Forest destruction fuelled by debt, poverty and greed

Down to Earth No 49 May 2001

The Wahid government is making last-minute efforts to comply with demands for forest reform agreed last year with its international creditors. Many NGOs feel these efforts will not be enough to stop the rampant destruction in Indonesia's forests. They suspect that the reform process is being driven by the priorities of the creditors who want conservation and "sustainable" management, but also debt repayment. In the meantime, district governments are using new regional autonomy powers to sanction the clear-cutting of forests to raise local revenues. Both processes are sidelining the interests of the millions of people whose livelihoods - with the forests - are fast disappearing.

Wrangling between Indonesia's political parties in Jakarta resulted in the firing of forestry minister Nur Mahmudi Ismail in March and, two weeks later, his secretary general, Suripto. Mahmudi was officially sacked because of his lack of clear "vision", but claims the real reason was his refusal to dismiss Suripto, who was known for his anti-corruption drive against Indonesia's top timber barons. Replacement Marzuki Usman, a timber company owner and former minister under Habibie - is unlikely to have the motivation to continue with the forestry ministry clean-up or to champion the fundamental reforms on land and management issues that the sector urgently needs.

The political manoeuvring and change of personnel has come at a critical time for Indonesia as the Jakarta government struggles to convince the IMF-led creditors that it is serious about implementing economic reforms. The Consultative Group on Indonesia (CGI), the main creditor group, which last year drew up a list of required action on forestry issues, met again in late April to assess progress. Some positive action was announced by the government in the run-up to this meeting - a ban on ramin timber sales was announced and a Presidential instruction to all agencies to curb illegal logging was issued. This was welcomed by CGI members at the meeting as evidence of "strengthened political will to achieve sustainable forest management", but several donors warned that future amounts of forestry aid depended on "tangible results" in the next few months. Only days before the meeting, Marzuki had attempted to pre-empt criticism over the lack of progress on reforms by admitting that the government had failed to fulfil commitments due to the "unrealistic targets" set the previous year.

The CGI's action list agreed in 2000 included:

  • a crack-down on illegal logging;
  • speeding up an assessment of forests as a basis for a National Forest Program (NFP);
  • a moratorium on all conversion of natural forests until agreement on NFP is reached;
  • down-sizing the wood-based industry to balance timber supply and demand better and increase competitiveness;
  • closure of heavily-indebted companies under the control of the Indonesian Bank Restructuring Agency (IBRA);
  • connect reforestation with existing forest industries and those under construction;
  • a recalculation of the 'real value' of timber;
  • The use of decentralisation processes as a tool to enhance sustainable forest management.

Following the agreement with the forestry ministry, the CGI group met once more last year, in October, when the forestry minister was able to report very little progress. An Interdepartmental Departmental Committee on Forests (IDCF) was established in June 2000 with the aim of implementing commitments and - in line with CGI demands - the committee, chaired by economics minister Rizal Ramli, included NGOs as well as cabinet members and industry representatives. NGOs involved in the process helped draft a revised plan which to include action on land and a review of the forest management system.

For some, progress has been too slow to warrant the amount of time and energy spent and NGOs have learned from the experience with drafting the Forest Law in 1999 that being consulted does not necessarily mean their input will be heeded. In February Indonesia's leading environmental organisation, WALHI, announced its withdrawal from the committee because it was not working effectively, the forestry department was too dominant and the committee was paying more attention to keeping the CGI happy than genuinely addressing forestry issues. (Pengunduran WALHI dari seluruh proses Komite Antar Departemen Bidang Kehutanan [IDCF], 14/Feb/2001)

At around the same time, WALHI and three other NGOs released a statement calling for a boycott by Indonesia's aid donors unless the government puts an immediate stop to illegal logging and the destruction of the country's forests (see also DTE IFIs Update 13, Feb 2001).

Other NGOs, who are sticking with the ICDF negotiations, are hoping to use the process to push for much-needed reforms, but there appears to be no willingness on the side of the forestry ministry - or its creditors - to address the need for a fundamental change in the way forests are managed. Timber extraction remains the main focus for the forestry ministry for whom "reform" has so far amounted to little more than tinkering with concession sizes and taxation systems in an attempt to make the forestry industry more efficient in raising revenues for the state. True, the government has announced it will close down 64 timber concessions (see box), and a handful of timber magnates have been investigated for fraud (and one jailed - see box but the concession system has not been identified as a key cause of deforestation in itself.

The logic behind this attitude is not difficult to understand: Indonesia needs income to service its massive debts - now estimated at anything from US$150 - 262 billion (see also DTE IFIs Update 13) and exporting timber and wood products like plywood and pulp is seen by many in the government as a good way to do it. The continued focus on forests for economic exploitation was emphasised by President Wahid when installing his new forestry minister in March: "Our forests are part of the country's economy, thus forest management policies should be related to economic policies. This is a must." (Jakarta Post 18/Mar/01).


Timber concessions to be shut down - in exchange for debt for nature swaps

CGI pressure has resulted in several government promises of action on the hugely corrupt and highly-indebted forestry industry. In the most drastic measure yet announced, economics minister Rizal Ramli said in March that the government had decided to shut down half of the 128 timber concessions (HPHs) currently being handled by the Indonesian Bank Restructuring Agency (IBRA/BPPN).

These 128 companies, whose total debts amount to Rp 21.85 trillion (around US$2.2 bn), have operations covering 19 million hectares of forest, plus a total timber plantation (HTI) area of 7.4 million hectares (only 1.7 million ha of which has been developed). Of the total, only 23 companies have signed debt restructuring deals so far, involving loans of Rp 714 billion (US$71 million).

Rizal said he would use the closures to secure debt cancellation through "debt for nature" deals with foreign banks. The forest areas taken back from the concessionaires would then become conservation areas. According to Rizal, the German state export-import bank, Kreditanstalt fuer Wiederaufbau (KfW), has agreed to write off DM 50 million of debts in the first of such deals. The other 64 concessionaires will have to sign up to sustainable forestry management agreements if they want their debts restructured by IBRA, said Rizal. A government audit - with funds sought from Indonesia's creditors - will decide which companies meet the requirements.

According to the forestry department, the area held by timber concessionaires has been reduced to 33.95 million hectares - around half of the previous area, and is currently being logged by 293 concession-holders. Fifteen more concessions are due to expire this year, but will be extended if the companies show they have managed the concessions well (it is not clear how the forestry department will do this without coming into conflict with regional administrations who have new powers to issue logging and other forestry permits under decentralisation).

( 30/Mar/01; Kompas 21/3; Indonesian Observer 31/Mar/01)



One of the CGI's action points - a moratorium on converting natural forests - has been implemented less than half-heartedly. 'Converting' forests means felling them to make way for oil palm and other plantations, settlements and agriculture. Since most of the attention has focussed on illegal logging, virtually no action has been taken on other issues like forest conversion. In August the government did call a halt to all applications for conversion permits made after May 22, but this meant that all applications submitted before then - some of them after the CGI points were agreed in February - could still go through. According to Forest Watch Indonesia, more than eight million hectares of forests were converted into plantation areas in 2000.

WALHI is issuing a more far-reaching call for a moratorium - on all large-scale commercial logging activities in natural forests. The NGO believes all logging should be halted to give the forests a "breathing space" whilst important reform and policy changes are thrashed out. The illegal logging problem is now so bad, says WALHI, that a total ban would be the only hope of gaining control over rampant forest destruction and timber smuggling. The group says that imports should be used to feed a down-sized wood-based industry while the moratorium is in place. The move, argues WALHI, would also spur the development of timber plantations (HTI) to feed the industry in future, taking further pressure off forests.

Indonesian and international NGOs are now discussing how far a moratorium can be used in tandem with timber certification - the process by which timber is labelled as originating from sustainably managed sources to satisfy consumer demands for 'green' products.

According to WALHI and other NGOs, no timber concessions should currently qualify for eco-labelling because the whole concession system, set up under the Suharto regime, is based on the abuse of power and denial of land rights.

Nevertheless, some timber companies operating under the HPH system are in the process of being certified. In April PT Diamond Raya Timber's concession in Riau province became the first natural forest to be certified jointly by the Indonesian Ecolabelling Institute (LEI) and the international Forest Stewardship Council (FSC) schemes.

Wood from teak and other trees from state-run plantations on Java started receiving eco-labelling certification from FSC-licensed certifiers in 1998 but this process has been controversial. Problems have included violent confrontations between local people and officials working for the state-owned forestry company, Perhutani, over illegal logging and forest access and allegations of corruption against police and forestry company staff.

NGOs fear that the FSC rules are being watered down by an approach which is driven by the need to fulfil growing international demand for certified timber rather than to protect forests and communities. This means adopting a soft approach towards problematic plantation owners and certifying their timber 'to encourage better performance in future', rather than only awarding certificates after companies have achieved the required certain level of performance.

(Note: DTE has produced a report on certification in Indonesia - contact


Regional autonomy

Pronouncements from the forestry ministry appear to ignore the fact that regional autonomy means big changes in its potential to decide what goes on in Indonesia's forests. The forestry ministry has emerged as one of the ministries most determined to cling to centralised control (see also DTE 46). Nevertheless, the regions have been allowed to start issuing timber concessions - up to 50,000 hectares for district governments and up to 100,000 ha for provincial governments. Companies are not allowed to have more than 400,000 ha across the whole country - expect in West Papua, where the limits are doubled.

How the transfer of this new authority has translated on the ground so far varies greatly between areas. In the East Kalimantan, the situation is causing some alarm: research undertaken for the Bogor-based Centre for International Forestry Research (CIFOR) suggests that small-scale logging permits could lead to massive forest loss. In one district alone - Malinau, in the north of the province - 28 forest exploitation permits which permit clear-felling (IPPK) have been issued already, covering some 30,000 hectares of forests. Communities are supposed to file requests for IPPKs with the district head, but it appears to be logging companies seeking new sources of timber who are driving the process. The companies secure the agreement of communities by paying royalties - a small fraction of the commercial value of the timber - and offering to hire villagers or contribute towards the construction of a public building. The IPPK activity is causing tension in the area, say CIFOR scientists who are studying the impact of decentralisation in Malinau, with some communities taking action against companies when they fail to fulfil promises. The scientists suggest that districts, together with the communities and technical agencies, need to determine in a transparent way exactly where the permanent forest estate should be. In order to this, policy-makers need to re-examine and agree on the roles and responsibilities among district, provincial and national agencies. (Report by CIFOR consultant C. Pye-Smith in Jakarta Post 20/Mar/01)

In West Papua (where concerted efforts are being made to clamp down on the independence movement - see page 12) governor JP Salossa is demanding that timber companies set up offices in the district where they are operating and deposit funds to guarantee royalty payments in Papuan branches of the state bank.

A new decree, effective May 1st, will also increase 'compensation' payments for holders of customary rights to forest area by 500 to 1000 per cent.

Logging companies have been embroiled in disputes over compensation with indigenous communities since the 1980s, but the number of claims have risen in recent years. Some logging camps have been attacked by independence guerillas and workers taken hostage to bring international attention to West Papuan independence claims. (Kompas 21/Mar/01; 4/Apr/01)

In conflict-torn Aceh, governor Abdullah Puteh announced a decree to be issued in March, which will freeze the operations of all companies holding logging concessions licences (HPH) and wood-felling permits at least for this year. The companies will then be evaluated on their performance. The move, said Puteh, was in accordance with the wishes of NGOs.

Heavy deforestation in parts of Aceh has led to lives lost in floods and landslides in recent years and NGOs and indigenous peoples' groups have called for logging to be banned. There have also been serious illegal logging problems in the EU-funded Gunung Leuser National Park, which is partly in Aceh (see DTE 47). However, it remains to be seen how far the civil authorities will be able to impose the moratorium: different sectors of the illegal logging industry are reported to be under the control of the Indonesian military and the armed independence movement, GAM. In many areas civilian control is longer functioning (see DTE 47 for more background). 
(Laksamana.Net 1/Mar/01)

Regional developments like these put in doubt the ability of Jakarta to impose control over forest policy and could make a mockery of the whole CGI-IDCF forest reform process. It is hard to argue the case for continued central control, given the forestry ministry's past record on forest management. However, in some regions the decentralised alternative seems even worse - the economic imperative to raise local revenues is being given free reign, with no democratic or effective legal barriers to prevent it. For communities dependent on forest resources in those areas, the same pattern of abuse is continuing. Although their agreement may have been secured by promises of short-term benefits, forest-dwelling communities are essentially still being pushed out of the way so that businessmen can profit from their resources, leaving them no means of making a living. In some cases, those who oppose the process are subjected to intimidation and detention - the only difference being that the businessmen behind the abuse may be part of the local elite, rather than one of the Jakarta-based cronies of Suharto's day. 
(Jakarta Post, 18/Jan/01, 16/Feb/ 2001; Asia Pulse 2/Feb/01 )


Corrupt timber barons

Indonesia's forest-based industry is one of the most heavily indebted in the country. The Indonesian Bank Restructuring Agency manages the debt of 128 companies in the sector, which totals Rp 22 trillion (US $2.2 billion). Much of that debt is owed by companies belonging to the most powerful timber barons during the Suharto era, including Bob Hasan, owner of the Kalimanis Group, Burhan Uray of Djajanti and Prayogo Pangestu of Barito Pacific. Hasan - the first to be put on trial for corruption - has now been sentenced to six years in jail for his part in a fraudulent mapping deal. He has been ordered to pay US$243 million in compensation for losses to the state. Investigations are continuing into the suspected misappropriation of a further US$84 million in contributions from members of the Indonesian plywood producer's association (Apkindo).

Fifteen of Hasan's companies had accumulated debts of $487.3 million plus Rp 1.22 trillion (US $122 million) when taken over by the IBRA in late 1999 (See DTE 44:16). A CIFOR report on debt in the pulp and paper sector published in November 2000 estimated that Hasan's Kiani Kertas/Kalimanis group owed US$670 million in offshore debt and a further Rp 4.477 trillion under IBRA (see DTE 48 table). Since Hasan's companies have signed restructuring deals with IBRA, presumably they will now be obliged to fulfil sustainable management conditions announced this year by Rizal Ramli (see box above).

Proceedings against other timber tycoons are moving slowly. Of fifteen reports handed in by the forestry department's secretary general, Suripto, twelve were rejected because of lack of evidence. Apart from Hasan, the two under investigation are Prayogo Pangestu (no plans for an arrest yet, according to the Attorney General's office) and Probosutedjo, (Suharto's half-brother). Prayogo is accused of misusing Rp 346.8 billion (US $35m) in reforestation funds secured by his company PT Musi Hutan Persada to establish feeder plantations for the PT TEL pulp mill in South Sumatra. (See also item on export credit). Probosutedjo is accused of overcharging the state US$5.1 million for a reforestation project by his company PT Menara Hutan Buana. It is worth noting that none of these prosecutions are related to illegal logging or forest destruction as crimes in their own right. (Jakarta Post 2,15,22/Mar/01; AP 15/Mar/01)


The state of the forests

Although figures may vary, there is no disagreement that Indonesia's forests are fast disappearing - and that large areas of the remaining forests are badly damaged. Even Indonesia's timber industry bosses - largely responsible for the devastation - are expressing concern. In March chairman of the Indonesian Forestry Community (MPI) Soedradjat Djaja put annual deforestation at 1.6 million hectares per year.

In 1999 the World Bank reported that annual forest loss was 1.5 million hectares over the previous twelve years. It predicted that only 40 million hectares of productive forests would be left by the year 2000 and that timber supplies from natural forests would be exhausted in the early part of the 21st century if current rates continued. A draft report circulated the same year by the UK's Department for International Development (DFID) concluded that the only remaining forest to feed the timber industry in Indonesia was just under 20 million hectares of peat, swamp and evergreen forest (see DTE 43)

WALHI estimates that between 1984 - 1998 between 1.6 and 2.4 million hectares disappeared each year and that 72% of Indonesia's 'frontier forest' has gone. More than half of what's left is threatened by mining, logging, plantations and other activities. 
(Antara/Asia Pulse 21/Mar/01; WALHI: Moratorium Logging: Step Forward to Save the Remaining Indonesian Natural Forest [draft]2001)


Illegal logging

Illegal logging in Indonesia has reached catastrophic levels, with 70 per cent of the timber processed in Indonesia - around 56.6 million cubic metres - believed to come from illegal sources. Almost all timber businesses are involved in illegal logging, either directly, by overlogging inside their concessions or felling areas outside their concession areas; or by buying illegally logged timber from others.

Under pressure from the CGI, there has been some attempt on the part of the government at least to be seen to be tackling illegal logging. In June last year an action team was set up to catch offenders. This resulted in some traders and government officials being prosecuted, but no high-ranking officials have been targeted. Critics suspect that these highly publicised incidents were staged by the forestry department to impress the CGI rather than out of any real commitment or ability to deal with the problem. In March, Rizal Ramli announced that measures including heavier sanctions against illegal logging and smuggling must be implemented immediately to avoid "a serious problem" with the CGI. He said the IDCF would conduct a study to quantify the losses caused by smuggling. 
(Bisnis 20/Mar/01; Jakarta Post 31/Mar/01)

In the regions, the line between what is and isn't legal is becoming harder to draw, since communities who have seen outsiders pillage their forests are now taking the opportunity afforded by regional autonomy to salvage something for themselves. District heads in some areas - in West and Central Kalimantan for example - are also 'legalising' illegal operations by issuing permits to companies already operating in their areas.

The timber industry has voiced concern over cross-border timber smuggling, which allows competitors in neighbouring countries like Malaysia to undercut Indonesian companies on international markets. Wood processing companies in Indonesia are pushing for a reimposition of a log export ban to ensure that this stops. Illegally-felled timber from Indonesia passes over the border between Kalimantan and Sarawak/Sabah and from eastern areas, including West Papua direct to Hong Kong and Taiwan.