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Down to Earth No 40, February 1999

Reforms bring few gains

A number of factors are forcing the pace of reforms in forestry policy in Indonesia: many logging concessions have expired or will do so soon; the devastating 1997/8 forest fires; the corruption revealed in the aftermath of Suharto's resignation; the pressure for increased revenues from the forestry and plantation sectors from the economic crisis; loan conditions imposed by international donors; the ITTO's goal of sustainable logging by 2000. And, last but not least, the demands of students, peasants, indigenous peoples and environmental activists.

Since Muslimin Nasution took office as Minister for Forestry and Plantations last May, there has been a stream of announcements - some contradictory - about forestry reform (see DTE 38). Most of these changes are aimed at meeting the needs of the forestry industry: the basic concept of exploiting Indonesia's forests for maximum commercial gain remains unchanged. Government talk of 'increasing the prosperity of communities in and around forests' and 'involving local people in the management of forests and plantations' is meaningless to forest peoples unless coupled to official recognition of their rights to land and resources and of their traditional management systems.


Many indigenous communities had hoped that, when the 20-year logging concessions granted in the 1970s and 80s ran out, the forests would revert to them. But the government has other plans. It will start auctioning 149 logging concession rights in February 1999, as part of measures agreed with the IMF in return for the November 1997 US $43 billion economic 'rescue package'. During the Suharto era, logging concessions were a form of patronage bestowed to secure the financial and political interests of an elite circle close to the President. The new system does not eliminate potential corruption since parties eligible to take part in the auction will be pre-selected. The new regulations are also unclear about the methods of valuing concessions and how they should be managed, although Forestry Department officials say they will use financial, social and ecological criteria. New concession holders will have to pay a Performance Bond - refundable only if they stick to forestry regulations (Jakarta Post 15/9/98; Bisnis Indonesia 16/1/99).

The first auction will be for the rights to log 3 million hectares of forest in East and Central Kalimantan. State-owned companies, private companies and co-operatives will be allowed to take part, according to Director General of Forest Utilisation, Waskito Suryodibroto (AFP 26/12/98; Bisnis Indonesia 16/1/99).

Most of the logging rights on offer are for concessions which had expired or had licenses withdrawn due to gross mismanagement. Many were owned by timber tycoons close to Suharto and his children, including Prayogo Pangestu's Barito Pacific Group and Bob Hasan's Kalimanis Group.

Under new regulations each concessionaire is only allowed to control a maximum of 100,000 hectares in each province, with a total limit of 400,000 hectares (Jakarta Post 19/12/98). This is a lot less than the areas currently held by the top timber tycoons (see box).

A statement by Muslimin that companies from Canada and Malaysia had shown interest in the auctions indicates that foreign investors may be able to take part in these auctions, but the Investment Minister has said logging concessions must be reserved for Indonesian investors (Suara Pembaruan 20/9/98).


Another 3 million hectares will soon be allocated to co-operatives and small to medium-sized businesses. The maximum area controlled by each enterprise will be 50,000 hectares. The aim is to reduce the holdings of big operators and extend government control in forest areas. From last October, logging companies have had to give at least 20% of their shares to co-operatives if they want to extend their concession period. The co-operatives' stake must also be increased by 1% for every year of the 20 or 35 year term. By the end of 1998, 415 co-operatives had gained shares in 89 logging companies. (AFP 26/12/98; Suara Pembaruan 1/1/99)

Since Independence, co-operatives have been a political tool to appease nationalist and populist demands in Indonesia. In practice they have become an extension of a vast, corrupt bureaucracy which permeates every village. The concept of forest co-operatives owes much to the political ambitions of Adi Sasono, Minister for Co-operatives and Small Enterprises who is determined to strip ethnic-Chinese business tycoons - including the timber barons - of their wealth and power. As few indigenous forest communities have the formal education, business skills or finance to establish a co-operative, it is likely that this initiative will be of greater benefit to entrepreneurs from urban areas and other outsiders who may have little or no interest in or experience of sustainable forest management.

New laws and regulations

The latest of many drafts of a new Basic Forestry Law is currently being reviewed by the Department of Forestry and Plantations. The document shows few signs of a real shift from state-based forestry management to community-based forest management. Although it recognises three categories of forest ownership: state, private and customary, the new law still has as its central tenet state control of all forest lands and resources. The new legislation may even expand the roles of the state-forestry companies (Perhutani and Inhutani I-V) or establish new forestry companies to issue forest licences to private firms and co-operatives, oversee their operations and take overall responsibility for forest production. (Jakarta Post 10/12/98; 26/1/99 and the draft 1998 Act Concerning Forestry).

Two other measures temporarily plaster over the cracks caused by the fundamental issue that over 70% of Indonesia's land is designated 'forest land' under state control. Firstly, the central government is devolving the thorny problem of agreements on forest boundaries to provincial level in an attempt to reduce conflicts between forest communities, logging/plantation companies and local government. The new regulation, due for approval in January, requires local forestry staff to draw up maps and to mark the forest boundaries after these have been agreed by community representatives, village officials and the forestry office (JKKP 17/12/98).

Secondly, new regulations about 'community forests' ostensibly allow local people to use the forests where they live in traditional ways (SK677/Kpts-II/1998). The catch is that communities must first form a co-operative then, with a recommendation from the local authorities, get the approval of the Minister for Forestry and Plantations. If their application is successful, the co-operative will be granted a 35-year concession to manage their own forest in accordance with a community forest management plan drawn up with guidance from forestry staff aided by NGOs or university experts. They will be responsible for the demarcation of the area; its conservation; and forestry levies. Dayaks from Sanggau, West Kalimantan, may be the first indigenous peoples to gain this right (see Box).

In addition, the government hopes to establish 'mini industrial forests' of 5-10 hectares through the participation of communities living near forests (Suara Pembaruan 17/9/98, 14/11/98).

Sanggau Dayaks to get forest management rights

In a refreshing departure from usual practice, Dayaks from 8 villages in the Sanggau district of West Kalimantan are awaiting final approval from Jakarta of plans to manage their customary forest lands. The difference is that these plans were drawn up by the indigenous people themselves and incorporate traditional sustainable practices and customary (adat) law.

This community was included in a Social Forestry Development Project run by the German development agency GTZ and the Indonesian government. The project helped the local people to establish a co-operative with 760 members when new forestry regulations were introduced (see above). The Rimba Berseri co-operative will manage 102,000 hectares of their own customary land. Its members have received training in formal mapping and inventory methods and in administration and financial management.

Under the co-operative's management plan, some of the forest land will be used for crop production, some for timber production and some will be conserved. (Source: Suara Pembaruan 26/12/98)

World Bank funding

By January 1999, the World Bank had disbursed US $600 million to Indonesia under its commitments to the November IMF bailout, but it suspended the payment of a $400 million loan to Indonesia for the forestry sector citing the slow pace of progress in introducing new policies (Dow Jones 18/12/98). Meanwhile, the Bank is consulting with government officials, international donors and forestry officials over a second Policy Reform Support Loan.

In some respects this is a positive move because the draft version broadens the discussion about the future direction of Indonesian forestry policy. It includes three basic aims: to support existing protected areas using local communities as stewards; to develop more equitable and effective participation in forest utilisation by communities living in and around forests; and to build a consensus between all smallholders, including the government, academics, NGOs and community groups (World Bank Dec 98). On the other hand, many Indonesian NGOs are strongly opposed to any increase in the country's $140 billion debt through taking on new loans. Also it is questionable as to why the Bank is embarking on another major forestry loan when its own Operations Evaluation Department is not due to complete its Forestry Policy and Implementation Review and Strategy (including a case study on Indonesia) until September 1999. Existing Bank projects include funding for forest fire management programmes; the controversial Land Administration Programme; and an Integrated Conservation and Development Programme for Kerinci Sebelat National Park in Sumatra.

Anti-corruption drive

The Forestry and Plantations Minister has announced that a special team will be set up to investigate corruption within his sector. Preliminary findings indicate corruption in the share-holdings in logging companies with concessions covering nearly 5 million hectares (Suara Pembaruan1/1/99).

One glaring example of corruption has been the misuse of the government's Reforestation Fund. The Reforestation Fund is a mandatory fee imposed on forest concessionaires in an attempt to ensure sustained timber production. Payments and interest totalled in the order of Rp10 trillion (US$1 billion) during 1989-98. It was another condition of the IMF bailout of the Indonesian economy that this Fund should only be used for forestry purposes and should appear in government budget figures. In the past Suharto used Presidential Decrees to allocate Reforestation Funds to his favourite causes. The decree for a Rp250 billion loan to Bob Hasan's Kiani Kertas paper mill has been withdrawn; those covering spending on the disastrous Central Kalimantan swamp rice programme (Rp 527 billion) and President Habibie's national aircraft project (Rp 423 billion) are next in line. Whether any of the misspent funds will ever be recovered is in some doubt. The national jet project has been cancelled and the N-2130 parent company is under liquidation (Suara Pembaruan 18/10/98, 1/1/99; Jakarta Post 25/1/99).

Muslimin has recently accused government officials and timber companies of conspiring to evade forestry royalties and fees and is cracking down on unpaid reforestation fees. Timber companies are now expected to pay in advance, instead of after the timber or wood products have been sold. Those which do not settle their debts within two months of an official warning will be fined. If they do not pay up, their logging licences will be withdrawn. By the end of 1998, timber companies owed the government Rp235 billion (US$ 23 million). (Jakarta Post 30/10/98; Suara Pembaruan 5/1/99)

Log shortages

Many timber companies claim they cannot afford to pay dues by the deadline due to low wood prices and sluggish demand in the market early last year. Also, there has been widespread uncertainty about reforms in the Indonesian forestry industry and no logging concessions have been extended since Muslimin took office. The smart money is now going into the expansion of the palm oil industry.

Many Indonesian and international organisations are concerned about potential negative effects of IMF and World Bank structural adjustment loans on Indonesia's forests. As yet there is no firm evidence that these are causing deforestation and forest degradation. Despite the cut in export tax on logs from 200% to 30%, log supply was expected to drop by 25% for 1998 (JP 27/11/98). So far less than 20,000 cubic metres of logs have been exported as against an export quota of 5 million cubic metres agreed with the IMF. This may reflect logging companies' problems meeting government requirements to prove that they have logged legally, paid their forestry levies and carried out an Environmental Impact Assessment before export permits are granted.

The picture is confusing due to conflicting reports. Industry representatives complain that Indonesian plywood producers cannot take advantage of improving demand due to a shortage of logs. Wood processing industries, including plywood factories, are operating at 30-40% capacity. They need about 36 million cubic metres of logs a year, while the supply is unlikely to reach 22 million cubic metres. However, forestry department officials claim that log stocks averaged 9-10 million cubic metres monthly, while industry was only using 2.2 million cubic metres so there was a risk of logs being left to rot. (Bisnis Indonesia 5/10/98; Suara Pembaruan 29/9/98; Antara 5/10/98; Jakarta Post 1/10/98; AFP 28/12/98).

Forest fires

The Singapore authorities were concerned that a smoke haze in November was the first indication of a repeat of the devastating Indonesian forest fires which blanketed the region in choking smoke for months in 1997/8, but recent heavy rains have reduced the risk of fires spreading. Indonesia's Environmental Impact Management Agency (Bapedal) blamed 20 plantation companies in Sumatra which were illegally burning to clear land. Although these companies had previously received warnings about the use of fire for land clearing, there has been no news of government action against them (AFP 1/12/98).

Since September, a series of workshops on fire prevention, fire-fighting and transboundary haze have been held in Manila, Jakarta and Surabaya involving ASEAN officials, international institutions, major donors and conservation organisations. But, as Malaysian Environment Department Director General pointed out, "There is no point in establishing early warning systems and aerial and ground surveillance without enforcement." (Straits Times 21/12/98). Although a previous Forestry Minister accused 166 companies of causing fires in 1997, the Indonesian authorities have been slow to take legal action. Only two companies have been convicted after NGOs took them to court (see DTE 39). The National University of Singapore's Centre for Remote Imaging, Sensing and Processing now estimates that the area damaged by fire in East Kalimantan in early 1998 was 2.5 million hectares - five times greater than original reports. WWF-Indonesia claims the 1997/8 fires affected 10 million hectares throughout Indonesia. (Straits Times 23/11/98; Jakarta Post 18/12/98)

Perhutani Plantations get FSC certification

Three state-run teak wood plantations in Java have become the first timber operations in Indonesia to be certified by the Forest Stewardship Council (FSC). This internationally recognised eco-labelling standard requires producers to follow strict forest management polices set by FSC monitors. The US-based organisation SmartWood has assessed three Perum Perhutani plantations covering 60,000 hectares in Cepu, Kebonhardjo and Mantingan, Central Java. The three received certification in December 1998. In its opinion, this is "a unique opportunity to leverage reforms within Perhutani, socially and ecologically." The certification process included discussions with Indonesian NGOs and field research which was delayed due to social unrest in Java during November and December.

Several Indonesian NGOs concerned with forest management have been calling for the reform of the state-owned forestry company Perum Perhutani. There is a long history of conflict between Perhutani and local communities over the use and ownership of forest lands on Java. This has culminated in mass raids on some teak plantations since the fall of Suharto last year (see DTE 39).

Some of the proposed conditions for FSC certification deal directly with corruption, while others require Perhutani to devise and implement a verifiable system of conflict prevention and clear policies of benefit sharing with local organisations or farmers involved in the social forestry activities. (Sources: Smartwood, AruPA, FSC, FSC website:

Forestry data

By mid 1998, 652 concessions covered 69.5 million hectares of forests. Of these 395 concessions (35.5 million ha) had come to the end of their 20-year period. Another 32 (2.9 million ha) were due to expire that year. 293 concessions (34 million ha) are still operating.

Of the concessions which have expired, only 50% covering 4.5 million hectares will be extended; the rest will be auctioned. All the original concessions will have expired early in the next century.

The Indonesian economy is increasingly dependent on the exploitation of its natural resources. While most sectors of the economy contracted in 1998, plantations, forestry, fisheries and minerals (other than oil and gas) showed increases between 1 and 21%, reversing previous downward trends.

Most of the forestry companies belong to 15 giant business conglomerates.

(Sources: WALHI 2/11/98 - citing Indonesian Ministry of Forestry and Plantations figures; Bisnis Indonesia 16/1/99, 1/1/99; Jakarta Post 19/12/98)

       Timber tycoons

Group Owner Concession holdings
Kayu Lapis Indonesia Hinawan Susanto 3.5 million ha (17)
Djajanti Burhan Uray 2.9 million ha (17)
Barito Pacific Pangestu Prayogo 2.7 million ha (27)
Kalimanis 'Bob' Hasan 1.6 million ha

(Source:Jakarta Post 28/9/08; PasaR 22/9/98)

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