

5. Ensuring the success of the 2019 legislative and presidential elections.

Education spending will be increase by 12.3% from 2018 budget to Rp 487,9 trillion (AUD 45.8 billion),  accounting for 20% of the total Budget spending, in line with the Constitutional amendment requiring national and regional governments to allocate 20% of their Budget to education.

In comparison, the Australian Federal Government spends AUD 34.7 billion on education, approximately 7.1% of the total budget spending.

The education budget includes funding for:

• 20.1 million students enrolled in Smart Indonesia Program (Program Indonesia Pintar)
• 471,800 students receiving Bidik Misi Scholarships
• 6,000 students receiving LPDP scholarships
• 57 million students in schools receiving the School Operational Aid (Bantuan Operasional Sekolah)

The Vocational Education Revitalisation section includes funding for:

• Ministry of Manpower: Direct training of 235,000 workers, competencies development of 6,711 VET educators, and certification of 526,000 workers in the development of 1,000 community training centres in Islamic boarding schools
• Ministry of Research, Technology, and Higher Education: Revitalising 12 Polytechnics, training & certification of 3,000 higher education students, and vocational education funding for 127,800 students
• Ministry of Tourism: Capacity development for VET educators in tourism
• Ministry of Transportation: Training programs in 26 training centres
• Ministry of Education and Culture: 1,407 practical classrooms in vocational schools, schools educational tool aid to 6,000 vocational schools
• Ministry of Industry: 50,000 trained workers in Competent Industry Workforce Training Centres, establishment of 28 industry vocational training centres, and 1 Centre of Implementation of Industry 4.0 in Manufacturing

The full budget papers can be viewed here.