INDONESIA’S FOREST POLICY AND REVIEWS

Achmad Pribadi

Introduction

Over the past five years, some of Indonesia’s forest policies have been reviewed, in particular policies related to forest plantations and natural production forest management. Many international and local organizations have been involved in the reviews, including CIFOR, WWF, donor agencies (DFID, GTZ etc.), the World Bank, and FAO. Among local organizations that have conducted forest policy reviews are NGOs (LATIN, WALHI) and forest research institutions.

This paper presents an overview of forest policy reviews conducted over the past five years, a brief assessment of the reviews and a discussion of recent important issues concerning the achievement of sustainable forest management (SFM) in Indonesia. The last part proposes forest policy topics that could be supported by the EC-FAO Partnership Programme.

The studies that have been completed are shown in Table 1. Some findings are discussed separately under two groups, forest plantations and natural forest management policies.

Table 1. Forest policy reviews since 1995

Kartodihardjo (1999) concluded that the conversion of Indonesia’s natural forest to timber and tree crop plantations stimulated natural forest degradation; subsidies could not accelerate the development of forest plantations; forest plantation policies did not resolve problems related to forest land use.

Based on the key findings, Kartodihardjo proposed that the remaining natural forests on conversion forestlands should be reclassified as permanent forests. Plantations should be allocated only unproductive production forestlands and the efforts on forestland redistribution programs by the Indonesian government should benefit people at the local level.

In response to the poor performance of natural forest management under the HPH (forest concessionaires) system the World Bank (1995), DFID (Brown 1999) and CIFOR (Barr 1999) proposed to reform it. They identified constraints and challenges in reforming natural forest utilization. Previous policies had led to underpricing of raw material in the domestic market, distortion in forest product markets and lack of effective measures to encourage community participation in forest management. These issues were not new, as many experts described them during the new order regime.

The World Bank (1995) provided recommendations that were later adopted by the International Monetary Fund (IMF), they included: lengthening the concession periods to 35 years; introducing performance bonds and an independent monitoring system; competitive auctioning of concession rights (HPHs); removing market distortion by lifting restrictions on logs, sawnwood and wood panels; and increasing the state’s rent capture by raising timber royalties and introducing area-based fees for logging concessions (World Bank 1995). The first three recommendations constitute the so-called HPH reform.

Response to the recommendations

Since democratization commenced in 1997 many policy changes or adjustments have been proposed and implemented. Most changes relate to the package of recommendations.

In terms of forest plantation policy, Kartodihardjo’s recommendations have been followed up by issuing the Ministerial Trial Decree of a moratorium on natural forest conversion in 1999. The regulation implies that the natural forestland can no longer be converted. According to the new policy, forest plantation development has to take place on unproductive areas. Due to the high costs, investments in plantations have declined since the monetary and financial crisis commenced in 1997.

Concerning forest management policy, changes include lengthening HPH contracts, restructuring HPHs, auctioning of HPHs and introducing performance bonds.

The Ministry of Forestry (MoF) issued the Ministerial Trial Decree to lengthen the renewable HPH contracts to 35 years. Until 2000, 51 HPH contracts had been renewed based on the regulation.

The policy applies to very large forestland concessions or a small number of group owners (Government Regulation No. 6/1999) whose licenses are in the process of being extended. It aims to increase the effectiveness of forestland utilization, to share forest benefits equitably among multiple stakeholders and to develop a sound forest management system to achieve SFM. The new law limits the size of new or extended timber concessions to 50 000 ha and the overall concession holding of any timber group to 100 000 ha within a province, and 400 000 ha in the entire country. The only exception to the law is West Papua where individual concessions are limited to 100 000 ha and group holdings to 200 000 ha.

The new licensees must involve local cooperatives with a minimum of a 20 percent share in managing the forest. Until 2000, 73 HPH units had been redesigned to 96 units. Forty-three units owned by 21 groups of companies were redesigned to 60 units, and 30 units of individual HPHs, were redesigned to 36 concessionaires.

Unfortunately, the concession size limit can be circumvented. Any timber group can employ a number of strategies to avoid the 400 000 ha limit. One strategy is to spin earlier acquired timber concessions off to one or more family members, who then operate the concessions under a different company name. This strategy has been practised for some years in some conglomerates (Brown 1999).

The MoF issued the Ministerial Trial Decree No. 731/1998 and 732/1998 as basic regulations to the auctioning of new or expired concessions. The policy aims to provide licenses transparently and fairly. In 1999 and 2000, only one license, located in Central Kalimantan Province, was auctioned. Until today, harvesting has not commenced due to land-use conflicts. The complexity and lack of experience in conducting auctions are the main reasons for its slow progress.

In mid-2000, the HPH reform, based on the World Bank’s recommendations, was postponed, because of the release of Law No. 41/1999 on Forestry (issued in September 1999) and decentralization/autonomy in 2001 under Law No. 22/1999. The regulations contradict PP 6/1999, which is the basic regulation of the HPH system. To date, the revision of government regulations that refer to Law No. 41/1999 and Law No. 22/1999 is under draft finalization.

The policy on performance bonds and an independent monitoring system is now being prepared for the final draft. The process involves many stakeholders who attend long discussions and debates; this is time consuming.

To remove market distortions in forest product trading, the MoF has issued a policy to decrease the export tax gradually and to end the cartelism of forest products. For example, export taxes on logs have been decreased gradually from 30 percent in April 1998 to 20 percent in 1999. By the end of 2001, the export tax decreased to 10 percent. The policy was issued because of the underpricing of logs in the domestic market, which caused inefficient raw material utilization.

However, the policy has triggered the smuggling of forest products by manipulating legal export documents. Since the imposition of the policy, the loss in national income has amounted to US$1.4 million (from US$3.9 in 1997 to US$2.5 million at the end of 2000).

Due to the high level of forest product smuggling, NGOs, the international community and other parties have demanded a revision of the export tax policy. Therefore, in October 2001, the MoF and the Ministry of Industry and Trading issued a Joint Ministerial Decree on log export bans. The ban will be reviewed in the next six months.

Forest/timber rents are important for Indonesia’s forestry sector. They constitute the dominant component of the forest revenue system. The forest revenue system consists of a number of charges that have evolved over the past 30 years and assumed varying levels of importance. For practical reasons, it is impossible to capture rents as one stumpage charge because of the complex nature of the concession management. Timber rents are often grouped into components of initial charge (for the concession rights), annual charges, production charges (linked to production volumes) and trading charges (related to export). At present, the system includes among others the following charges: Forest Concession License Fee, Forest Product Royalty (PSDH), Reforestation Fee (DR), Export Tax and Land and Building Tax.

The charges can be grouped broadly into area-based and production-based (or volume) charges. Area-based charges consist of the forest concession license fee (IHPH) and the land and building tax (PBB). In various years, the IHPH contributed only about 0.5 percent of the total forest revenue collected. The PBB contributes about 2.5 to 3 percent of the total forest revenue. Production-based charges comprise the forest product royalty (IHH), scaling and grading fees, the reforestation fee or fund (DR) and the timber export tax. The IHH and DR account for about 96 percent of the total forest revenue.

Wibowo (2001) suggested that in 1997 and 1998 rent capture in logging concessions within 18 provinces was between 24 and 36 percent, leaving a windfall of 64 and 76 percent to the concessionaires. The volume of uncaptured rent in terms of timber value was estimated at between Rp. 5.2 and 8.9 trillion. It was worth 30 to 53 percent of Indonesia’s foreign debt repayment in 2001, of Rp. 16.93 trillion.

Considering the volume of illegal logging, the overall volume of unrealized forest revenue is enormous. Combating this situation will provide environmental and financial benefits. In response to the World Bank’s recommendations, the Indonesian government increased the tariff of IHH/PSDH from 6 to 10 percent of the forest product pricing list. New regulations relating to DR are being drafted.

Assessment of policy reviews

Objectives

Policy reviews examine and evaluate the effectiveness of a particular policy, explore main findings and propose recommendations, indicate constraints and challenges in implementing a policy, and assess roles of particular institutions in supporting Indonesia’s programs to achieve SFM.

Information sources

There are many information sources to support reviews including government institutions; the MoF, BPS, BAPPENAS, CIFOR, the World Bank, NGOs (e.g. LATIN, WALHI) and donor agencies (e.g. DFID, GTZ, EU). The MoF generally provides forestry sector data and forestry regulations. BAPPENAS and the World Bank are sources of information on macroeconomic policy, while BPS can provide statistical information on forest products.

It is very difficult to find the latest information in government institutions because of the lack of well-organized libraries. In addition, forest policies change many times over short time periods.

Democratization and transparency, which are being encouraged, make it easier to obtain information from multiple stakeholders in forestry.

Current issues

Important issues are reflected in the eight commitments of Indonesia to the CGI (the 9^th CGI meeting was held in Jakarta, February 2000). These commitments are: to impose strong measures against illegal loggers, especially in national parks; to speed up the forest resource assessment as a basis for the National Forest Program (NFP) formulation; to evaluate the policy related to conversion forests and put a moratorium on all natural forest conversion until the NFP agrees; to downsize and restructure the wood-based industry to balance raw material supply and demand; to close heavily indebted wood industries under the control of IBRA; to connect reforestation with the existing forest industries and those under construction; to recalculate real timber values; and to use decentralization processes as a tool to enhance forest management.

It will be difficult to achieve the eight commitments simultaneously. Therefore, from 2001 to 2004, the MoF will focus on the five priority programs (Annex 1).

General constraints to achieving SFM are:

• Weak law enforcement, which requires improvements in laws.
  
  
• Widespread social problems. Both local and "adat" people are demanding rights to forest resources. The disputes have not been solved yet. The government has lost its energy in resolving these conflicts.
  
  
• Poor monitoring and evaluation and also unfair forest resource allocation have made it difficult to implement SFM.
  
  
• Many unresolved land-use conflicts will discourage the government from undertaking the targeted plan.

Proposed study that the EC-FAO Partnership Programme could support

Topics that could be supported by the EC-FAO Partnership Programme are restructuring forest-based industries to balance log supply and demand. The study should examine whether the supply approach is more effective in balancing the supply-demand of logs rather than just controlling the demand of logs. This hypothesis is supported by an estimation of a log boom in 2005. Therefore, the contribution of international organizations such as FAO is required to support the government in achieving SFM.

Abbreviations and acronyms

References

Barr, C. 1999. Will HPH Reform lead to sustainable forest management?: Questioning the assumption of the "sustainable logging" paradigm in Indonesia. In: Banking on sustainability: A critical assessment of structural adjustment in Indonesia’s forest and estate crops industries. CIFOR-WWF.

Brown, D. 1999. Addicted to rent: Corporate and spatial distribution of forest resources in Indonesia; Implications for forest sustainability and government Policy. DFID.

Departemen Kehutanan dan Perkebunan. 2000. Laporan akutabiitas tahun 1999/2000. Jakarta. Indonesia. NOT IN TEXT

Kartodihardjo, H. 1999. Belenggu IMF and World Bank: Hambatan Struktural Pembaharuan Kebijaksanaan Pembangunan Kehutanan di Indonesia. Pustaka LATIN. Bogor. Indonesia.

Kartodihardjo, H and Supriono, A. 2000. The impact of sectoral developent on natural forest conservation and degradation: The case of timber and tree crop plantations in Indonesia. CIFOR Occasional Paper No. 26 (E) Bogor, Indonesia.

World Bank. 1995. The economics of long-term management of Indonesia’s natural forest. Unpublished paper.

Appendix 1: The MoF’s progress in achieving five priority programs