1. Financing Reforms for Tertiary Education KEDI-World Bank International Forum Seoul April 7, 2005

2. Supply/demand side financing: Dichotomy or continuum? Competitive funding Performance- based funding Supply-side: Historical or formula based core funding to institutions Demand-side: Through students via student financial assistance and vouchers

3. ……..the case of Chile

4. Chile allocates 2.2% of GDP to TE, which is the highest in LAC Chile features one of the strongest markets for tertiary education in the region Chilean tertiary education – a forerunner in LAC Investment in higher education % of GDP, 2001 Source: OECD (2002), World Bank (2003)

5. Direct pubic support (AFD) to 25 traditional public and private universities Indirect public support (AFI) of public and private institutions linked to a best- student formula Competitive fund (MECESUP) for quality improvement – all tertiary institutions are eligible for support Student financial assistance – scholarships and a loan system for students enrolled in traditional universities Chile’s public financing of TE Public financing of TE in Chile, 1990-2003 Source: MINEDUC 2004

6. Between 1997 and 2003 public support for student financial assistance increased 87 percent in real terms to 31 percent of public spending on tertiary education The government operates a scholarship program targeting indigenous students A new proposed law will open financial assistance to students attending all accredited tertiary institutions Strong demand-side financing has increased equitable participation Source: World Bank (2002), Del Bello (2002) and Delannoy (2000) Enrollment in TE by income

7. All universities that offer tertiary opportunities are eligible for AFI AFI is distributed according to institutions ability to attract the 27,500 highest scoring students in the university admission exam (PAA) AFI amplifies inequities as PAA achievement is closely linked to the ability to pay for quality basic education Allocation of indirect public support, 2003 AFI – Best-student voucher..an incentive for quality supply?

8. Source: Universidad de la Frontera Insufficient accountability and transparency of direct public support (AFD) 95% of core funding for traditional universities is provided based on historical precedence and political negotiation Full autonomy in traditional universities has not been adequately balanced with accountability for results Large inter-institutional variation in per student funding that is not rooted in differences in performance

9. Competitive Funds in Chile Competitive fund under MECE-SUP –Promote quality and relevance (through yearly competitions for matching grants) for: –Technical training institutions in fields of higher demand from the productive sectors –Undergraduate programs in priority fields –Graduate programs Competitive fund under CONICYT –Improving Chile’s ST&I system by financing technical assistance and capacity building measures –Strengthening Chile’s science base via 3 competitive programs for excellence in science, advanced human capital and improve the research infrastructure –Enhancing public-private linkages through cooperative research consortia, researchers in industry and international cooperation in research

10. Flexible funding between supply and demand

11. Principles behind competitive funding a flexible mechanism for allocating funds as it can target a variety of sector issues is an output-oriented funding mechanism, which increase cost-effectiveness and can enhance quality and relevance institutions compete for investment funds on the basis of their own strategic planning and choices stimulate the good forces through the selection of best projects based on potential, performance and track record…, not all wins every time fundamental is transparent objectives, eligibility and selection criteria

12. Weaknesses to competitive funding requires a culture of fair competition, peer evaluation etc. demands central capacity to set rules of the game –eligibility, selection and implementation criteria institutional capacity for supervision of internal, decentralized managerial freedom and accountability

13. Principles behind performance agreements provide incentives for institutions to perform encourage institutions to clarify their mission and strategy, and engage in medium term planning cater for complex indicators of impact and success tailored to institutional characteristics and needs are flexible and are periodically renegotiated to reflect changes in macro environment

14. Weaknesses to performance agreements places high demand on the capacity of supervisory authorities to negotiate and supervise agreements presupposes a strong central capacity to collect and validate data offer less predictability than formula funding

15. Targeting competitive funding in Chile

16. From traditional investments to systemic reforms the current fund has supported quality enhancement by provided grants for equipment, libraries, labs and buildings for study programs in technical training institutions, and undergraduate and graduate university programs in priority fields the new fund will support systemic change by providing grants in areas such as degree structure and curricular innovation, transfer of academic credits, secondary to tertiary transition, inclusion of marginalized groups, and the teaching profession through out the educational sector

17. Performance agreements in Chile

18. Each agreement will be negotiated between the institution and the Ministry of Education Details of the agreement will be discussed between the institution and a panel appointed by the Ministry The agreements would run for a period of 3 years and contain; funding commitments for the first year by costing proposed objectives, funding projections for subsequent years of agreement, agreed targets and indicators to monitor progress The director of the Higher Education Division and the rector of each university would sign the completed agreement Each institution covered by a performance agreement would publish an annual performance report At the end of the agreement period, each participating institution propose a new agreement with refined indicators, targets and timetables Negotiations and the make out of performance agreements in Chile

19. Introduction of performance agreements in Chilean TE 2. Improvement of institutional performance in critical areas quality improvement improvements to the relevance of tertiary programs enhancement of equity efficiency gains strengthened vertical and horizontal articulation 1. Strengthening the institution’s management capacity development of human resource management systems transparent financial management auditing and procurement systems systems for internal quality assurance institutional leadership The first agreements will have two lines:

20. Phase 1 –Performance agreements would be piloted in a small number of public universities currently receiving core funding from the government Phase 2 –Scale up performance-based funding to all the 25 traditional universities (16 public and 9 private) by tying increases in core funding to performance agreements Performance agreements in Chile are rolled out in two phases

21. Selecting institutions for the pilot Institutions would be selected based on their pre-proposals. The selection will reflect different levels of academic complexity in order to test the instrument in as different circumstances as possible A B C A B C Academic performance Fiduciary performance Institutional Capacity Assessment

22. Conclusion …..“keep it simple”

23. Building the required capacity for competitive and performance funding many countries have little or no tradition for writing proposals and evaluate these against set criteria, relative few people have experience from peer review processes therefore it is advisable to use trials and pilots which can train proposers, evaluators and managers most countries lack a reliable national information system with standardized statistics in Chile the capacity will be strengthened by establishing a National Observatory along with the introduction of performance agreements the National Observatory would support existing reporting structures and use OECD manuals as a reference point to ensure international comparability

24. Utilize the strengths and minimize the weaknesses of each funding mechanism Supply-side: Historical based core funding to institutions Demand-side: Through students via student financial assistance and vouchers Supply-side: Historical based core funding to institutions Demand-side: Through students via student financial assistance and vouchers Competitive funding Supply-side: Formula Core funding Demand-side: Through students via student financial assistance and vouchers Competitive funding Performance agreements 1982 1998 2006

25. Thank You Lauritz B. Holm-Nielsen lholmnielsen@worldbank.org