Spotlight on Indonesia's forests

Down to Earth No. 44 February 2000

With the release of new maps and data on forest cover (or the lack of it) in Indonesia, the Jakarta government is having to face up to the country's rapid deforestation rate. International donors are pressing Wahid's government to take action now to stop illegal logging and to draw up a coherent medium-term national forestry programme.

The state of Indonesia's forests is now so bad that, in early January, the World Bank threatened that it would not fund any further efforts to protect Indonesia's forests unless the government takes firm action against illegal loggers and implemented forest policy reforms within the year (see box1). Tom Walton, the Bank's head of environmental policy in Jakarta, said "If the response is not a broad commitment…… we have plenty of other things we need to do in Indonesia". These were the opening shots in the run up to the first meeting between the Indonesian government and the international donor community to focus specifically on forestry since the collapse of the Suharto regime.

Indonesia is also likely to feature prominently in the fourth session of the Intergovernmental Forum on Forests (IFF) in New York from 31st January to 11th February 11 – a gathering which is part of slow-moving preparations towards a global convention on forests under the aegis of the United Nations Commission on Sustainable Development.

Rapid deforestation

The Department of Forestry and Plantations has published new forest cover maps for the islands of Kalimantan, Sulawesi and Sumatra complied from 1997 satellite images which confirm many Indonesian and international forestry activists' worst suspicions (see DTE 43). Nearly 17 million hectares of Indonesian forests have disappeared in the last 12 years: a quarter of the forest present in 1985. The annual deforestation rate is at least 1.5 million hectares, nearly twice the World Bank's 1994 estimate. Lowland forest is disappearing fastest. The Indonesian government's main concern (shared by some of the international donors) is not the tens of millions of local people who depend directly on these forests for their livelihoods, but the long-term viability of one of the country's biggest non-oil export earners. An analysis of the data by Bank experts shows that most of Sulawesi's lowland forest (excluding swamp forest) is already logged out. At these rates, Sumatra has under 5 years of commercial timber production from natural forests left and Kalimantan only ten years. The forestry and plantation sector is expected to contribute Rp1.833 trillion (US$261 million) to national revenues this year.

Representatives of the World Bank and bilateral donor countries met in Jakarta 26th January with Co-ordinating Minister of the Economy, Finance and Industry Kwik Kian Gie and Minister of Forestry and Plantations Nur Mahmudi Ismail for a seminar on the future of Indonesian forests. A number of forestry experts and representatives from various environmental organisations, such as WALHI, the Centre for International Forestry Research and WWF, took part in the seminar. Well-known political commentator, Wimar Witoelar, covered the event for the influential Indonesian TV programme 'Perspectives'. This discussion was intended to prepare the ground for the full meeting of the donor community in early February in Jakarta. Last year's Paris meeting was the first time the Consultative Group on Indonesia (CGI) had considered the fate of Indonesia's forests as an issue and forestry is expected to be high on the agenda this year.
 

No more debt

International and Indonesian NGOs have consistently attacked international donors for providing massive loans in support of macroeconomic policies which drive deforestation while ignoring the impact on forests and forest peoples. The International Monetary Fund (IMF) has now announced that it is designing a completely new economic programme for the next three years with the Indonesian government. This may well be little more than a means of helping the economics minister to save face. As an opponent of the Suharto regime, Kwik Kian Gee strongly criticised the IMF's original US$43 billion 'rescue package' introduced in early 1998. A total of US$10 billion was spent. This programme and an additional (undisbursed) $2 billion commitment was cancelled in January and a new Letter of Intent (LoI) issued. The LoI covers the basic economic strategies to be financed by the IMF and contains some conditionalities on forest management. At the same time, the World Bank has agreed with the Indonesian government to cancel $556 million in 43 project loans - nearly one fifth of its undisbursed loans to the country.

All these negotiations took place without the knowledge of, much less participation by, Indonesian civil society groups. Meanwhile, an Indonesian NGO Anti-Debt coalition has criticised international funding agencies - including the Bank, IMF and ADB - for further increasing Indonesia's debt burden currently estimated at US$150 billion. It calls on the CGI to cancel debt incurred by the Suharto regime and presses the Indonesian government to reject all new international loans (see Box 2). The forestry NGO SKEPHI and the environmental NGO WALHI also issued strong statements (see Box 3). Indonesian civil society groups were among the many thousands opposing WTO trade liberalisation moves late last year (see Box4).

Indonesia's financial crash and prolonged economic crisis are also increasing concerns about the financial viability of Indonesia's wood products industry. A study by the Indonesia-UK Tropical Forest Management Programme entitled 'Corporate Debt and the Indonesian Forestry Sector' states that "banks and foreign export credit agencies helped to fuel investment in the wood-processing sector during the boom years of the 1990s without conducting proper evaluations of the risks". The Indonesian government stimulated this boom by providing subsidies and cheap credits for producers. This allowed companies to generate fortunes while keeping domestic timber prices artificially low. Conglomerates named in the report are among Asia's top pulp and paper and plantation companies, including Singapore-based Asia Pulp and Paper Co, which has more than $9bn in foreign debt. But the worst offenders are those linked to Suharto regime, including Barito Pacific and Mohamad "Bob" Hasan's empire (see also"In brief" section).

The causes of deforestation

Forestry minister Nur Mahmudi and his right-hand man, Suripto, have recently acknowledged in public that Indonesia's forests are badly degraded and that over-capacity in the wood producing industries is a major cause of illegal logging. According to independent auditors, Ernst & Young - appointed by the forestry department - the Indonesian wood-processing industry is dependent on illegal logging for well over 50% of its domestic raw timber consumption. New UK-funded research highlights the huge imbalance between the sustainable supply of Indonesia's natural forests and industrial plantations (around 20 million cubic metres per year) and the capacity of existing sawmills, pulp & paper mills, plywood, moulding and fibreboard factories in Indonesia (over 116 million cu m/yr). Accurate figures are hard to come by, since the industry has a vested interest in concealing the extent of its dependence of illegally supplied timber, but domestic demand for logs is currently around 50-60 million cu m/yr. Once legal wood exports and imports are accounted for, the deficit between supply and demand for logs was over 56 million cu m in 1998/9. Forestry officials state that a number of Indonesia's 1,881 timber processing plants are stopping production due to raw material shortages (see box 5).

The myth that commercial tree plantations (HTI) will provide the solution to the shortages for wood for the processing industry is also being exposed. These plantations should have been established on land long deforested or degraded. Instead, two aspects of Indonesian forestry policy promote the destruction of natural forest for replacement by plantations of quick-growing exotic tree species for the pulp industry and, increasing, oil palm. (See also oil palm section). Some 30 million hectares - around one quarter of Indonesia's officially designated 'forest land' - is categorised as Conversion Forest. Timber Sale Permits (IPK) entitle companies to clear-fell and sell any timber remaining in logged-over forests before these are 'converted' to other uses – primarily plantations. There is widespread misuse of this system. Only 15% of IPK permit holders actually establish plantations; the rest just pocket the profits from timber sales. Official consent has been issued for 7 million hectares of HTI plantations, but Nur Mahmudi admits that, at most, only 1.6 million hectares have been planted – barely compensating for one year of deforestation. For this reason, WWF, WALHI and other Indonesian environmental NGOs are demanding that the concept of 'Conversion Forest' is completely scrapped.

Nor is there much hope that reforestation will provide an answer. A senior forestry official estimates that Indonesia needs at least Rp137 trillion (US$19.6 billion) to rehabilitate the 30 million ha of forests "degraded due to poor management practices" (i.e. over-logging by concession holders). Head of state-owned forestry company Inhutani III, Soeyoto Wongsoredjo, said that the five state-owned forestry companies had only restored 10 million ha of damaged forests since 1992, leaving 20 million ha still to be tackled. He and others blame a shortage of money in the Reforestation Fund (see below).

However, a study by Indonesian forestry academic Hariadi Kartodihardjo points the finger at decentralisation of forest administration in Indonesia. He examined the performance of the Forestry and Soil Conservation Service (PKT), a new decentralised agency, and reforestation efforts – which are implemented by local government offices. He concludes that the lack of reliable information about forest resources and the lack of coherent forestry policies are more important factors than shortages of funding. "The result of these deficiencies is that co-ordination, both at the central and provincial government levels, does not function and, moreover, increases transaction costs," he states.

The detention of two Indonesian and British forest activists by a Central Kalimantan company involved in illegal logging exemplifies the way that Indonesia's forests have become a 'free-for-all' and the dangers of local autonomy for forest protection (see Box 6). In addition to Tanjung Puting, the cases of Kutai, Gunung Leuser and other national parks show that even 'Protected Areas' are not safe from illegal loggers. Laws, regulations and policies made in Jakarta have little meaning in many parts of the outer islands. Although the tycoons of the Suharto era like 'Bob' Hasan and Prajogo Pangestu have had their wings clipped, locally powerful elites can operate with impunity. A few rich business figures control the local police and military, who turn a blind eye to illegal operations or become partners in them. Local timber barons making their fortunes by using low-paid labourers and middlemen to collect and transport stolen timber to their sawmills.

According to Sofyan Siambaton, head of the reform branch of the Indonesian timber industry association, Masyarakat Perhutanan Indonesia Reformasi, the bureaucracy of the forestry system provides ample opportunities for corruption. A logging company may need ten or more permits to fell and sell logs from its concession, requiring 'unofficial payments' of Rp150,000 (US$21) per cubic metre of timber. This means a total of Rp3 billion (US$429,000) of company profit is disappearing on a legal output of 20 million cu m/yr from the forestry sector. Although no industry spokesperson would admit it, illegal logging is one way of ensuring logging company profits remain high.

Forestry Minister's first 100 days

Three months after his appointment, the minister for forestry and plantations is something of an unknown quantity. Nur Mahmudi has not been particularly welcoming to representatives of NGOs, the World Bank, bilateral forestry programmes or even forestry companies. At January's CGI Forestry seminar, the minister only stayed until the first coffee break, leaving donors, NGOs and academics the rest of the day to discuss the problems facing Indonesia's forests and possible solutions among themselves. Interestingly, Nur Mahmudi was one of a team of six ministers and business people who accompanied President Wahid on a lightning visit to Saudi Arabia, Switzerland (for the World Economic Forum at Davos), London and Amsterdam. This suggests that Nur Mahmudi is looking for more foreign investment in the timber plantation, oil palm, pulp & paper and other wood processing industries, plus possible support for national parks and other protected areas from the international business sector.

The forestry minister has made several public statements to the effect that he is still studying problems in the forestry industry and the 'political map', but will be taking decisive action soon. An investigation into internal corruption and action against companies and individuals involved in illegal practices should come out in February. An NGO called Indonesian Corruption Watch reported in early December that it had identified a number of cases of corrupt practices in forestry companies associated with the Suharto family in which forestry department officials are also implicated. An internal anti-corruption team was set up by Nur Mahmudi's predecessor, Muslimin Nasution. The forestry department has vigorously denied any connection with the Bank Bali corruption scandal. Independent auditors Pricewaterhouse Coopers reported that the department had received over Rp500 billion (US$ 71 million) through Bank Bali from South Kalimantan logging company PT Austral Byna. Officials claim the sum was the company's statutory payments to the Reforestation Fund.

A public audit company was appointed in November to look at the books of 450 concessionaires and forestry funds. This has already reported 'inefficiencies' in the Reforestation Fund amounting to total loss of US$5.25 billion between April 1993 and 31st March 1998. While some of the losses were due to the Suharto regime's misuse of the Fund for purposes unrelated to forestry (such as the state aircraft company and the SE Asian Games), the majority was because logging companies had not paid all the taxes and levies due. Weak monitoring and illegal logging were blamed for this shortfall. Officially, the Reforestation Fund currently stands at nearly Rp4 trillion (US$571 million) with an expected income for 2000/2001 of Rp1.216 trillion.

Nur Mahmudi said his office would end the existing system of self-assessment and self-reporting by concession holders. This would be replaced by much tighter controls with government officials calculating the amount of reforestation funds forestry companies must pay. He also promised to revoke the concession licences of companies which ignored payment demands. Forest concessionaires responded through their association with complaints about the increase in levies on forest products and the calculation of Reforestation Fund contributions relative to the dollar. MPI head Soedradjat said this placed a heavy burden on forestry companies at a time when world plywood prices had fallen 25% to US$300 per cubic metre due to Chinese timber companies flooding the market.

Demonstrations at the Forestry Department

Three weeks after the new minister took office, hundreds of demonstrators came to the department's Jakarta offices demanding that Nur Mahmudi reverse a decision by outgoing minister Muslimin to issue 51 new logging permits. (This was part of moves to break up huge concession holdings owned by forest tycoons such as Burhan Uray and Prayogo Pangestu.) The protestors - who some sources suggest were mobilised by other forestry companies - accused the former minister of favouritism, corruption and violation of official procedures in granting the concessions. The minister dismissed the charges saying an internal review showed no evidence of wrongdoing. A further 114 concessions due to expire in the period 1997-2005 are also to be 'restructured' in order to conform with the terms of the 1998 IMF loan. Apart from reducing the maximum area of holdings, companies must involve co-operatives and small to medium enterprises plus provide shares for local communities. The new concessions are mostly for 55 years, compared with the previous limits of 20 or 35 years.

December 1999 saw an unusual demonstration at the Department of Forestry and Plantation's offices in Jakarta. As many as 2,000 department civil servants protested about the appointment of the new General Secretary. 63-year old Suripto comes from the same political party as the new minister and has no experience in the forestry department. The appointment is part of Nur Mahmudi's moves to rid his department of officials whose relationship with forestry companies has become far too cosy. He announced in late December that the majority of 1st and 2nd level of department staff would be replaced within weeks. The replacement of the top tier of officials took place in January but, as most were promoted from other posts within the department or state-owned forestry companies, it remains to be seen if this brings about the much needed change in culture.

World Bank rethink

Meanwhile, the World Bank is showing signs of re-thinking its approach to lending on forestry projects worldwide. In a frank internal evaluation report, the Bank admitted its lending and monitoring of loan impacts were flawed and that polices over the past decade had failed to protect forests or the poor. The Bank seems at last to be shifting its position from blaming the poor for deforestation towards support for an increased role for community participation in forest management. World Bank country director for Indonesia, Mark Baird, said the Bank and other CGI members wanted to co-operate with the Indonesian government to protect the people and wildlife of the country's forests.

(Sources: Indonesian Observer 3/Nov/99, 1/Dec/99, 30/Dec/99, 5/Jan/00; Republika 11/Nov/99; Bisnis Indonesia 13/Nov/99, 24/Nov/99, 21/Dec/99, 21/Jan/00; MI 13/Nov/99; 7/Jan/99, 22/Jan/00; Jakarta Post 19/Nov/99, 15/Dec/99, 31/Dec/99, 27/Jan/00; Suara Pembaruan 25/11/99; Suratkabar, 04/Dec/99; Waspada 18/Dec/99; Kompas 27/Dec/99, 22/Jan/00; BBC 8/Jan/00; Reuters 28/Jan/00) * 'Policies on Decentralized Forest Administration in Indonesia and their Implementation', a report by Hariadi Kartodihardjo available from CIFOR by emailing a.liano@cgiar.org