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74619

Indonesia: Research & Development Financing

Human Development East Asia and Pacific Region

THE WORLD BANK

THE WORLD BANK OFFICE JAKARTA Indonesia Stock Exchange Building, Tower II/12-13th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910 Tel: (6221) 5299-3000 Fax: (6221) 5299-3111 Published in January 2013 Indonesia: Research & Development Financing is a product of staff of the World Bank. The findings, interpretation and conclusion expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the government they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomination and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement of acceptance of such boundaries Cover Photo by: World Bank

Report No. 74619-ID

Indonesia: Research & Development Financing

Human Development East Asia and Pacific Region

Acknowledgments The team is grateful to officials and staff in the Ministry of Research and Technology, the National Innovation Commission, and the Indonesia Academy of Sciences for discussions that initiated this report; and for various inputs throughout the production of the report. We are particularly grateful to the Center for Science and Technology Studies (PAPPIPTEK) at the Indonesian Institute of Sciences (LIPI), who provided key survey data, and RISTEK colleagues who verified key information. We thank all the participants at discussion workshops for sharing with us their experiences and concerns about public support for R&D in Indonesia. We thank colleagues at AusAid - Maesy Angelina, Benjamin Davis, Diastika Rahwidiati, Rivandra Yoyono, Scott Guggenheim, and Hannah Birdsey - for their support throughout the production of the report. The report is managed by a team comprising of Dandan Chen (Task Team Leader, Senior Economist); Jean-Louis Racine (Senior Private Sector Development Specialist), Lawrence Kay (Consultant, main author of first draft), and Siwage Negara (Operations Officer). Dyah Kelasworo Nugraheni provided the most efficient team support. The preparation of the report was under the overall guidance and support of Luis Benveniste (Sector Manager, EASHE). The production of this report was made possible through the generous financial support of AusAid Indonesia.

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Indonesia: Research & Development Financing

Abbreviations, Acronyms, and Terms ADB

Asian Development Bank

AIPI

Indonesian Academy of Sciences

ASEAN

Association of South East Asian Nations

AusAID

Australian Agency for International Development

BALITBANG

Badan Penelitian dan Pengembangan (Ministry research centers)

BALITBANGDA

Badan Penelitian dan Pengembangan Daerah (Ministry research centers in the regions)

BAPETEN

Badan Pengawas Tenaga Nuklir (Nuclear Energy Regulatory Agency)

BAPPENAS

Badan Perencanaan Pembangunan Nasional (National Development Planning Agency)

BATAN

Badan Tenaga Nuklir Nasional (National Nuclear Energy Agency)

BIG

Badan Informasi Geospasial (Geospatial Information Agency)

BMKG

Badan Meteorologi, Klimatologi, dan Geofisika (Center of Meteorology, Climatology and Geophysics)

BPPT

Badan Pengkajian dan Penerapan Teknologi (Agency for Assessment and Application of Technology)

BSN

Badan Standardisasi Nasional (National Standardization Agency)

DRN

Dewan Riset Nasional (National Research Council)

EITI

Extractive Industries Transparency Initiative

EU

European Union

EITI

Extractive Industries Transparency Initiative

GDP

Gross Domestic Product

GERD

Gross Domestic Expenditure on R&D

GNI

Gross National Income

ICT

Information and Communications Technology

IDR

Indonesian Rupiah

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iv

KEI

Knowledge Economy Index

KEMENRISTEK

Kementerian Riset dan Teknologi (Ministry of Science and Technology)

KI

Knowledge Index

KIN

National Innovation Committee

LAPAN

Lembaga Penerbangan dan Antariksa Nasional (National Institute of Aeronautics and Space)

LBME

Lembaga Biologi Molekular Eijkman (Eijkman Institute for Molecular Biology)

LIPI

Lembaga Ilmu Pengetahuan Indonesia (Indonesian Institute of Sciences)

LPNK

Lembaga Pemerintah Non Kementerian (Non-ministerial State Institutes)

MVA

Manufacturing Value-Added

OECD

Organisation for Economic Development

PER

Public Expenditure Review

PhD

Doctor of Philosophy

PUSPIPTEK

Pusat Penelitian Ilmu Pengetahuan dan Teknologi (Science and Technology Research Center)

RAPID

Riset Andalan Perguruan Tinggi dan Industri (University and Industry Research Collaboration)

R&D

Research and Development

S&T

Science and Technology

TFP

Total Factor Productivity

UNESCO

United Nations Educational, Scientific and Cultural Organization

UNIDO

United Nations Industrial Development Organization

USD

United States Dollars

USPTO

United States Patent and Trademark Office

Indonesia: Research & Development Financing

Contents Acknowledgments Abbreviations, acronyms, and terms Contents Executive Summary

ii iii v vii

Introduction R&D and Indonesia’s Economic Development Indonesia’s R&D Performance Government R&D Policy and R&D Financing R&D Policy Resource Mobilization Resource Allocation and Utilization Improving Indonesia’s R&D Public Financing for the Future

2 4 8 16 16 19 23 44

Bibliography Annex 1: Organizations Involved in R&D, Divided by Type

46 49

Tables Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Table 15 Table 16 Table 17

Knowledge Economy Index Rankings, Select Countries, 2012 Scientific and Technical Journal Articles, Indonesia and Select Countries, 1999–2009 Scientific Papers and Citations of Authors from Select Countries, 1999–2009 Publications by Major Scientific Field (percent), 2008 English-Language Scientific Articles by Authors from Select Countries, 1998–2008. Number of Resident Patent Filings per Million Population, Select Countries, 2000–2010 Indonesian Patent Applications at the European Patent Office and in the United States, 2002–2010 Indonesian Patent Applications Granted at the European Patent Office and in the United States, 2003–2010 High-Technology Exports as a Percentage of Total Exports, Indonesia and Select Country Groups, 1988–2010 Manufacturing Value-Added (MVA), Indonesia and Select Country Groups, Assorted Years (percent) Indonesian Share of MVA and Manufacturing in World Output, Assorted Years Structure of Policies on Science, Technology, and Research Breakdown of the S&T Policy Approach in the Masterplan for the Acceleration of Indonesian Economic Development (2011–2014) Indonesian GERD by Known Source of Financing (percentage), Available Years Indonesian GERD by Known Locus of Activity (percentage), Available Years R&D by Source of Financing (percentage), Selected Neighboring Countries, 1998–2008 Private R&D Centers by Industry Sector

8 9 9 10 11 11 12 12 12 13 13 17 18 22 22 23 24

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Table 18 Table 19 Table 20 Table 21 Table 22 Table 23 Table 24

Organizations Involved in R&D, Divided by Type R&D Funding Distribution, 2006 and 2009 Distribution of RAPID Grants, 2008–2012 LIPI Social Science Research Projects by Type of Funding, 2010 Distribution of Staff at the Seven LPNK, Most Recent Years Number of Researchers per Million Population, Select Countries, 1996–2009 Public University Researchers by Field of Study, 2009

25 28 33 34 35 37 38

GDP Growth (annual percentage change) 2002–2010 Average Annual Growth Rate in the Number of Foreign Scholars in the United States, 1997–2007 Resident Patent Filings per USD GDP, Select Countries, 2000_2010 GERD, Selected Regions, 1996–2009 GERD, Indonesia, Three Years of Comparable Data GERD, Developing Countries, East Asia and Pacific Region, Most Recent Years GERD, Selected Neighboring Countries, Most Recent Years Total State R&D Funding by Source, 2006 Non-Higher Education Central Government R&D Funding by Destination, 2006 BALITBANG Funding by Source, 2006 LPNK Funding by Source, 2006 LPNK Funding by Domestic Research Contracts BALITBANGDA Funding by Source, 2006 Public Universities’ Funding by Source, 2009 Public Universities’ Funding by Source, 2006 and 2009 Distribution of LIPI Staff by Age Group, Assorted Years Distribution of LIPI Researchers by Education Level, Assorted Years LIPI Staff by Level of Seniority, Assorted Years R&D Sector Researchers by Organization Type, Assorted Years BALITBANG Funding by Type of Research, 2006 BALITBANGDA Funding by Type of Research, 2006 LPNK Funding by Type of Research, 2006 Public Universities’ Funding by Type of Research, 2009

4

Figures Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Figure 9 Figure 10 Figure 11 Figure 12 Figure 13 Figure 14 Figure 15 Figure 16 Figure 17 Figure 18 Figure 19 Figure 20 Figure 21 Figure 22 Figure 23

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10 11 20 21 21 21 27 29 30 30 31 31 31 32 36 36 36 37 39 40 40 40

Executive Summary Indonesia’s economy over the past decade has been on a sustained growth path. The economy grew within a band of 4.5 percent to just over 6 percent between 2002 and 2010. Comparative strength in several sectors has helped Indonesia to weather recent problems in the world economy. Production of commodities was especially useful in this respect, as in 2010 it constituted 63 percent of total exports and 26 percent of annual value added.1 Furthermore, the country enjoys a large number of micro-, small- and medium-sized enterprises. One important factor that highlights Indonesia’s growth potential are the recent increases in total factor productivity (TFP), which has contributed more to recent economic growth than before the 1998 financial crisis.2 Indonesia has also made fast progress in reducing extreme poverty. In 1984 around 65 percent of Indonesia’s population lived on less than USD 1.25 a day (at purchasing power parity), while the figure was around 50 percent in 2000. In 2010–2011 the level was less than 19 percent, or around the same rate as in China.3 By March 2011 these percentage falls meant that the number of people living below the poverty line had fallen to 30 million, driven by economic growth, higher household incomes, and more jobs.4 However, large parts of the population still have levels of income that suggest significant deprivation. There are a few risks that need to be managed for sustained economic growth and social development. First are the threats generated by large capital flows into the country. While this has opportunities that Indonesia can take advantage of, such as lower borrowing costs, job creation and exposure to foreign expertise, the inflows are often portfolio investments rather than foreign direct investment. Hence, quick withdrawals of capital can affect domestic industries through fluctuations in the exchange rate. In addition, large pockets of poverty remain. Currently, 51 percent of the population still lives on less than USD 2 a day, suggesting that any shocks to the economy and thus disruption in the small incomes of so many people could affect large parts of the population. There are also large economic disparities between the regions. However, Indonesia also enjoys many opportunities for greater economic growth and poverty reduction. For example, in January 2010 the ASEAN-China Free Trade Agreement came into effect which, as a part of ASEAN, Indonesia is party to. It eliminates tariff barriers on approximately 6,600 products in a variety of industries.5 According to analysis of the likely effects of the trade agreement on Indonesia, the country might enjoy benefits of 1.2 percent of GDP over the long term as it reallocates resources towards industries where it has a comparative advantage.6 This public expenditure review (PER) concentrates on one of Indonesia’s key opportunities for future growth: research and development. R&D can lead to greater innovation and growth in human capital, which a country needs in order to be flexible in response to market changes and to capture larger amounts of value-added throughout the value chain in the production of goods or services. In addition, the challenge of continuing the momentum of poverty reduction also needs strengthening through R&D in the social science fields, to support effective and evidence-based public policy making. This PER looks at what Indonesia’s R&D sector produces relative to how much money is spent on it, and how. It will not only focus on the levels of spending on the sector, but also the policy, institutional, and managerial framework. However, the report does not aim to describe how the R&D sector might be transformed, but instead to focus on current financing and institutional issues and how, if necessary, these might be addressed. 1 2 3 4 5 6

World Bank, Indonesia Economic Quarterly: Continuity Amidst Volatility, World Bank, June 2010, p34 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p34 World Economic Forum, The Indonesia Competitiveness Report 2011: Sustaining the Growth Momentum, World Economic Forum, 2011, p1 World Bank, Indonesia Economic Quarterly: Turbulent Times, World Bank, October 2011, p11 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p31 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p31

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Indonesia’s R&D sector has some way to go to gain global significance. On the World Bank’s Knowledge Economy Index, Indonesia ranks poorly compared to both its richer and poorer neighboring countries. The index combines factors that concern the economic incentives available for researchers, the level of innovation and adoption of technology, the quality of education, and the information technology infrastructure in place. In 2012 Indonesia ranked 108th in the world. Indonesia also compares poorly in international comparisons of R&D output and quality. There are some strong areas in Indonesian R&D, with the country’s scientists receiving 7.67 citations per paper between 1999 and 2009, which was more than their peers in countries such as Cambodia and Thailand. However, in 2009 Indonesia published only 262 papers in scientific and technical journals, a level far behind places such as Malaysia (1,351) or Singapore (4,187). This low level of activity also has effects on the technological advancement of the goods and services produced by the economy. Regarding the output of the social sciences sector, a recent report found that only 12 percent of peer-reviewed social science research publications on Indonesia are undertaken by authors based in the country, where the average among a group of developing countries including the Philippines, China, India, Thailand, Malaysia, and Brazil is approximately 28 percent.7 The lack of broad capacity in the R&D system is also revealed by Indonesia’s inability to innovate significantly, as shown by its low level of patenting activity. UNESCO has argued that the level of activity since the turn of the century has shown very little growth.8 This is demonstrated by several different international comparisons. For example, between 2000 and 2006 the number of patents filed by Indonesian residents grew from only 0.74 per million population to 1.25 in 2006. This is a 59 percent increase, but from a very low base. By comparison, in the same period, annual Malaysian patent filings rose from 8.8 to 43.41. Countries such as China and Thailand also showed significant progress in the same period. The government has extensive plans to develop the quality and output of R&D in Indonesia. Since the 1990s there have been several government efforts to support R&D in one way or another. After 2005 these were mainly incentive programs for the pursuit of R&D and its use in industry. As government policy currently stands, there is a National Long-Term Development Plan (2005–2025) that specifies seven areas (food security; energy; transportation technology and management; information and communication technology; defense and security technology; health and medicine; and advanced materials) as needing greater R&D activity. This is supported by other plans, such as the Medium-Term Development Plan (2010–2014), which are more specific in how greater R&D activity will be fostered and used. At the moment, the level of spending on R&D is too low to support the government’s plans for greater R&D activity. According to the latest figures (from 2009) Indonesia only spends 0.08 percent of its GDP on R&D, or less than one tenth of one percent. This is much less than even its regional developing peers such as China, which spends 1.46 percent of its GDP on R&D. In one of the government’s main economic development plans, the Masterplan for the Acceleration and Expansion of Indonesian Economic Development (2011–2025), it is stipulated that there will be an increase in R&D funding to 1 percent of GDP by 2014 and 3 percent by 2025, coming from a mixture of the state, state-owned firms, and the private sector. Around three quarters of R&D funding in Indonesia comes from the government. The best data on the activity in the sector suggests that the private sector conducts very little R&D. This is the opposite of normal practice elsewhere, such as among OECD countries where firms account for around 70 percent of all activity. It is likely that with such a balance there is little investigation of the most pressing commercial R&D questions. The low level of state R&D spending is spread across a range of organizations. Each of the 22 government ministries has a research arm (the BALITBANG), which is mostly used for short-term research that mainly constitutes policy advice. There are then seven independent research institutes (the LPNK) that conduct longer-term research

7

Suryadarma D, Pomeroy J and Tanuwidjaja S, “Economic Factors Underpinning Constraints in Indonesia’s Knowledge Sector: Final Report,” AusAID, 7th June 2011, p3 8 UNESCO, UNESCO Science Report 2010, UNESCO, 2010, p451

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Executive Summary

in their given fields, which range from aeronautics and space to nuclear energy. The most reputable of these is the Indonesian Institute of Sciences (LIPI). Among other assorted bodies are the public and private universities. Only a few of these (in the public sector) have the research capacity to tackle long-term research questions. Despite the importance of state funding of R&D, the administration of it currently has many weaknesses. In two important ways the approach to state financing has constraining effects on R&D because of the investigative nature of research. Firstly, an emphasis on single-year budgeting makes it difficult for R&D institutes that rely on government funding to plan. Without a multi-year view it is difficult to start a research project that has unknown outcomes as the researchers do not know whether funding will be available for a second year if the target discovery has not been made in the first year. Secondly, the necessity to achieve a research outcome within a given financial year induces further caution over which research topics to pursue. Researchers may tend to pick less significant topics that are likely to produce some results in the budgeted timeframe. State R&D funding is also characterized by its distribution by the center of government. Even if a state provides the majority of funding for a given activity, it is not necessary that it be distributed to the final recipients by a central body. Agencies and arms-length bodies can be given the funding, which can be granted to various researchers and contractors. In Indonesia, however, the funding is usually allocated within the government departments and agencies where research activities are conducted. Not only does this make the public research institutes and agencies such as the LPNK highly dependent on the state for their work, the internal allocation of funding is also rarely competitive. The insignificant role of contract funding would also suggest low usage of competitive financing. Where line-item funding is used, the demands of administering and tracking the flow of funds is likely to require high levels of specification as to where it is going and for what purpose – two characteristics of R&D funding in Indonesia. By contrast, if funding is allocated to R&D and is then distributed by research contracts, it is sometimes easier for that funding to take place through a competitive bidding process. Compared with other R&D units and institutes, the funding for R&D at public universities appears to be most diversified. In 2009, while nearly IDR 1.2 trillion9 came from the Directorate for Higher Education, there was also funding from other central government agencies, amounting to IDR 280 billion10. In addition, they also received around IDR 205 billion from domestic research contracts. Approximately IDR 180 billion of this was from government discretionary funds and only around IDR 21 billion from companies and suchlike. The Directorate for Higher Education distributes its funding in several different ways. Around 65 percent goes to the public institutions under its remit through a mix of block grant funding and line-item budgeting. But it also operates grant schemes. These schemes have recently been focused on university-industry collaborations, but over the past 20 years, money has also been given for fundamental research. In 2012 the Directorate for Higher Education made 4,297 grants worth a total of IDR 286 billion, with the vast majority going to the public universities rather than the private ones, and the seven leading public universities in particular (Institut Pertanian Bogor, Institut Teknologi Bandung, Universitas Airlangga, Universitas Gajah Mada, Universitas Indonesia, Universitas Pendidikan Indonesia, Universitas Sumatera Utara). It is possible that this reflects the balance of R&D expertise, although this may also reflect the preference given to the leading public universities.11 The low R&D human resource base is also a significant constraint to the effective use of limited state R&D funding. As of 2009 Indonesia only had around 89.6 researchers per million people, while its developed regional peers had between 4,000 and 5,000. The LPNK receive around a quarter of the central funding that is given to the BALITBANG but have double the amount of staff. Staffing at the LPNK is also inflexible, in that researchers are obliged to join at the grade conferred on them by their level of education and receive tenure after one year in

9

A trillion is 1 million million. A billion is 1,000 million. 11 PT. Trans Intra Asia (TIA), Development of Strategies for University-Industry-Government Partnership, PT. Trans Intra Asia (TIA), August 2012 10

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their post. There are also questions over the capacity of researchers in the universities, as in 2009 there were three or four staff with a bachelor’s degree for every one with a PhD. In order for Indonesia to achieve its high ambitions for R&D over the next decade or so, an increase in public funding is needed. The Indonesian government has outlined a strategy for the country’s economic growth and has identified R&D and science and technology as important sources of future growth. Given Indonesia’s current development this is the right approach. However, currently Indonesia spends very little on R&D either in the public or private sectors, and is likely falling behind its peers in several ways as a result. The commitment in the government’s Masterplan to increase GERD to 3 percent by 2025 goes some way to meeting that gap. However, there are also issues in the public R&D sector that need addressing before an increase in funding can be spent efficiently. There is a need to improve the state administration of budgeting and spending, which is affecting the efficient pursuit of R&D projects. There is a need to give special consideration to R&D projects where flexibility and predictability of funding are especially needed. There are signs that some of the main issues are being addressed, but the emphasis on a single-year budget cycle is unlikely to be conducive to giving researchers the time and stability they often need to pursue complex questions with unknown outcomes. This issue is further exacerbated by the state-wide problem of delayed disbursing of public funds. Second, there is a need to rethink fund allocation mechanisms in order to improve R&D output and outcomes, and leverage private funding. Currently, Indonesia’s R&D funding is largely characterized as “institutional funding”, through the public budget allocation system. Competitive R&D funding, a mechanism that has been adopted in many countries to incentivize those R&D activities of the highest quality, is close to non-existent in Indonesia. Greater use of peer reviews could also help with increasing the quality of research outputs. In addition, the wide range of organizations that receive a public R&D budget suggests that resources are distributed thinly. More importantly, the budget allocation lacks innate incentives for better R&D results. A competitive funding pool for R&D can introduce a new approach to public financing, stimulating and benefiting Indonesia’s scientific communities at large. In addition, innovative mechanisms can be put in place, such as matching funds to leverage private financing for R&D. In order to effectively use public R&D funding, a range of institutional reforms at public research entities should be considered. Institutional autonomy and accountability should be at the center of these reforms. Most of the R&D agencies and units in Indonesia function as part of government offices and bureaucracies. For example, the BALITBANG, which receive over three quarters of all government line-item funding, are under the direct control of their respective ministries. The LPNK are relatively independent but cannot retain revenues from private sector research contracts. While most of the accountability and autonomy reforms have started in the leading public universities, regulations and operational guidelines for the new autonomy law need to be prepared to guide the institutional reforms. Strengthening the capacity and elevating the expertise of research staff is simply the foremost necessary condition for Indonesia’s R&D sector to take off. The data on staffing levels and educational background across the public R&D sector, and especially at the LPNK, showed that a given research body is likely to be bottomheavy, that is, to have a large number of staff with bachelor’s degrees and junior positions, and often likely to be young. The corollary of this is that often only a minority of staff holds doctorates, meaning that research institutes may only have a small pool of research expertise to draw on. Given the relatively weak postgraduate programs, particularly at doctorate level, Indonesia still needs to rely on broadening international collaborations in order to train first-rate researchers and to gain critical mass in R&D fields, including building stronger postgraduate programs in the long term. Strengthening human capacity has to go hand in hand with institution reforms in order to adequately incentivize researchers to generate first-rate outcomes and contribute to Indonesia’s development effectively.

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I. Introduction

Photo by: Nugroho Nurdikiawan Sunjoyo

Introduction How much Indonesia spends on R&D, where it spends it, and how it spends it, will affect the level of the country’s growth for many years to come. Indonesia currently has the opportunity to consider the nature of its economic growth and where state resources might be concentrated in order to foster expansion in new areas. For the country to achieve growth that allows it to capture more value-added on the goods and services it produces, it is likely that it will need to be more innovative. Equally important, to ensure the benefit of the growth is shared by the Indonesian people and contributes to poverty reduction, there is a need for effective public policies. To become more innovative and effective in economic and social development, Indonesia will need to make sure that its R&D efforts, both public and private, are well-managed and sufficiently funded. This public expenditure review (PER) starts with examining Indonesia’s current R&D performance, and then looks into the recurrent levels of spending on R&D, and how the spending is administered, identifying key constraining factors that affect Indonesia’s R&D performance.12 With the available data and knowledge of the institutional framework, an understanding of the R&D system is developed. With this understanding it was possible to identify the constraining factors in Indonesia’s use of resources to produce R&D outputs, development of innovative goods and products to capture higher levels of value added, and support for social public policy formulation and implementation. This analysis will take place primarily against the background of international comparisons and the government’s policy aims. For the most part this PER will concentrate on the public R&D system, that is, the institutions and research funded with public money and operating under the aims defined by the government. Finally, this PER is not an attempt to describe how the R&D system in Indonesia might be overhauled or transformed. Instead, it deals with the current financing and institutional issues and how, if necessary, these might be addressed.

12

A PER is often be a large report that considers many aspects of state spending in a country. In this, much shorter, report, the principles are the same. The purpose of a PER is to look at the purpose of government spendingon a policy, given the country’s economy; to find out how much is being spent; to find out how the money is being spent; and then to assess the level of spending relative to targeted, reasonable and actual outcomes. In short, a PER looks at the efficiency of public spending.

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II. R&D in the Context of Indonesia’s Economic Development

Photo by: Jerry Kurniawan

R&D in the Context of Indonesia’s Economic Development Indonesia’s economic growth over the past decade has been satisfactory, even though it has not reached the highs of the pre-1997 period. As shown in Figure 1, the economy grew within a band of 4.5 percent to just over 6 percent between 2002 and 2010. The financial crisis of 2008–2009 affected Indonesia somewhat, although it carried on growing at a similar pace to previous years. This growth was in stark contrast to the 13.1 percent contraction that the economy underwent in 1998 during the Asian financial crisis. It also compares well to the performance of some of its regional peers.13 However, in the five years prior to 1998, Indonesia recorded an average growth rate of 7.1 percent, a level several percentage points higher than it has achieved in recent years. Figure 1

GDP Growth (Annual Percentage Change) 2002–2010

Percentage change

7 6 5 4 3 2 1 0 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Year Source: World Bank data (http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG)

Comparative strength in several sectors has helped Indonesia to weather recent problems in the world economy. Production of commodities was especially useful in this respect, as in 2010 it constituted 63 percent of total exports and 26 percent of annual value added.14 Indonesia is the world’s largest producer of palm oil while also producing large amounts of oil and gas, for which it has enjoyed greater demand and higher prices over the recent past.15 Furthermore, the country enjoys a large number of micro-, small- and medium-sized enterprises. While suggesting the potential for future growth as firms expand, consolidate and pursue efficiency gains, these firms also tend to use internal or informal financing methods, thus meaning that they are somewhat sheltered from economic problems elsewhere.16

13

OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p22 World Bank, Indonesia Economic Quarterly: Continuity Amidst Volatility, World Bank, June 2010, p34 15 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p25; World Bank, Indonesia Economic Quarterly: Continuity Amidst Volatility, World Bank, June 2010, p37 16 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p22 14

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R&D in the Context of Indonesia’s Economic Development

There are thus several reasons to be positive about Indonesia’s growth potential. One important reason among several is that total factor productivity (TFP) has contributed more to recent economic growth than before the 1998 financial crisis.17 TFP helps to determine economic expansion because a country that is more efficient in the use of resources is a country that can produce more with the same level of inputs. Technological advancement and richer human capital are often important in achieving higher levels of TFP. Prior to 1998, capital accumulation and greater labor inputs were behind increases in potential output, with TFP contributing less than 20 percent before 1998. Between 2006 and 2009 the level was closer to 40 percent. Indonesia has also made fast progress in reducing extreme poverty. In 1984 around 65 percent of Indonesia’s population lived on less than USD 1.25 a day (at purchasing power parity), while the figure was around 50 percent in 2000. In 2010–2011 the level was less than 19 percent, or around the same rate as in China.18 By March 2011 the percentage falls meant that the number of people living below the poverty line had fallen to 30 million, driven by economic growth, higher household incomes, and more jobs.19 Nonetheless, large pockets of hardship remain and the benefits of growth have been somewhat skewed towards the already wealthy rather than the poor. 51 percent of the population still lives on less than USD 2 a day – a level above the extreme poverty of USD 1.25 a day but still reflective of deep deprivation in many households. This suggests that any shocks to the economy and thus disruption in the small incomes of so many people could affect large parts of the population.20 Between 1996 and 2010 per capita consumption grew by an average annual rate of 1.4 percent. However, the growth rates enjoyed by the bottom 60 percent of the distribution were lower than the national average, and the poorest percentiles saw the smallest increases in their consumption, while the 92nd percentile of the income distribution saw the largest.21 There are also large economic disparities between the regions. Poverty declined in all regions between 1996 and 2009, but some regions enjoyed a sharper decline than others. For example, Kalimantan saw its poverty headcount fall from around 15 percent to around 8 percent in the same period. Areas such as Maluku, Nusa Tenggara, and Papua suffer from rates of poverty that are approximately three times greater than in Kalimantan, even though these areas are also home to only around 11 percent of the population.22 However, there are a few risks that need to be managed for sustained economic growth and social development. First is the threats generated by large capital flows into the country. Changes in the external economic environment are communicated to Indonesia through changes in demand for its goods and services, the terms of trade and capital flows.23 With its recent strong economic growth, reasonably sound macroeconomic environment, and prospects for more growth in the future, Indonesia, like other emerging countries, is attracting capital from low-yielding advanced countries to its own, higher-yielding, assets. While this has benefits in that it can reduce the cost of borrowing and sometimes bring with it expertise and job creation, if the inflows are in the form of portfolio investments rather than foreign direct investment, quick withdrawals of capital can cause problems through, for example, quickly changing the exchange rate and affecting domestic industries. In the second quarter of 2011, capital and financial account inflows reached USD 12.5 billion, a record high.24

17

OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p34 World Economic Forum, The Indonesia Competitiveness Report 2011: Sustaining the Growth Momentum, World Economic Forum, 2011, p1 19 World Bank, Indonesia Economic Quarterly: Turbulent Times, World Bank, October 2011, p11 20 World Economic Forum, The Indonesia Competitiveness Report 2011: Sustaining the Growth Momentum, World Economic Forum, 2011, p1; Asian Development Bank, Indonesia: Critical Development Constraints, Asian Development Bank, p55 21 World Bank, Indonesia Economic Quarterly: 2008 Again?, World Bank, March 2011, p32 22 Asian Development Bank, Indonesia: Critical Development Constraints, Asian Development Bank, 2010, p14 23 World Bank, Indonesia Economic Quarterly: Current Challenges, Future Potential, World Bank, June 2011, p1 24 World Bank, Indonesia Economic Quarterly: Turbulent Times, World Bank, October 2011, p5 18

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One of the most significant opportunities that Indonesia has is the growth and prospects of its region, which give Indonesia substantial scope to profit from greater trade to accelerate economic growth and poverty reduction. Indonesia represents 40 percent of ASEAN’s GDP and population, and is its biggest market.25 In January 2010 the ASEAN-China Free Trade Agreement came into effect. It eliminates tariff barriers on approximately 6,600 products in a variety of industries.26 According to analysis of the likely effects of the trade agreement on Indonesia, the country might enjoy benefits of 1.2 percent of GDP over the long term as it reallocates resources towards industries where it has a comparative advantage. In particular, labor-intensive industries would likely benefit, as would the rice-producing sector, while the mineral-extraction, capital-intensive and service industries would shrink.27 This PER concentrates on one of these key areas for future growth: R&D. R&D can lead to greater innovation, which a country needs in order to be flexible in response to market changes and to capture larger amounts of value-added throughout the value chain in the production of goods or services. In addition, the challenge of continuing the momentum of poverty reduction also requires strengthening R&D in social science fields, to support effective and evidence-based public policy making. This PER looks at what Indonesia’s R&D sector produces relative to how much money is spent on it, and how. It will not only focus on the levels of spending on the sector, but also on the policy, institutional, and managerial frameworks. Within the R&D field this PER pays particular attention to state policy and its effects. As the purpose of a PER is to consider the efficiency of public spending, this is a natural consequence of the type of analysis. However, this should not be taken to mean that only state action matters. The report considers the R&D output of the private sector and how the government might stimulate more of it, but there are also wider benefits of greater R&D activity that need to be kept in mind. For example, a well-educated workforce that can use research findings from a variety of fields may be likely to drive economic development in ways that are unpredictable and beyond the scope of government planning. How this happens is beyond the scope of this report, but is a key constituent of the dynamic, high value-added economic growth that Indonesia aspires to. R&D is not solely about science and technology (S&T). Much of this report discusses the role of discoveries in scientific research and how discoveries made by scientists can stimulate economic growth. However, R&D in the social sciences can often be just as important, albeit in ways that are more difficult to measure. For example, the study of management is a social science and has helped many firms around the world make significant efficiency gains in their operations – the “just in time” approach in manufacturing and logistics being a good example. Policy-making can also benefit from “innovations” (more knowledge) in fields such as economics and political science, as through a richer understanding of the world around them politicians and bureaucrats can make choices that are better informed.

25

World Economic Forum, The Indonesia Competitiveness Report 2011: Sustaining the Growth Momentum, World Economic Forum, 2011, p1; Asian Development Bank, Indonesia: Critical Development Constraints, Asian Development Bank, p55 26 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p31 27 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p31

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Indonesia: Research & Development Financing

III. Indonesia’s R&D Performance

Photo by: Athit Perawongmetha

Indonesia’s R&D performance The R&D sector in Indonesia does not appear to be burgeoning. On measures of pure research output, innovation, or contributions to economic development, it would appear that Indonesia’s R&D sector has some way to go. On the World Bank’s Knowledge Economy Index, Indonesia ranks poorly compared to both its richer and poorer neighbors (see Table 1). The index combines factors that concern the economic incentives available for researchers, the level of innovation and adoption of technology, the quality of education, and the information technology infrastructure in place. In 2012 Indonesia ranked 108th in the world. Among other things, this assessment would appear to support the claim of the World Economic Forum that Indonesia currently possesses only a limited capacity for innovation.28 Table 1

Knowledge Economy Index Rankings, Select Countries, 2012 Country

Australia Cambodia China Indonesia Japan Korea, Republic of

Global rank 9

KEI

KI

Economic incentive regime

Innovation

8.88

8.98

8.56

8.92

Education 9.71

ICT 8.32

132

1.71

1.52

2.28

2.13

1.70

0.74

84

4.37

4.57

3.79

5.99

3.93

3.79

108

3.11

2.99

3.47

3.24

3.20

2.52

22

8.28

8.53

7.55

9.08

8.43

8.07

29

7.97

8.65

5.93

8.80

9.09

8.05

Lao PDR

131

1.75

1.84

1.45

1.69

2.01

1.84

Malaysia

48

6.1

6.25

5.67

6.91

5.22

6.61

Mongolia

83

4.42

4.45

4.30

2.91

5.83

4.63

Myanmar

145

0.96

1.22

0.17

1.30

1.88

0.48

6

8.97

8.93

9.09

8.66

9.81

8.30

New Zealand Philippines

92

3.94

3.81

4.32

3.77

4.64

3.03

Singapore

23

8.26

7.79

9.66

9.49

5.09

8.78

Thailand

66

5.21

5.25

5.12

5.95

4.23

5.55

Vietnam

104

3.4

3.60

2.80

2.75

2.99

5.05

Source: World Bank (http://info.worldbank.org/etools/kam2/KAM_page5.asp#c10)

A lack of dynamism in R&D is a problem because it means that Indonesia is missing out on the public and private benefits that come with greater investigation and discovery in the natural and social sciences. These benefits can be both public and private. The results from research into a fundamental question can, upon being made publicly available, stimulate businesses to seek commercial applications. In turn, a finding that was motivated by a desire for private gain can increase competition in a market, thus forcing other firms to invent new things and increasing overall welfare. There is a broad debate on the effects of R&D on economic growth and, in particular, whether research can be divided into different types (basic, applied or experimental, see Box 1 for details) but it is clear that more R&D can help a country to achieve higher quality goods and services from which it might be able to capture a large share of the sale value.

28

8

World Economic Forum, The Indonesia Competitiveness Report 2011: Sustaining the Growth Momentum, World Economic Forum, 2011, p24

Indonesia: Research & Development Financing

Indonesia’s R&D Performance

Indonesia’s output of articles in scientific or technical journals is low. In 2009, Indonesian scientists published only 262 articles in these fields (see Table 2). This speaks to some of the research capacity and funding issues mentioned above. This may be a result of having comparatively few researchers with PhDs at the LPNK and public universities. However, comparing the number of broad scientific papers published by Indonesia and a group of select countries, and the frequency with which they were cited, research from Indonesia appears to be attracting slightly more interest than that of its regional, developing peers. Table 2

Scientific and Technical Journal Articles, Indonesia and Select Countries, 1999–2009

Country Name

Australia Cambodia China Indonesia Japan Korea, Rep.

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

14,341

14,589

14,484

14,255

14,934

15,588

15,972

17,217

17,834

18,776

18,923

7

6

7

11

13

19

21

26

26

23

27

15,715

18,479

21,134

23,269

28,768

34,846

41,604

49,575

56,811

65,301

74,019

163

182

189

178

157

182

205

215

198

219

262

55,274

57,101

56,082

56,347

57,228

56,535

55,527

54,467

52,909

51,842

49,627

8,478

9,572

11,007

11,735

13,401

15,255

16,396

17,910

18,469

21,091

22,271

Lao PDR

4

4

5

5

9

12

9

18

12

12

12

Malaysia

471

460

472

495

479

586

615

724

808

951

1351

Mongolia

12

12

19

16

18

20

22

21

22

27

42

Myanmar New Zealand Philippines Singapore

10

7

6

7

6

9

11

16

13

10

10

2,915

2,851

2,851

2,740

2,800

2,825

2,987

3,082

3,176

3,323

3,188

176

185

141

182

184

163

178

181

195

224

223

1,897

2,361

2,434

2,632

2,939

3,384

3,611

3,838

3,793

4,069

4,187

Thailand

550

663

727

834

1,019

1,131

1,249

1,568

1,728

1,960

2,033

Vietnam

111

147

155

144

205

167

221

225

283

363

326

Source: World Bank

Table 3

Scientific Papers and Citations of Authors from Select Countries, 1999–2009

Country Name Australia

Paper

Citations

Citations per Paper

284,272

3,304,072

11.62

Cambodia

566

4,197

7.42

Fiji

633

2,955

4.67

French Polynesia

456

3,805

8.34

Indonesia

5,885

45,156

7.67

Malaysia

17,980

79,098

4.4

New Caledonia New Zealand Papua New Guinea

950

7,780

8.19

55,253

575,803

10.42

741

7,318

9.88

Philippines

5,370

44,295

8.25

Singapore

58,731

498,782

8.49

Thailand

26,896

188,759

7.02

Viet Nam

5,878

41,043

6.98

Thailand

550

663

7.27

Vietnam

111

147

1.55

Source: UNESCO, UNESCO Science Report 2010, p443

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Table 3 shows that between 1999 and 2009, Indonesian scientific papers attracted 7.67 citations per paper, ahead of papers from countries such as Cambodia and Thailand. This supports the argument that despite there being a low level of overall capacity there are some areas of strength in Indonesian scientific research. Finally, what is being produced has tended to be concentrated in the fields of biology, biomedical research, and clinical medicine, as shown in Table 4. Problems such as a low level of capacity have inevitable effects on the output of the social sciences sector. Regarding social science fields, a recent report found that only 12 percent of peerreviewed social science research publications on Indonesia are undertaken by authors based in the country, where the average among a group of developing countries including the Philippines, China, India, Thailand, Malaysia and Brazil is approximately 28 percent.29 The picture of international collaboration over science research is mixed. UNESCO has argued that, despite only modest increases in the output of academic papers, the growth that has occurred has been spurred by international partnerships. According to UNESCO, Indonesian scientists collaborate mostly with their Japanese peers, followed by those from the USA and Australia.30 This would again suggest that, despite low levels of overall capacity, there is sufficient quality to attract greater levels of international partnership. Figure 2, showing the high level of growth in the number of Indonesian scholars in the United States, also suggests that there is much greater potential to be exploited in the R&D system. Also see Table 5 for the number of English-language scientific articles published by Indonesian scientists and their local peers.

Table 4

Publications by Major Scientific Field (percent), 2008 Scientific Field

Country

Indonesia

Biology

Biomedical research

Chemistry

Clinical medicine

Earth and space

Engineering and technology

Mathematics

Physics

23.7

12.8

7.1

22.8

13.8

12

2.1

5.7

Source: UNESCO, UNESCO Science Report 2010, p443

Percent

Figure 2

Average Annual Growth Rate in the Number of Foreign Scholars in the United States, 1997–2007

10 9 8 7 6 5 4 3 2 1 0 India

China

Indonesia (1997-2004)

Brazil

Total OECD Czech Estonia (1997-2004) Republic (1997-2004) (1997-2004)

Russia

Slovenia (1997-2004)

Country Source: OECD, ‘Science and Innovation: Country Notes: Indonesia,’ in OECD, Science, Technology and Industry Outlook, OECD, 2010, p189

29

Suryadarma D, Pomeroy J and Tanuwidjaja S, “Economic Factors Underpinning Constraints in Indonesia’s Knowledge Sector: Final Report,” AusAID, 7th June 2011, p3 30 UNESCO, UNESCO Science Report 2010, UNESCO, 2010, p451

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Indonesia: Research & Development Financing

Indonesia’s R&D Performance

Table 5

English-Language Scientific Articles by Authors from Select Countries, 1998–2008 Year

Country

Growth 19982008 (%)

Total

Australia

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

16,432

16,766

18,945

19,155

19,645

20,920

22,456

23,376

25,449

26,619

28,313

238,076

72.3

Cambodia

8

12

14

14

20

23

41

50

64

80

75

401

837.5

Indonesia

305

354

429

449

421

428

471

526

597

582

650

5,212

113.1 312.2

Malaysia

658

830

805

906

961

1,123

1,308

1,520

1,757

2,151

2,712

14,731

3,519

3,597

3,762

3,772

3,819

3,935

4,260

4,590

4,739

4,974

5,236

46,203

48.8

Phillipines

263

292

353

317

398

418

427

467

464

535

624

4,558

137.3

Singapore

New Zealand

2,264

2,729

3,465

3,781

4,135

4,621

5,434

5,971

6,300

6,249

6,813

51,762

200.9

Thailand

855

965

1,182

1,344

1,636

1,940

2,116

2,409

3,000

3,582

4,134

23,163

383.5

Viet Nam

198

239

315

353

343

458

434

540

617

698

875

5,070

341.9

24,502

25,784

29,270

30,091

31,378

33,866

36,947

39,449

42,987

45,470

49,432

5.2

13.5

2.8

4.3

7.9

9.1

6.8

9

5.8

8.7

Annual total Annual growth

Source: UNESCO Science Report 2010, p441

Table 6

Number of Resident Patent Filings per Million Population, Select Countries, 2000–2010

Country of Origin Australia China Indonesia Japan Malaysia New Zealand Republic of Korea Singapore

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

100.66

112.66

120.30

121.54

127.14

125.28

137.07

128.98

131.22

113.61

107.89

20.07

23.62

31.09

44.06

50.76

71.71

93.30

116.14

146.89

172.07

218.98

0.74

0.98

1.07

0.91

1.01

1.03

1.25

3,028.30

3,010.76

2,865.58

2,804.49

2,883.63

2,879.79

2,716.58

2,610.13

2,584.96

2,315.14

2,276.03

8.80

11.31

13.13

15.00

20.40

20.00

19.97

24.77

29.74

44.15

43.41

379.23

455.61

465.75

458.13

399.02

457.92

514.51

447.46

294.22

360.30

362.88

1,549.33

1,556.56

1,607.87

1,887.06

2,190.93

2,538.29

2,598.01

2,656.04

2,615.14

2,611.77

2,696.78

128.11

126.39

149.43

152.13

153.84

133.39

142.23

151.68

163.86

150.37

176.30

Thailand

8.88

8.36

9.51

12.27

12.40

13.36

15.46

13.94

13.21

14.92

17.56

Philippines

1.99

1.71

1.85

1.71

1.88

2.45

2.56

2.54

2.40

1.88

1.78

43.54

49.21

67.20

56.87

39.26

39.86

Mongolia

Source: WIPO

Figure 3

Resident Patent Filings per USD GDP, Select Countries, 2000–2010 120

Resident patent filings per USD GDP

100

Australia China

80

Indonesia Japan

60

Malaysia New Zealand

40

Republic of Korea 20 0

Singapore Thailand 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year

Source: WIPO

Public Expenditure Review

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The lack of broad capacity in the R&D system is also revealed by Indonesia’s inability to innovate significantly, as shown by its low level of patenting activity. UNESCO has argued that the level of activity since the turn of the century has shown very little growth.31 This is demonstrated by several different international comparisons. For example, between 2000 and 2006, the number of patents filed by Indonesian residents grew from only 0.74 per million population to 1.25 in 2006 (Table 6). This is a 59 percent increase, but from a very low base. By comparison, in the same period, annual Malaysian patent filings rose from 8.8 to 43.41. Countries such as China and Thailand have showed significant progress in the same period. Figure 3 reflects this somewhat, as in comparisons of the number of filings against GDP, Indonesia’s performance has been stagnant while that of, say, China, has been improving significantly. Indonesian filings at specific patent offices also do not show any sign of significant recent improvement. Patents applied for and granted at patent offices abroad, particularly in the United States, are a good barometer of science and innovation activity as they reflect the degree to which a country is producing goods and services that are unusual enough to require protection, and potentially valuable enough for the holder of the intellectual property to bear the costs of applying for protection. Table 7 shows that Indonesian inventors and firms have increased their patent applications in the United States since the early 2000s, but that the level of applications remains low. This low level is also reflected in the applications to the European Patent Office. As for granted applications. Table 8 reveals that the success rate of Indonesian applications to the USPTO has fallen, and that between 2007 and 2010 only around five patents were granted each year. Unfortunately, this reflects poorly on the Indonesian R&D system and suggests only a small ability to produce commercially viable inventions. A lack of innovation is also revealed by the level of technology in Indonesia’s exports. By looking at the output of academic papers, and at innovation as demonstrated through patent applications, it has been possible to assess the productivity of Indonesia’s R&D system from several different angles. By looking at it from another position - the degree to which the country’s exports reflect technical advancement - it is possible to judge some of the direct economic effects of Indonesia’s R&D activity. Unfortunately, Table 9 shows that these effects are small and possibly shrinking. In 2000, 16.4 percent of Indonesia’s exports were considered to be “high technology”. Since then, the proportion has declined until, in 2010, the level reached 11.4 percent. This is not directly counter to the experience of its region as a whole, but shows a much more precipitous decline. Table 9 reveals that in the same period the same percentage in the East Asia and Pacific region fell from 33.1 percent to 26.4 percent. Table 7

Indonesian Patent Applications at the European Patent Office and in the United States, 2002–2010 2002

2003

2004 3

3

3

2

9

8

16

11

16

19

European Patent Office United States

2005

2006

2007

2008

2009

2010

1

6

13

18

23

Source: WIPO

Table 8

Indonesian Patent Applications Granted at the European Patent Office and in the United States, 2003–2010 2003

2004

2005

2006

European Patent Office

4

United States

9

3

1

4

4

10

3

Source: WIPO

31

12

UNESCO, UNESCO Science Report 2010, UNESCO, 2010, p451

Indonesia: Research & Development Financing

2007

2008

5

5

2009

2010

1

1

3

6

Indonesia’s R&D Performance

Table 9

High-Technology Exports as a Percentage of Total Exports, Indonesia and Select Country Groups, 1988–2010

Country/group 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 East Asia & Pacific (all income levels)

21.5

22.1

22.7

East Asia & Pacific (developing only) High income Indonesia

15.1

21.2

22.5

24.2

26.5

27.2

28.4

29.3

31.0

33.1

30.9

30.6

30.0

30.7

30.7

30.3

27.0

25.6

27.4

26.4

16.9

18.1

20.1

22.2

25.2

26.6

28.6

30.9

31.5

30.5

31.5

32.5

33.2

32.9

32.1

29.0

26.3

28.4

28.7

19.0

18.9

19.4

19.2

20.2

20.5

21.1

21.4

22.8

23.3

23.9

25.7

24.2

23.1

21.6

21.4

21.3

21.5

17.6

17.1

18.4

17.4

1.5

1.6

1.9

3.1

4.5

6.7

7.3

9.0

11.6

10.4

10.4

16.4

14.2

16.7

14.8

16.4

16.5

13.5

11.0

10.9

12.9

11.4

Source: World Bank (http://data.worldbank.org/indicator/TX.VAL.TECH.MF.ZS)

On the key issue of value-added in manufacturing, Indonesia’s performance is either weakening or stagnating. One of the primary reasons for a government to encourage greater R&D is for it to try and make sure that domestic firms capture more of the value in the production of a good or service. The World Economic Forum divides countries into groups primarily according to whether they are capable of simply producing commodities or if they can also produce high–quality products that depend on technical, intellectual inputs. At present Indonesia is only showing small movements towards the latter group. Table 10 shows that it enjoyed an annual average real growth rate in manufacturing value-added (MVA) of 4.15 percent between 2005 and 2010. However, this was down from the 5.16 percent between 2000 and 2005 and way down on the developing country rate of 7.06 percent. This led to the shrinkage in Indonesia’s portion of regional MVA between 2000 and 2010 (Table 11), from 27.38 percent in 2000 to 27.33 percent in 2010 among ASEAN countries, and from 3.8 percent to 3.08 percent among developing countries. Overall, Indonesia’s R&D performance is mixed. Judging by some of the different ways of looking at the output of its R&D sector, overall capacity is low but there are some strengths to draw on. For example, it would appear that Indonesian scientists are not publishing a great many papers but, when they do, their work attracts attention from their foreign peers. However, whether because of a lack of finance or capacity, R&D efforts in the country are struggling to produce many commercially viable goods or services. Table 10

Manufacturing Value-Added (MVA), Indonesia and Select Country Groups, Assorted Years (percent) Indicator

MVA, average annual real growth rate (%) Non-manufacturing GDP, average annual real growth rate (%) MVA per capita, at constant (2000) US$ prices

MVA as percentage of GDP, at constant (2000) US$ prices

Year/Period

Indonesia

ASEAN

Developing countries

2000-2005

5.16

5.85

6.74

2005-2010

4.15

3.36

7.06

2000-2005

4.58

4.72

2005-2010

6.28

5.3

5.88

2000

216.28

353.35

254.2

2005

258.19

426.44

322

2010

302.26

488.04

430.09

2000

27.75

27.97

19.47

2005

28.08

28.65

20.57

2010

26.4

27.24

21.66

Source: UNIDO (http://www.unido.org/index.php?ucg_EXT=1&id=4771&cc=INS&ucg_PATH=aHR0cDovLzE5My4xMzguMTA1LjU5L2RhdGEv Z2VvZG9jLmNmbT9jYz1JTlMmbW9kZT1zdGF0cw==) Note: Some years are UNIDO estimates.

Public Expenditure Review

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Table 11

Indonesia’s Share of MVA and Manufacturing in World Output, Assorted Years In total of Indicator

MVA (share in %) in constant 2000 US$

Manufactured exports (share in %)

Year/Period Indonesia

ASEAN

Developing countries

2000

27.38

3.80

0.79

2005

26.91

3.55

0.87

2010

27.33

3.08

1.00

2000

11.72

3.55

0.83

2005

9.96

2.42

0.66

2010

11.78

2.50

0.82

Source: UNIDO (http://www.unido.org/index.php?ucg_EXT=1&id=4771&cc=INS&ucg_PATH=aHR0cDovLzE5My4xMzguMTA1LjU5L2RhdGEv Z2VvZG9jLmNmbT9jYz1JTlMmbW9kZT1zdGF0cw==)

While R&D in the social sciences is an integral part of a country’s overall R&D system, internationally comparable data on performance is not well established beyond direct output measures such as journal publications. R&D in the social sciences can greatly embellish the knowledge that a country has of itself, and improve the quality of public policy. For example, sociology can help public policies to be customized to the reactions of different groups of people in Indonesia; economics can help with the development of an understanding of Indonesia’s competitive advantages in some areas but not in others; and political science can help strengthen the democratic system for reforms. Other areas, such as education and health policy research, can directly contribute to building Indonesia’s human capital, which is critical for sustained growth and shared prosperity.

14

Indonesia: Research & Development Financing

IV. Government R&D Policy and R&D Financing

Photo by: Nugroho Nurdikiawan Sunjoyo

Government R&D policy and R&D financing R&D Policy Research, science, and technology have long been part of the development agenda set by the Indonesian Government. Since the early 1990s there have been a variety of government programs that aim at stimulating R&D, particularly S&T. A majority of these efforts have concentrated on putting in place a variety of incentive schemes. According to LIPI, between the early 1990s and 2005 there were 22 incentive programs operated by the government. Since 2005, state incentive programs have been grouped into five categories: incentives for basic research; incentives for applied research; the use of S&T in industry; the diffusion of S&T; and the S&T development of certain economic sectors as part of the government’s industrial strategy. In addition, there have also been a variety of community-based and technology-specific development programs.32 Today, the Indonesian government has extensive plans for the advancement of R&D in the country. Since the Asian financial crisis and the transition to democracy, there have been several comprehensive economic plans and pieces of legislation that have placed R&D at the center of Indonesia’s economic development. These foundation policies on the pursuit of higher economic growth, greater innovation, and scientific output are supported by short and medium-term plans that focus on strategic areas of R&D development. The most recent guiding documents include the “Masterplan: Acceleration and Expansion of Indonesia: Economic Development 2011–2025”, which emphasizes seven steps towards the improvement of the innovation system; and the 2010– 2014 KEMENRISTEK Strategic Plan, which lays out medium-term results to be expected and actions to be taken.33 Table 12 lists a range of key relevant policy and strategy documents on R&D. The National Long-Term Development Plan (2005–2025) focuses on seven areas of R&D. The seven areas are: food security; energy; transportation technology and management; information and communication technology; defense and security technology; health and medicine; and advanced materials. Each area has a set of specific sub-objectives with activities and outputs defined. For example, in the energy sector, R&D is intended for the development of ways of extracting energy from renewable sources such as wind and ocean currents. There are also objectives to map new energy sources, to develop new technology to meet the demand, to disseminate information on the industry to relevant parties, and to improve the efficiency of energy use. Overall, the National Long-Term Development Plan is meant to form one of the key foundations for other, more detailed, policies on economic development and R&D. The Medium-Term Development plan sets out explicit steps to implement the National Long-Term Development Plan. It is meant to form the basis for strategies developed by agencies and government departments, and regional governments when formulating their own development priorities. It also directly references the constitution and National Long-Term Development Plan, and is intended to feed into the annual government work plans and annual budgets. It is thus a key document for showing the government’s priorities. Both the Medium-Term Development Plan (2010–2014) and the National Research Agenda are targeted at the two goals of making the innovation system more vibrant, and improving the quality and application of R&D.34 These targets are meant to be achieved through R&D institutions’ improvements, to the extent that they can supply industry with required technology improvements. Specific policies for achieving this change include enhancements in the capacity of public R&D institutes and similar bodies in order to increase the flow

32

Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p58 Republic of Indonesia, Masterplan: Acceleration and Expansion of Indonesia: Economic Development 2011-2025, Republic of Indonesia, 2011, p 41; State Ministry of Research and Technology [RISTEK], Strategic Plan 2010-2014, State Ministry of Research and Technology, p35 [English translation] 34 Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011 33

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Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

of technology transfer to industries that need it; increases in R&D capacity within industry, as well as a greater appreciation of innovation and creativity in society; a strengthening of national and international networks of R&D personnel in order to increase the production and utilization of R&D outcomes; increases in the output of applicable technology from R&D institutes; and growth in the use of technology within industry.35

Table 12

Structure of Policies on Science, Technology and Research

Policy type

Key element/examples

Approach

Structural policies

The constitution

Long-term policies

Masterplan: Acceleration and Expansion of Indonesia: Economic Development 2011–2025

Functions as a legal framework following the enactment of Presidential Decree No. 32/2011

National Long-Term Development Plan (2005–2025)

Specifies seven priority areas for the development of R&Da

Law No.18 (2002) on the National System of Research, Development and Application of Scienceb

Seeks to increase S&T capacity in order to improve national competitiveness

Medium-Term Development Plan (2010–2014)

Seeks to improve the national innovation system through improving the quality of R&D and S&Tc

National Research Agenda

Seeks to improve the national innovation system through improving the quality of R&D and S&Td

Masterplan for Acceleration and Expansion of Indonesian Economic Development (2011-2014)

Acceleration of improvements in R&D and technology capacitye

Presidential instructions and government instructionsf

Writing of, and changes to, relevant legislation and guidelines

Departmental plans, annual work plans, and thematic plans

Short-term plans for the application of longer-term policies

Medium-term policies

Annual and other policies

Sources: a. Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p11 b. Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p1 c. Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p3 d. Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p3 e. World Bank, Indonesia Economic Quarterly: Current Challenges, Future Potential, World Bank, June 2011, p32 Notes: f. Examples include Presidential Instruction No.4 of 2003 on the Strategic Policy Formulation and Implementation of National Science and Technology Development; Government Regulation No. 20 of 2005 on Intellectual Property and Technology Transfer by Universities and Research and Development Institutes; Government Regulation No.41 of 2006 Concerning Research and Development Permits for Foreign Institutions; Government Regulation No.35 of 2007 on the Allocation of a Portion of Business Revenues for Engineering Capability Improvement, Innovation and Diffusion of Technology; and Government Regulation No. 48 of 2009 on the Implementation of High Risk and Dangerous Research and Development and Application of Science and Technology Activities. As quoted by Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p9

The Masterplan for Acceleration and Expansion of Indonesian Economic Development (2011–2014) is a new initiative and specifies steps for improvements in the S&T and innovation systems, as well as levels of spending. As a whole, the Masterplan is meant to increase the growth rate of the Indonesian economy to between 7 percent and 9 percent and, in so doing, make sure that Indonesia becomes one of the world’s top ten economies by 2025. The plan has three strategies: 1) the development of six economic zones, or “corridors”; 2) establishment of stronger connections between all of the disparate parts of the country; and 3) efforts to increase outputs from R&D and technology.36 With regard to the third R&D strategy, Table 13 shows its constituent policies, plus the planned increase in spending and what the 2025 policy objectives in the field are.

35 36

Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011 World Bank, Indonesia Economic Quarterly: Current Challenges, Future Potential, World Bank, June 2011, p32

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Table 13

Breakdown of the S&T Policy Approach in the Masterplan for the Acceleration of Indonesian Economic Development (2011–2014) Funding

Establishment of an R&D fund equal to around 1% of GDP until 2014, with a gradual increase in funds to 3% of GDP by 2025 Increase in funds to come from the government, state-owned enterprises and the private sector

Policies Introduction of an incentive and regulation system that emphasizes innovation and the use of products made in Indonesia Improvement in the quality of human resources as well as their flexibility Development of innovation centers to support small- and medium-sized industries Development of regional innovation clusters Improvement in the remuneration system for researchers Improvement in the infrastructure of the R&D system Development of a funding and funding management system that furthers innovation

Industries subject to policy attention Basic industries such as food, energy, and water Creative industries such as those concerned with culture and ICT Local industries, especially S&T and industrial parks Strategic industries such as defense and transportation

Objectives to 2025 Strengthening of intellectual property rights in fields that directly affect economic growth Improvement in the infrastructure of S&T parks to international standards Achievement of self-sufficiency in food, medicine, energy, and clean water Double exports from the creative industries Increase in the proportion of advanced goods in production and improve the value added produced by the economies of all regions Achievement of self-sufficiency in the defense, transportation, and ICT industries Achievement of sustainable growth and equitable prosperity.

Sources: Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p6

There are several policies in the Masterplan that are particularly relevant to the funding, management, and outputs from the public R&D system in the country. The first of these is the drive to revitalize PUSPIPTEK (Science and Technology Research Center) as an S&T park in order to try and foster a creative and connected environment for small and medium enterprises (SMEs) involved with innovation. Fostering connections with universities, researchers, and firms is a part of this vision. One of the main ways that the government hopes to foster the development of the park is by making it a public agency. Here it should be noted that “science parks” in Indonesia have long been used to agglomerate state-owned research labs rather than as a means to attract private investment. The government’s plans for PUSPIPTEK and other parks would appear to be an attempt to move away from the traditional approach. As for the economic clusters mentioned in the Masterplan, the government wants to encourage regional governments to try and develop the innovation potential of particular industries.37 Finally, among several other targets, the Masterplan also aims to increase the flow of people of obtaining PhDs every year from 7,000 and 10,000 by 2014.38 The Science and Technology National Development Strategy, promulgated by the Ministry of Research and Technology (KEMENRISTEK), is targeted at the development of science “for the welfare and progress of civilization.”39 The strategy has two goals: 1) improvement of S&T both through research and utilization; 2) increases in the capacity and effectiveness of S&T so that it can further the national aims of protecting Indonesia, increasing welfare, and furthering the intellectual life of the country. The strategy states that these goals must

37 Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p7 gives the examples of the agro-industry in East Java Province; innovation programs to develop the palm oil, cocoa and fisheries industries; and the energy innovation zone in East Kalimantan Province 38 Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p7 39 Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p1

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Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

be pursued on the principles of accountability, visionary strategic planning, innovation, and excellence through all stages of policy development and implementation. The strategy has four main policies, which it is hoped will achieve its aims: 1) 2) 3) 4)

to increase the capacity of the R&D system as a whole so that it becomes more productive; to increase the capacity of public R&D institutes so that, in particular, more technology transfer can take place; to deepen networks of researchers both within the country and between national and international researchers; and to increase creativity and productivity, not least to supply more effective technologies to industry.40

Even though social science research has been an important dimension of R&D, in terms of setting foundations for the social development agenda, and supporting public policy, there is no centralized research agenda. R&D priorities in social fields have largely been set by the relevant sector Ministries, in pursuing each sector’s own development agenda, which is usually set in each Ministry’s Medium-Term Development Plan. The level of the government’s financing of the R&D sector, as well as the way that the financing is administered, will play a significant role in the achievement of these plans. The stipulation in the Masterplan that funding will increase to 3 percent of GDP by 2025 signals the level of the government’s financial commitment in this area. However, the current levels of investments in the sector made by both the state and private enterprise are low. The next section considers the recent levels of spending and what the effects of these might be for the future development of the public R&D sector.

Resource mobilization The amount of money that a country dedicates to its R&D is a reasonably good measure of its commitment to creating and developing applications of new knowledge. Institutions and other factors also matter, but the level of spending is likely to be a good barometer of the extent to which R&D is prioritized over other government and private sector priorities. The main indicator for this is gross domestic expenditure on R&D (GERD). As the Indonesian government has stipulated in its Masterplan, setting a target for the level of GERD is one tool that policy makers can use to benchmark the amount of R&D and subsequent innovation in a given economy.41 For example, in 2002 the European Union (EU) declared that it wanted GERD across the EU to be increased to 3 percent by 2010. The target was missed. Even with significant increases, the EU’s share of world spending on R&D shrunk. Between 1995 and 2008, total R&D investment rose by 50 percent, but over the same period the EU fell from accounting for 29 percent to 24 percent of global R&D investment.42 This is actually unsurprising, given that so many countries have increased their spending on R&D in the recent past. 19 of the 20 OECD countries with the highest GERD in 1999 had increased their level by 2009.43 Between 1995 and 2008 the global increase was around 100 percent, with Japan, South Korea, Singapore, and Taiwan combined registering a 75 percent increase and China a level 855 percent higher.44 Figure 4 shows some of this growth.

40

Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011 OECD, Science, Technology and Industry Scoreboard 2011, OECD, 2011, p76 42 European Commission, Innovation Union Competitiveness Report 2011: Analysis: Part 1: Investment and Performance in R&D – Investing in the Future, European Commission, 2011, p46 43 OECD, Science, Technology and Industry Scoreboard 2011, OECD, 2011, p76 44 European Commission, Innovation Union Competitiveness Report 2011: Analysis: Part 1: Investment and Performance in R&D – Investing in the Future, European Commission, 2011, p46 41

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Figure 4

GERD, Selected Regions, 1996–2009

R&D Spending as a Percentage of GDP (GERD)

3,0 2,5

East Asia & Pacific 2,0

Europe & Central Asia European Union

1,5

High Income OECD 1,0

Latin America & Carribean 0,5 0,0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Source: World Bank (see http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS/countries/1W?display=default)

Indonesia’s GERD has only been growing insignificantly. From the available, comparative data, Indonesia now spends more on R&D than it did at the turn of the century, but only marginally so. As shown by Figure 5 in 2009 (the latest available data year), it spent just over 0.08 percent of its GDP on R&D, very little increase from 0.07 percent in 2000. The data from 2001, where the level slipped to below 0.05 percent, would suggest that the level has fluctuated over the recent past. However, it would seem unlikely that it has been much higher than the highest recorded levels of 0.08 percent of GDP, despite the fact that some state bodies involvedin R&D financing, such as the Directorate for Higher Education, have increased their spending by large amounts in recent years (see Table 19). GERD is a useful indicator in two ways: one, for comparing with how much other countries spend in a given year (the flow of spending) and thus the level that Indonesia might target; two, for examining how much science, technology, and other types of research might have benefited from the long-run accumulation of spending over time. This difference is important to keep in mind as increases in the flow might, at least in the short-run, only compensate for the lack of spending in the past, and R&D in general requires long-term investment. Indonesia’s GERD level is low, compared even to its regional peers of several developing nations. Figure 6 shows a comparison between the known GERD levels of countries in the East Asia and Pacific Region that are considered to be developing. The data are drawn from different (but the most recent) years for each country. Even compared to its peers, who have varying levels of human development and economic competitiveness, Indonesia spends an extraordinarily low percentage of its GDP on R&D. For example, in 2010, Mongolia had a gross national income (GNI) per capita of USD 1,870 but spent 0.24 percent of its GDP on R&D. In comparison, Indonesia had a GNI per capita of USD 2,500 but, at 0.08 percent of GERD, dedicated fewer resources as a portion of GDP to R&D.45 In the wider region, Indonesia is thus spending relatively less than even its poorer peers. It is also, of course, spending much less than its burgeoning neighbor, China, which in 2008 spent 1.46 percent of GDP on R&D activities. Compared to its developed neighbors Indonesia’s GERD is tiny. It is important to keep in mind that different levels of development require different spending priorities, but with such a big gap in spending between Indonesia and nearly all of its neighbors – regardless of their level of development – it is reasonable to question whether the country’s R&D sector will suffer in future years because of the lack of investment over the years. In other words, current GERD levels in, say, the Region’s advanced economies (shown in Figure 7) may show accumulated benefits over time. In several reasonable comparisons, Indonesia’s level of GERD is significantly lower than that of its neighbors and economic competitors. 45

20

Source: World Bank (see http://data.worldbank.org/indicator/NY.GNP.PCAP.CD)

Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

Figure 5

GERD, Indonesia, Three Years of Comparable Data 0.10

GERD

0.08 0.06 0.04 0.02 0.00 2000

2001 Indonesia

2009

Source: World Bank (see http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS/countries/1W?display=default)

Figure 6

GERD, Developing Countries, East Asia and Pacific Region, Most Recent Years

1.5

GERD

1.2 0.9 0.6 0.3 0.0 Cambodia

China

Indonesia Lao PDR

Malaysia Mongolia Myanmar Philippines Thailand

Vietnam

Country Source: World Bank (see http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS/countries/1W?display=default)

Figure 7

GERD, Selected Neighboring Countries, Most Recent Years

4.0 3.5

GERD

3.0 2.5 2.0 1.5 1.0 0.5 0.0 Australia

Indonesia

Japan

Korea, Rep

New Zealand

Singapore

Country Source: World Bank (see http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS/countries/1W?display=default)

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In terms of the sources of its R&D financing, Indonesia also differs substantially from many other countries. Some of the latest data is unfortunately only from 2001, but it would appear that the Indonesian government both funds and conducts the vast majority of R&D in the country. In 2001, 84.5 percent of all R&D was conducted with government money and in the same year, government organizations were the loci for 81.1 percent of all GERD (see Table 14 and Table 15). This is unusual. Among OECD countries, the business sector is the dominant player in R&D and accounts for around 70 percent of all R&D activities.46 Regarding financing alone, the proportion from government sources in Indonesia in 2009 was higher than any of the most recently recorded levels found among the country’s neighboring developing peers, as listed in Table 16.47 For example, in China in 2009, the level of government financing was 23.5 percent, the level of business financing 71.7 percent, and the levels of activities accounted for by both was 18.2 percent and 73.2 percent respectively. Table 14

Indonesia GERD by Known Source of Financing (percentage), Available Years

Source Government

Year

Table 15

Indonesian GERD by Known Locus of Activity (percentage), Available Years

Source

2000

2001

72.7

84.5

Government

Year 2000

2001

69.8

81.1

Higher education

1.1

0.2

Higher education

3.9

4.6

Business

25.7

14.7

Business

26.3

14.3

Private non-profit

Unknown

Unknown

Private non-profit

Unknown

Unknown

Foreign

Unknown

Unknown

Foreign

Unknown

Unknown

0.5

0.7

Unknown

Unknown

Unknown

Other

Sources: UNESCO (http://stats.uis.unesco.org/unesco/TableViewer/ document.aspx?ReportId=136&IF_Language=eng&BR_Topic=0)

Sources: UNESCO (http://stats.uis.unesco.org/unesco/TableViewer/ document.aspx?ReportId=136&IF_Language=eng&BR_Topic=0)

Indonesia also has a skewed balance of R&D funding compared to its advanced neighbors. Table 16 shows the balance between R&D financing by the government and the private sector in the most advanced countries in the East Asia and Pacific Region. Between 1998 and 2008, New Zealand had the highest proportion of government financing, with 50.6 percent in 1999. In contrast, the highest proportion of private financing was 78.1 percent in Japan in 2008. Judging by the high levels of knowledge discovery and R&D output seen in these countries, it would seem that a high degree of private funding is necessary for greater R&D productivity in a given country. Given the current low levels of spending on R&D and the plans to increase it substantially, the manner in which the spending is administered needs to be carefully considered by the Indonesian government. Judging by the data discussed so far, the Indonesian government spends very little on R&D, what is spent is directed towards state agencies, and the private sector has historically shown a low level of interest in pursuing the mooted benefits of R&D in the development of goods and services. Because this approach is significantly removed from the more common, and often successful, practice of the private sector pursuing a great deal of R&D in a given economy, public spending mechanisms will likely determine the ability of the R&D system to produce the benefits from higher spending that the government is now targeting.

46 47

22

OECD, Science, Technology and Industry Scoreboard 2011, OECD, 2011, p76 See Akil HA et al, Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011

Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

Table 16

R&D by Source of Financing (percentage), Selected Neighboring Countries, 1998–2008

Source and country

Year 1998

1999

2000

2001

2002

2003

2004

19.5

19.0

18.3

18.0

18.0

2005

2006

16.7

16.1

2007

2008

15.6

15.6

Government Australia

46.8

Japan

19.3

19.6

25.9

24.9

23.9

24.9

25.3

23.8

23.1

23.0

23.0

24.7

25.4

43

42.1

40.2

38.4

42.2

41.7

37.8

36.4

36.3

34.8

29.8

72.4

73.0

74.0

74.6

74.8

76.1

77.0

77.7

78.1

New Zealand Republic of Korea Singapore

45.5

50.6

41.1

47.0

40.2

43.7

37.5

43.2

34.9

42.6

Business Australia

45.8

Japan

72.5

72.1

Republic of Korea

69.1

69.9

72.3

72.4

72.2

74.0

74.9

74.9

75.4

73.6

72.8

Singapore

53.0

53.6

54.9

54.1

49.8

51.5

55.2

58.7

58.3

59.8

63.4

New Zealand

46.2

34.1

50.6

37.8

54.6

38.2

58.0

41.0

61.4

40.1

Sources: UNESCO (http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=136&IF_Language=eng&BR_Topic=0)

Resource allocation and utilization The multiplicity of government agencies and institutions involved in R&D is an important factor that determines the patterns of resource allocation and utilization. The state bodies involved with public R&D are arranged in a disparate manner. KEMENRISTEK coordinates the LPNK, discussed below, and sets a national research agenda. The KEMENRISTEK minister receives advice from the National Research Council (DRN). The sector Ministries then constitute a group by themselves. There are 22 of them and they follow a research agenda for their sector. They also each have a research arm, some of which are quite small. There are also other important advisory bodies, including the National Innovation Committee and the National Development Planning Agency (BAPPENAS), which report directly to the presidential administration and do not have any other bodies under their control. The Indonesian Academy of Sciences (AIPI), an autonomous body receiving state budget under the Secretary of State Administration, is mandated to advise the nation on scientific matters. For the seven independent research institutes (LPNK), each plays a specific role in the R&D system. Several of the LPNK, such as the Indonesian Institute of Sciences (LIPI), have long-standing reputations. They each concentrate on a research field. The remaining six are the Agency for the Assessment and Application of Technology (BPPT), the National Institute of Aeronautics and Space (LAPAN), the Geospatial Information Agency (BIG), the National Nuclear Energy Agency of Indonesia (BATAN), the National Standardization Agency of Indonesia (BSN), the Nuclear Energy Regulatory Agency of Indonesia (BAPETEN). Other institutes with a degree of autonomy are the Eijkman Institute (for molecular biology), which is under KEMENRISTEK, and the Center of Meteorology, Climatology and Geophysics (BMKG). The universities account for a large amount of resources and activity in the sector. There have been some significant changes in government policy towards the higher education sector as a whole over the past decade, particularly with regard to improving the quality and autonomy of leading institutions. Across the sector there are 92 public universities with varying degrees of autonomy, and over 3,200 private institutions comprising universities, academies, and religious higher learning institutes. With regard to R&D funding, each of the public universities has a research function, but 50 of them have dedicated R&D institutes.48

48

Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p28

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Some recent research has delineated the universities according to their status and quality of research.49 Only about five universities (Universitas Indonesia, Institut Pertanian Bogor, Institut Teknologi Bandung, Universitas Gajah Mada, Universitas Airlangga) are considered by the quality of their research to be “research-oriented”, or more specifically to have the staff, range of subject expertise, and history of published work to suggest that they can conduct research at a high level. There are then a small handful of polytechnic-type universities that concentrate on teaching towards certain professions, providing experience for pupils in given fields or collaborating with industry on projects. Several universities concentrate on the quality of their teaching rather than research, such as the private Universitas Bina Nusantara and Universitas Surabaya. Finally, the vast majority of public universities are categorized as being neither particularly strong in research nor outstanding in teaching, although many of them aspire to excel in research. The other arms of the state’s involvement in R&D consist of spending on science parks and state corporations. Each of these has some involvement with S&T and the creation of new knowledge. There are several science parks with the most prominent, PUSPIPTEK, having been discussed above. There is also a range of private and not-for-profit research centers. 65 firms are thought to have their own research bodies across 15 sectors. These are in a range of sectors, with many involved with the manufacture of wood, metal, and plastics products. The chemicals sector has by far the largest number with 21, although this still only means that 9.5 percent of the companies in the sector have a specialized research unit. The quality of these research centers is unclear, although it is likely that Indonesia will need many more such centers, achieving high standards of research, as it grows. Table 17 shows the overall breakdown of research centers by sector. The number of organizations in the public R&D sector suggests that it is organized in a disparate manner. As suggested by Table 18, which lists all of the public organizations involved, R&D financing and expertise is spread through all of the government ministries, the LPNK, the different planning and policy bodies, the regional arms of any given R&D body, and the public universities. The complex structure naturally leads to the concern that the small amount of available funding can be spread quite thinly. Table 17

Private R&D Centers by Industry Sector Number of companies with a research center

Percentage of sector companies with a research center

Food products and beverages

6

2.0

Wood and wood products

2

2.6

Paper and paper products

3

7.1

Publishing, printing and recorded media

2

5.4

Chemicals and chemical products

21

9.5

Rubber and plastics

4

3.2

Sector

Other non-metallic products

4

7.7

Basic metals

3

8.6

Fabricated metal products

4

8.0

Machinery and equipment

7

5.9

Electrical machinery and apparatus

3

5.8

Radio, television and communication equipment

1

1.4

Motor vehicles and trailers

1

1.9

Other transport equipment

2

4.2

Furniture

2

3.0

Total

65

Sources: LIPI, “Chapter 1: S&T Policy and Development Strategy,” LIPI, 2010, p37 49

24

PT. Trans Intra Asia (TIA), Development of Strategies for University-Industry-Government Partnership, PT. Trans Intra Asia (TIA), August 2012

Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

Table 18

a

Organizations Involved in R&D, Divided by Type

Organization type

Organizations

Function

Umbrella organizations Presidential administration Ministries

Agencies

Agenda-setting Ministry of Research and Technology (KEMENRISTEK)

Agenda-setting

Ministry of Finance

Budget-setting

20 other ministries

Departmental R&D

National Development Planning Agency (BAPPENAS

Responsible for development planning and coordination in the fields of economy management, budgeting, information management, education and training, and other areasb

National Research Council (DRN)c

Provides advice to the minister for KEMENRISTEK. Umbrella body for the 31 regional research councilsd

Regional Research and Development Agency

Umbrella body for 42 regional, and 27 provincial, research and development agenciese

National Innovation Committee (KIN)

An autonomous body responsible for advising the presidentf

Indonesia Academy of Sciences

An autonomous body advising the nation on scientific matters

Government R&D organizations (independent of ministries, LPNK)

Seven institutes

R&D

Ministerial R&D institutes (BALITBANG)

22 ministries with R&D institutes

R&D for the ministries

Oversight bodies

Directorate General of Higher Education

Responsible for administering higher education institutions

Public universities

76 non-autonomous public universities and institutes, and seven autonomous universities, each with a research function, and 50 with a dedicated R&D institute

Private universities

Over 3,200 higher education institutes

Higher education

The great majority of the higher education institutes do not conduct research and development

Private sector Non-profit national research institutes

Six research institutes

Non-profit international research institutes

Five research institutes

Company research centers

65 companies with a research center in 15 different sectors

Think-tanks State firms

R&D Unknown

Research bodies, groups and consortia Consortia

Six research consortia

R&D and collaboration

Science and technology parks

Four science and technology parks

Involved in scientific research

Agriculture technology parks

Five agriculture technology parks

Involved in the cultivation and processing of agriculture technology

Educational parks

One educational park

Promotes academic and industry training among children and young people in the surrounding area

National parks

Forty national parks

Research areas and science parks

PUSPA IPTEKg

Conservation areas that act as places for scientific research Museum for science

Sources: a. Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011. See annex 1 for a more detailed version of this table. b. See http://translate.google.co.uk/translate?sl=id&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fwww.bappenas.go.id%2F&act=url c. See http://translate.google.co.uk/translate?sl=id&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fwww.drn.go.id%2Findex.php&act=url d. Karetji PC, “Overview of the Indonesian Knowledge Sector: Milestone 8: Final Report,” AusAID, 30th September 2010, p35 e. Akil HA et al., Study on the Status of Science and Technology Development in Indonesia, LIPI Press, 2011, p24 f. OECD, Science, Technology and Industry Outlook, OECD, 2010, p188 (see http://www.oecd.org/dataoecd/41/24/46664553.pdf ) g. See http://www.thebiggestsundial.com/

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All of the organizations concerned with R&D exist within broader developments that the state administration is undergoing. Indonesia’s public administration has significantly improved in recent years, but weaknesses still exist. On the World Economic Forum’s competitiveness index, Indonesia ranks 47th on “effectiveness of government”, which puts it ahead of many developing countries. However, on several parts of this measure the country still ranks poorly. For example, according to the same source, businesses in Indonesia see the policy making process as not being transparent enough (rank 91), and the most cited problem for business executives is “bureaucracy.”50 Public financing both reflects and exacerbates some of the broad issues in public administration. The first of the broad problems regards the ability of government departments to absorb budget allocations. For example, between 2010 and 2011, spending allotted for capital expenditures increased by around 40 percent, but by the middle of 2011 only around 10 percent of the budget had been spent.51 There are many reasons for low disbursement of public spending. The frequent delay of budget confirmation and execution until April effectively shortens the execution period by four months each financial year. There is also caution among government administrators to commit to multi-year construction contracts as they face issues in guaranteeing the availability of funds from one year to the next, as the government-wide focus on the single-year budget cycle is so strong.52 Improvements in the capacity of personnel, especially local personnel, are also key issues.53 Overall, the inability to administer funds in an allotted time frame suggests that development in government services and improvements in myriad policy areas do not solely depend on greater spending, but also on the administration of spending. Furthermore, it suggests that there should be caution over spending increases being prioritized over administrative reform. The government is making efforts to improve spending administration. In 2008 the government allowed procurement procedures to start in the few months before the beginning of a new financial year, thus allowing more time for planning and expenditure. A presidential regulation was also recently signed which allows greater room for multi-year contracting and expenditure in areas that are determined by seasonal factors, such as planting and the supply of medicine. Also, budget execution documents are more likely to be issued in January of the budget year, where before they might have been delayed by budget reviews conducted by the given parliamentary commission. Finally, for the 2011 budget, the government introduced a “Medium-Term Expenditure Framework” and the use of program-based budgeting, both of which it hoped would improve planning, administration and output.54 The nature of R&D activities requires enabling funding arrangements. At the start of research it is often the case that the outcome is uncertain, that is, the researchers do not know what they will find, if anything, and the time it will take to produce any new knowledge is unclear. This requires an approach to R&D funding that expects worthwhile results on the whole, but is tolerant of uncertainty around the results and able to facilitate discovery through a funding system that underpins the R&D process. In two important ways the approach to state financing has constraining effects on R&D because of the investigative nature of research. Firstly, an emphasis on single-year budgeting makes it difficult for R&D institutes that rely on government funding to plan. Without a multi-year view it is difficult to start a research project that has unknown outcomes, as the researchers do not know whether funding will be available for a second year if the target discovery has not been made in the first year. This problem is further exacerbated by

50

World Economic Forum, The Indonesia Competitiveness Report 2011: Sustaining the Growth Momentum, World Economic Forum, 2011, p11 World Bank, Indonesia Economic Quarterly: Current Challenges, Future Potential, World Bank, June 2011, p13 52 There is a strict “use it or lose it” policy in place, which means that departments are under pressure to spend all of the money they receive in one year. Administrative constraints, plus the risk of allocating spending from one year to the next, inhibit capital investment. See World Bank, Indonesia Economic Quarterly: Current Challenges, Future Potential, World Bank, June 2011 53 OECD, OECD Economic Surveys: Indonesia, OECD, November 2010, p42 54 World Bank, Indonesia Economic Quarterly: Maximizing Opportunities, Managing Risks, World Bank, December 2010, p19-20 51

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Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

the fact that all unspent monies have to be returned to the Ministry of Finance (even if the original allocation was received a few months into the financial year as a result of disbursement issues), and it is difficult to buy expensive equipment with a given budget if it is unclear whether it will be used for future research projects. Secondly, the necessity to achieve a research outcome within a given financial year induces further caution over which research topics to pursue. The budgeting system requires that R&D institutes show what has been produced for the money spent. It thus seems likely that this approach would induce caution among researchers as to which topics they choose, that is, they might be more likely to pick less significant topics that are likely to produce some results in the budgeted timeframe rather than risk being deemed unsuccessful and thus unable to attract follow-up support. Ensuring the effectiveness of public spending generally justifies the demand for results, but it hampers the uncertain, investigative nature of R&D.55 Again, a cross-sector issue with state administration is affecting R&D in a manner specific to the nature of R&D. The disbursement of funds for the R&D sector is also marked by a high degree of centralization. While the issue of decentralization may come to affect the R&D sector more significantly in future years, according to the latest available data, a great deal of the money for R&D comes from spending items identified in the state budget rather than from private financing or through other sources. Table 19 shows a breakdown of IDR funding of R&D for two years, 2006 and 2009. Regardless of the destination of the funds, the most striking feature is the extent to which funding is dominated by the central government, including the Directorate for Higher Education. Of the IDR 2.3 trillion spent in the sector in 2006, around IDR 1.9 trillion came directly from these sources, with significant amounts of it likely to have been distributed via lineitem spending. With regard to the overall levels of funding it should also be noted that the Directorate for Higher Education increased its support for R&D by nearly eight times between 2006 and 2009. In 2006 a further IDR 460 billion was given to the sector in the form of contracts or grants. Figure 9 summarizes this. Figure 8

Total State R&D Funding by Source, 2006 Funds from Central Government (The Directorate for Higher Education)

Funds from Central Government (Non-higher Education Sources )

Source: LIPI

55

Corruption is a significant problem in Indonesia but is subject to several government attempts to reduce it. Indonesia has a rank of 100 on Transparency International’s index of the perceived level of corruption in a country. Along with changes elsewhere, there is some suggestion that the “big bang” decentralization reform may have allowed corruption to spread while new administrative practices were being worked out (Asian Development Bank, Indonesia: Critical Development Constraints, Asian Development Bank, 2010, p37). In a 2007 survey of firms, 86 percent said that they had to make informal payments and bribes to officials, and that these averaged 6.1 percent of firms’ annual production costs. The firms also said that visits by government officials were frequent, with visits from policy and military officers particularly frequent. In recent years the government has dedicated more money to fighting corruption and declared in 2009 that it would implement the Extractive Industries Transparency Initiative (EITI), and has now been accepted as a candidate for membership of the EITI by the organization behind it. (See http://eiti.org/indonesia).

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Table 19

R&D Funding Distribution, 2006 and 2009 Higher education (public universities only)(IDR)

Government (IDR) Year

2006 BALITBANG

Funds from central government (non-higher education sources)

1,342,200,000,000

BALITBANGDA 35,100,000,000

2006 LPNK 319,800,000,000

Funds from central government (the Directorate for Higher Education)

2009

Public universities

57,450,957,000

277,408,230,978

145,642,883,000

1,153,388,724,795

Funds from other sources Domestic research contracts

50,500,000,000

4,300,000,000

24,800,000,000

211,497,460,000

204,569,634,507

7,200,000,000

4,300,000,000

12,500,000,000

171,278,506,000

180,727,384,916

11,800,000,000

35,751,020,000

21,669,036,275

Government (discretionary funds) Private/ industry

41,100,000,000

Not-for-profit organization

2,200,000,000

500,000,000

4,467,934,000

2,173,213,316

11,400,000,000

37,300,000,000

47,208,267,000

37,603,267,481

Foreign government

10,046,401,000

17,289,557,449

Private/industry

11,950,290,000

10,730,753,000

Multilateral/international org

20,063,351,000

7,577,775,432

Foreign research contracts

Not-for-profit

5,148,225,000

2,005,181,600

Domestic grants

56,791,041,000

61,835,137,472

51,084,999,000

51,344,355,522

Private/industry

3,611,187,000

10,151,281,950

Not-for-profit

2,094,855,000

339,500,000

Foreign grants

10,080,147,000

26,403,653,962

Government

3,420,504,000

8,339,871,560

Government (discretionary funds)

Private/Industry

985,000,000

3,841,378,500

Multi-lateral/International

2,913,663,000

8,389,609,721

Not for profit

2,760,980,000

5,832,794,181

Other Total

2,000,000,000 1,406,100,000,000

39,400,000,000

2,600,000,000

2,462,560,000

10,522,159,500

384,500,000,000

531,133,315,000

1,771,730,808,695

Sources: LIPI, totals may not sum due to rounding

The spending data reinforce the impression that, overall, R&D funding is dominated by the state. They show that, at least in 2006, there was very little interest from the private sector or foreign bodies in using even the LPNK or the public universities for the investigation of research topics. Furthermore, because of the likely heavy use of line-item funding it is not just that the vast majority of the money comes from the state, but that it is distributed in the most specific manner. Table 19 also shows that alternative funding is available, albeit small in amount. As with the role of the Directorate for Higher Education, funds could be distributed by a given public or private body, in order to meet what might be ad-hoc demands for knowledge. But, as shown by Figure 8, these approaches accounted for only just over a quarter of funding in 2006. On top of the amount of funding being low, it is both dominated by the state, and in a manner that is highly specific and not devolved to a dedicated body.

28

Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

The insignificant role of contract funding would also suggest low usage of competitive financing. When R&D is funded by contracts rather than block grants or line-item funding, it is more likely to be conducted under competitive terms. Where line-item funding is used, the demands of administering and tracking the flow of funds is likely to require high levels of specification as to where it is going and for what purpose – two characteristics of R&D funding in Indonesia that were discussed above. By contrast, if money is allocated to R&D and is then distributed by research contracts it is sometimes easier for that funding to take place through a competitive bidding process that requires research bodies to show that they have the adequate expertise and track record to carry out the research. The lack of complete information on this process in Indonesia, however, makes it difficult to say for certain whether these contracts are all awarded based on competitive selection. The budgets of the different agencies involved in R&D reflect, as would be expected, the dominance of centrally distributed institutional funding. As shown by Figure 9, the BALITBANG receive over three quarters of non-higher education central government research funding. The nature of the research they conduct is discussed below but, at base, they account for an important portion of the most important source of R&D funding. Interestingly, this would suggest that, on top of most R&D funds being administered very centrally, they are also not distributed very far from central control. Each of the BALITBANG is under the direct control of its respective Minister and is not often tasked with the basic scientific investigation or development and application of knowledge that a pure scientific institute might be concerned with. In other words, R&D at the BALITBANG is characterized by work driven by the requirements of the respective Ministry. This is contrary to the OECD’s recommendation that public funding of R&D is likely to show greater returns if it is directed towards universities rather than public institutes.56 However, any redirecting of research away from the BALITBANG and towards the universities should take into account the different strengths of the respective organizations. For example, it is possible that the BALITBANG may be better at policy research where the aim of the work is already reasonably well known, while the universities may have an advantage in projects that involve analysis and measurement of, say, policy results, or do not have a particular research outcome in mind. Some of these respective strengths might even be combined through collaborative work. However, based on the current distribution of funds it is possible to conclude that, on top of the great majority of R&D funding coming from highly specified, centralized sources, a lot of it goes to the organizations in the R&D sector that are perhaps the least independent. This is reinforced in Figure 10, which shows the dominance of BALITBANG R&D funding by central government. In other words, most of the centralized funding stays central. Figure 9

Non-Higher Education Central Government R&D Funding by Destination, 2006

BALITBANGDA

LPNK

BALITBANG

Public Universities

Source: KEMENRISTEK, “Governmental R&D Survey,” KEMENRISTEK, 2006

56

OECD, Governance of Public Research: Toward Better Practices, OECD, 2003, p22

Public Expenditure Review

29

Figure 10

BALITBANG Funding by Source, 2006

Domestic Research Contracts Foreign Research Contracts

Funds from Central Government (Non-higher Education Sources)

Other

Source: KEMENRISTEK, “Governmental R&D Survey,” KEMENRISTEK, 2006

The LPNK and BALITBANGDA also show the dominance of central government funding. The LPNK, because of their status as being independent from KEMENRISTEK, might be expected to be able to attract a great deal of their financing from non-state sources. The exact level would depend on demand and other factors - the private sector might be expected to commission the LPNK to conduct R&D, particularly in the development of goods and services. The status of some of the LPNK, such as LIPI, would only be expected to increase this tendency. However, the funding data shown in Figure 11 belies this expectation. The stipulations in the budgeting laws are behind this, as any external funds collected by the LPNK must be sent to the Ministry of Finance as nontax revenue, only to be reclaimed through the annual budget process. Furthermore, even under the guise of research contracts, state funding dominates. Figure 12 shows how half of all research contracts attracted by the LPNK come from state discretionary funds. In 2006 the LPNK only managed to gain around IDR 12 billion from independent, domestic sources. However, they also attracted nearly IDR 40 billion in foreign research contracts. The BALITBANGDA (Figure 13), which receive all of their R&D funding from the government, also reflect the dominance of central government funding over other methods. Figure 11

LPNK Funding by Source, 2006

Domestic Research Contracts Foreign Research Contracts Other

Funds from Central Government (Non-higher Education Sources) Source: KEMENRISTEK, “Governmental R&D Survey,” KEMENRISTEK, 2006

30

Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

Figure 12

LPNK funding by domestic research contracts Private/Industry

Non-for-profit Organization

Government (Discretionary Funds)

Source: KEMENRISTEK, “Governmental R&D Survey,” KEMENRISTEK, 2006

Figure 13

BALITBANGDA Funding by Source, 2006 Domestic Research Contracts

Funds from Central Government (Non-higher Education Sources)

Source: KEMENRISTEK, “Governmental R&D Survey,” KEMENRISTEK, 2006

Figure 14

Public Universities’ Funding by Source, 2009 Domestic Research Contracts

Foreign Research Contracts Domestic Grants

Funds from Central Government (Non-higher Education Sources) Funds from Central Government (The Directorate for Higher Education) Source: KEMENRISTEK, “Governmental R&D Survey,” KEMENRISTEK, 2006

Public Expenditure Review

31

Figure 15

Public Universities’ Funding by Source, 2006 and 2009 1.6

Funds from Central Government (The Directorate for Higher Education)

RUP (in Billion)

1.4 1.2 1.0 0.8 0.6

Funds from Central Government (Non-higher Education Sources)

0.4 0.2 0.0

2006

2009 Year

Source: KEMENRISTEK, “Governmental R&D Survey,” KEMENRISTEK, 2006

However, the funding of public universities appears to be different to that of other organizations that receive public financial support for R&D. The proportions accounted for by the different funding streams are shown in Figure 14. In 2009, funds from central government only accounted for around IDR 280 billion. In contrast, nearly IDR 1.2 trillion came from the Directorate for Higher Education. There would appear to have been some significant changes in the budgeting for R&D at the public universities in recent years as funding from central government and the Directorate for Higher Education combined increased from around IDR 200 million to IDR 1.4 trillion between 2006 and 2009. The largest proportion of funding for public universities’ R&D is funneled through the Directorate for Higher Education, under the Ministry of Education and Culture. It is difficult to know whether this affects the manner in which research projects are conducted, although it is nonetheless notable for it not being as centralized as the funding for much of the rest of the sector. Nonetheless, the public universities still show the same degree of reliance on state rather than private, or even foreign, funding. In 2009 they received around IDR 205 billion from domestic research contracts. Approximately IDR 180 billion of this was from government discretionary funds and only around IDR 21 billion from companies and suchlike. The Directorate for Higher Education distributes its funding in several different ways. Around 65 percent goes to the public institutions under its remit through a mix of block grant funding and line-item budgeting. But it also operates grant schemes. These schemes have recently been focused on university-industry collaborations, but over the past 20 years, money has also been given for fundamental research. In 2012 the Directorate for Higher Education made 4,297 grants worth a total of IDR 286 billion, with the vast majority going to the public universities rather than the private ones, and the seven leading public universities in particular (Institut Pertanian Bogor, Institut Teknologi Bandung, Universitas Airlangga, Universitas Gajah Mada, Universitas Indonesia, Universitas Pendidikan Indonesia, Universitas Sumatera Utara). It is possible that this reflects the balance of R&D expertise, although this may also reflect the preference given to the leading public universities.57 The “RAPID” research program is one of the Directorate for Higher Education’s grant schemes for encouraging university-industry collaborations. The scheme makes awards in six areas: energy, ocean and fisheries, health, agriculture and food, information technology, and manufacturing. It was launched in 2007 and is still ongoing. It is only a small part of the overall funding scheme.

57

32

PT. Trans Intra Asia (TIA), Development of Strategies for University-Industry-Government Partnership, PT. Trans Intra Asia (TIA), August 2012

Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

Table 20 shows the total amount of awards between 2008 and 2012, and how some of the leading public universities have been beneficiaries, alongside some private ones, too. KEMENRISTEK also has some similar schemes, including one that makes awards in the areas of food resilience, energy, information technology, transportation, defense and security, health and medical technology, and advanced material, or the target areas in the Long-Term Development Plan (2005–2025).58 Table 20

Distribution of RAPID Grants, 2008–2012 University

Number of grants

Average grant size

Total amount awarded

Institut Teknologi Bandung

13

275,766,923

3,584,970,000

Institut Sepuluh Nopember

7

250,935,714

1,756,550,000

Universitas Negeri Semarang

6

246,416,667

1,478,500,000

Universitas Padjadjaran

6

214,870,000

1,289,220,000

Universitas Hasanuddin

5

256,230,000

1,281,150,000

Universitas Muhammadiyah Surakarta

5

235,100,000

1,175,500,000

Universitas Brawijaya

4

250,950,000

1,003,800,000

Institut Teknologi Telkom

4

232,425,000

929,700,000

Universitas Tadulako

3

269,873,333

809,620,000

Universitas Muhammadiyah Malang

3

263,333,333

790,000,000

Universitas Indonesia

3

236,000,000

708,000,000

Universitas Muria Kudus

3

234,166,667

702,500,000

Universitas Sumatera Utara

2

283,825,000

567,650,000

Universitas Sam Ratulangi

2

270,000,000

540,000,000

Universitas Widya Gama

2

266,666,500

533,333,000

Universitas Pendidikan Indonesia

2

262,500,000

525,000,000

Universitas Mataram

2

245,000,000

490,000,000

Institut Pertanian Bogor

2

239,850,000

479,700,000

Universitas Wijaya Kusuma

2

207,500,000

415,000,000

Universitas Gadjah Mada

1

299,650,000

299,650,000

Universitas Sebelas Maret

1

287,300,000

287,300,000

Universitas Jenderal Ahmad Yani

1

275,000,000

275,000,000

Institut Teknologi Adhi Tama

1

272,500,000

272,500,000

Politenik Manufaktur Bandung

1

272,100,000

272,100,000

Universitas Ciputra

1

270,760,000

270,760,000

Universitas Negeri Malang

1

270,000,000

270,000,000

Universitas Yogyakarta

1

270,000,000

270,000,000

Universitas Haluoleo

1

250,000,000

250,000,000

Sources: PT. Trans Intra Asia (TIA), Development of Strategies for University-Industry-Government Partnership, PT. Trans Intra Asia (TIA), August 2012, p19

58

PT. Trans Intra Asia (TIA), Development of Strategies for University-Industry-Government Partnership, PT. Trans Intra Asia (TIA), August 2012, p19

Public Expenditure Review

33

There are questions over the quality of the research carried out in several parts of the public R&D sector. The World Economic Forum assesses Indonesia as having poor research institutes (which it ranks as the 44th best in the world). Furthermore, some reports have argued that LIPI is in a “critical condition” because its budget is declining in real terms and an ever-greater portion of it is being dedicated to the remuneration of staff.59 As a part of LIPI’s historically important status it has three tasks: 1) to conduct research in the pursuit of knowledge; 2) to communicate its research findings to its stakeholders, such as the government, private sector and universities; and 3) to assist with policy problems. However, some assessments of it suggest that it might not be fulfilling some of these roles with great effectiveness, despite the fact that it is thought to be the only state body with any significant capacity in the social sciences or humanities.60 One of the key criticisms of LIPI is that the quality of its research has fallen. One of the reasons for this might be that it has suffered from reductions in government funding. For example, in 1998 LIPI subscribed to 1,600 foreign journals while today it has subscriptions to only six. Research produced by the organization appears to be strong in certain areas but weak where money is needed to carry out fieldwork or collect data. Furthermore, linkages between LIPI and work conducted in its field elsewhere are possibly hampered by the fact that its reports are only published in Indonesian. The type of funding that LIPI receives appears to be largely based on budget allocations rather than competitively awarded contracts. For example, Table 21 shows the breakdown of the social science research projects at LIPI by area of research and type of funding received. “Thematic” refers to budgeted, or allocated, funds. In 2010 nearly half of LIPI’s projects were funded in this way. “Competitive” refers to money that is distributed according to the abilities of the given researchers but is conducted largely through internal, rather than external, competition. The most competitive funding is distributed by the Ministry of Education and KEMENRISTEK. However, this last and most competitive method of funding only accounted for a smaller share of research projects. It would thus seem that, as suggested by the overall figures on R&D funding, budget allocations are more common than competition-based funding. Across the social science sector there also appears to be insufficient use of peer reviews which, like competitive allocations of research budgets, help to increase research standards through oversight and quality control.61 Finally, because of its status as a government-financed institution, LIPI is barred from bidding on research contracts on offer from the private sector.62 Table 21

LIPI Social Science Research Projects by Type of Funding, 2010 Area of research Funding type

Culture and society

Economics

Thematic

9

10

10

6

7

42

Competitive

4

4

4

4

1

17

Demography

Regional resources

Total

Politics

Special assignment

1

From Ministry of Education or RISTEK

10

14

3 6

4

4

38

4

Total

24

28

23

14

12

101

Sources: Oey-Gardiner M, “Study of the Role of the Indonesian Institute of Sciences (LIPI) in Bridging Between Research and Development Policy,” AusAID, August 2010, p25

59

Karetji PC, “Overview of the Indonesian Knowledge Sector: Milestone 8: Final Report,” AusAID, 30th September 2010, p36 Oey-Gardiner M. “Study of the Role of the Indonesian Institute of Sciences (LIPI) in Bridging Between Research and Development Policy,” AusAID, August 2010, p12 61 Australian Aid (2011), Revitalizing Indonesia’s Knowledge Sector for Development Policy, draft design document, Australian Aid, 2011, p11 62 Oey-Gardiner M, “Study of the Role of the Indonesian Institute of Sciences (LIPI) in Bridging Between Research and Development Policy,” AusAID, August 2010 60

34

Indonesia: Research & Development Financing

Government R&D Policy and R&D Financing

Competition is also not commonly used to determine remuneration for LIPI researchers. Firstly, as the institute is required to conform to government recruitment practices, researchers can only join the rank that is predetermined by their level of education. After the completion of one year in the job, the person becomes a civil servant, at which point tenure is also conferred. These practices would suggest that LIPI and the other LPNK are likely to struggle to attract highly experienced or talented researchers if those researchers can only be remunerated according to their predetermined grade. Also, given the low usage of competition for the awarding of research contracts, it would appear that researchers at LIPI are not subject to particularly strong competitive pressures.63 The distributions of staff at the seven LPNK tend to be bottom-heavy. At LIPI, for example, there are a large number of staff relative to the number of researchers (4,747 against 1,428, see Table 22), while youth and education to only the level of a bachelor’s degree are more common than the opposite. Figure 16, for example, shows that the number of staff (rather than just researchers) under 35 is just over 1,500 while the number of staff in the age brackets most likely to have experienced staff, 46–50 and 51–55, is only slightly higher (1,731). This is somewhat reflected in the comparatively large numbers of junior researchers relative to senior researchers, shown in Figure 18. Finally, there are only 245 researchers at LIPI with a doctorate, while there are 689 with just a bachelor’s degree. Each of these patterns is somewhat replicated at each of the other LPNK, thus suggesting that, broadly, the research skills of staff at the LPNK may not be as high as might be expected. Table 22 shows the data available on the staff structures at all of the LPNK. Table 22

Distribution of Staff at the Seven LPNK, Most Recent Years LPNK BIG

BATAN

BPPT

BSN

LAPAN

LIPI

607

3334

2838

193

1320

4747

142

470

517

115

342

1543

36-40

52

262

431

28

142

655

41-45

105

614

638

13

223

598

46-50

151

893

616

14

274

910

51-55

146

924

527

14

273

821

56-60

11

143

95

9

45

172

61-65

0

28

14

0

21

48

152

658

1428

Overall staff

BAPETEN

of which aged
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