The report is divided into two parts.The first three chapters show that the vast increase ineducation resources has not been accompanied by a similarincrease in learning outcomes, and thus highlight the urgentneed to improve the quality of spending. Chapter one startsby describing the complex financing and governance systems.With this policy framework in mind, Chapter two focuses onthe 20 percent rule, analyzing its consequences for budgetplanning and management and examining where resources wentafter this vast increase in spending. The chapter alsoprovides some estimates of the cost of meeting futuregovernment objectives, in the context of discussions onexpanding compulsory education, and broadening teachercertification. Chapter three looks at education outcomes,reviewing the significant improvements in access and equity,as well as the worrisome trends in learning outcomes. Itpoints to improving the quality of education and expandingaccess to secondary and above (especially for the poor) asthe main challenges in the sector. Given the cost ofachieving these goals, and the fact that current expenditurepatterns are unlikely to lead to improvements in learningoutcomes, the chapter concludes that improving the qualityof spending in education is now critical. The second part ofthe report focuses on how to improve the quality of spendingin order to continue expansion and improve learningoutcomes. In chapter four, the quality of spending issue isdivided into two areas: i) reassigning or improving programsat the central level, and ii) improving management at thedistrict and school levels. At the central level, thischapter analyzes the Scholarships for the Poor program (BSM)and recommends that it be expanded and improved. At thesub-national level, the report explores how a combination ofmore efficient teacher management and stronger support forschools can improve efficiency and learning outcomes, andwhat the central government s role should be in ensuringthat these changes occur. Finally, chapter five summarizesthese recommendations, providing a framework for improvingthe quality of spending and, ultimately, ensuring that thisspending leads to an improvement in the quality of theIndonesian education system.