project on environmental scarcities, state capacity, & civil violence

The Case Study of Indonesia – Section 4

by Charles Victor Barber
World Resources Institute
Cambridge: American Academy of Arts and Sciences and the University of Toronto, 1997

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IV. FOREST RESOURCE SCARCITY AND THE GROWING POTENTIAL FOR SOCIAL CONFLICT

Indonesia holds the second largest tract of tropical forests on the planet. Forests are currently thought to cover some 92 to 109 million hectares — an expanse second only to Brazil’s. Yet as recently as 1950, forests blanketed more than 150 million hectares — over three-fourths of the nation.¹³² In the Outer Islands, many forest areas have long been home to indigenous groups who gained their livelihoods from forest farming, hunting, and gathering.

Until the advent of the New Order, these forests held very little economic or political significance, and deforestation rates were quite low. One exception is the valuable teak forests of densely populated Java, which have caused resource struggles between the state and local communities since the colonial period.¹³³ From the 1950s, some 33 million hectares (an area nearly the size of Japan or Germany) have been either logged or converted to agriculture (often both) and in many cases degraded into scrub and grassland. Denudation of watersheds (particularly on Java, where logging began well before the 1960s) has reduced the quantity and quality of water flows.

Since the late 1960s, these forests — and the lands on which they grow — have played important roles in the political and economic strategies of the New Order. The importance of forest resources is not surprising, as nearly three-fourths of Indonesia’s land area is classified as state forestland, and is under the legal control of the state. As already discussed, forestlands have been a substantial source of state revenue, a resource for political patronage, a safety valve for scarcities of land and resources in densely populated Java, and a vehicle — through the policies applied to them — to spread New Order ideological, political, security and economic objectives into the hinterlands. In short, forestlands, resources, and policies have been a key arena for the New Order’s program of economic development, political control, and social and ideological transformation.

Under these circumstances, forests have become the arena for increasing levels of sometimes violent social conflicts. In these struggles, the interests of local communities are often pitted against the interests of the state, its clients, and agents. As the World Bank’s recent Forestry Sector Review states, “there is at present a significant level of conflict with and displacement of forest dwelling or adjacent communities arising, as a result of the implementation of large scale extraction and plantation projects in Indonesia.”¹³⁴ Allocation of the huge resource rents derived from commercial forest exploitation — such as the $1.3 billion Reforestation Fund — have also recently provoked disputes within the elite.

These conflicts have the capacity to erode state capacity in various ways, although only the community-level conflicts have the realistic likelihood of turning violent — as some already have. Even short of violence, local forest conflicts poison relationships between local communities and government agencies. These confrontations increase local resistance to both forest production and conservation efforts. And conflicts over the distribution of forest resource rents within the elite threaten to weaken the coherence of power centers within the New Order constellation. As these conflicts grow, they are compounded by the heightened scarcity of forest resources and intensified population pressures on the forest frontier.

The ability of the regime to respond to these snowballing pressures and conflicts is limited by the forest policies made over the past few decades. Almost nonexistent in 1966, the timber and forest products industry has developed with the state’s active support. This industry has grown into a highly concentrated, wealthy, and well-connected political and economic actor dependent on cheap raw materials, accustomed to high levels of profit, and able to pass the environmental costs of unsustainable logging practices on to local communities, the state, and society-at-large. Because the industry is now a significant factor in forest policy-making, the state has less autonomy to move policy in directions that might be more sustainable but would hurt the industry.

At the same time, consensus is growing among forest management experts and many government policymakers — not to mention NGOs and donor agencies — that sustainable forest policies must grant local communities greater access and more participation in management.¹³⁵ However, the state’s capacity to work with or even listen to local communities is severely constrained by three decades of “top-down” development policies and the erosion of community management capabilities, as discussed in Section III.

 

Forestlands and Resources: Status and Trends

Although 143 million hectares are legally classified as “forestland,” estimates of actual forest cover range from 92.4 million hectares of “natural forest cover”¹³⁶ to 109 million hectares.¹³⁷ Biologically, these forests are extremely diverse. While Indonesia occupies only 1.3 percent of the world’s land area, it possesses about 10 percent of the world’s flowering plant species, 12 percent of the world’s mammals, 17 percent of all reptile and amphibian species, and 17 percent of all birds.¹³⁸ This astounding diversity is largely due to the country’s extensive and diverse forest ecosystems — some 19 distinct forest types have been identified.¹³⁹

Indonesia’s forests are also home to a large but undetermined number of forest-dwelling or forest-dependent communities. Estimates vary wildly on the precise number of these communities — from 1.5 to 65 million people, depending on which definitions are used and which policy agenda is at stake.¹⁴⁰ Many of these forest-dwellers live by long-sustainable “portfolio” economic strategies which combine shifting cultivation of rice and other food crops with fishing, hunting, the gathering of forests products (e.g., rattan, honey, resins) for use and sale, and the cultivation of tree crops such as rubber for sale. Many others are new arrivals to the forest frontier, poor and landless farmers with few skills in sustainably living from forest resources. These farmers tend to degrade the forest and land of particular area — often following on the heels of loggers — and then move on. Some of these farmers are displaced settlers from failed transmigration sites.

Rates and Processes of Deforestation

Forest cover in 1950 was estimated at about 152 million hectares.¹⁴¹ Data collected around 1985 suggested forest cover of 119 million hectares,¹⁴² meaning that deforestation in the thirty-five year period from 1950 to 1985 averaged 914,000 hectares annually. This lost forest cover — approximately 33 million hectares — represents an area the size of Vietnam. Loss of forest was far greater in the second half of the thirty-five year period, when large-scale commercial timber extraction accelerated dramatically. Reinterpretation of the 1985 and subsequent data in a 1991 study concluded that at the end of 1989, the effective forest cover was 109 million hectares. The annual deforestation rate was estimated at 1.3 million hectares.143 The government’s Sixth Five-Year Development Plan, meanwhile, states that the total area under natural forest in 1993 was only 92.4 million hectares.¹⁴⁴

The term “deforestation” is subject to many interpretations in Indonesia. A recent World Bank review notes that “deforestation can, according to the perceptions of the user of the term, mean anything from total removal of tree cover, to relatively small alterations in the ecological composition of a forested area. Most available analyses of deforestation in Indonesia clearly mean something closer to the former, although few actually specify a definition.” Definitions notwithstanding, the review went on, “the data available are so poor that the reliability of any current estimate is low.” Surveying the many estimates of deforestation, the review the bank considered the most persuasive¹⁴⁵ gave a relatively low annual deforestation figure — 623,000 hectares. This review concluded, interestingly, that “programs either sponsored or encouraged by the Government account for 67 percent of all deforestation.”¹⁴⁶

However defined, deforestation in Indonesia has six main proximate causes.

1. Forest clearing by growing numbers of migrants who cultivate both subsistence and cash crops.
2. Large-scale commercial logging operations carried out under government license and regulation, but often conducted in a sloppy and destructive fashion.
3. Widespread illegal logging carried out on the ground by local villagers but organized and protected by local civilian and military officials and influential businessmen.
4. Conversion of natural forests to large-scale commercial agriculture and timber plantations.
5. Both wholesale forest clearing for official transmigration settlements and progressive degradation of forests adjacent to the sites (especially where crops at the sites fail and transmigrants turn to shifting cultivation and illegal logging).
6. The expansion of mining, oil exploration and production, and other forms of industrial development into forested areas.

These factors interact synergistically. Logging, mining, and transmigration open forestlands to follow-on cultivators, illegal loggers, and spontaneous settlement. As the forest degrades, it becomes a target for timber plantations, or for conversion to permanent estate agriculture. These activities in turn attract more migrants. The aggregate effect is to strip and degrade forestlands so that regrowth occurs slowly, if at all, while the agricultural potential of much cleared land drops rapidly.¹⁴⁷

Although general population growth has slowed a great deal in the past few decades, it intensifies pressure on forest resources and compounds all of the causes noted above. In-migration in some areas, such as southern Sumatra, in turn causes higher-than-average regional rates of population growth.¹⁴⁸

Behind the immediate mechanisms of forest resource decline lies a structure of forest policies and institutions that exacerbates and in some cases drives the processes of deforestation: As noted above, one assessment estimates that programs sponsored or encouraged by the government account for two-thirds of all deforestation. This conclusion squarely challenges the government view (noted in Section III) that shifting agriculture is responsible for some 300,000 hectares of deforestation per annum. Sustainable management of Indonesia’s forests would be a challenge even under the best of policies and in the hands of very effective institutions. In Indonesia, state policies and institutions are part of the problem rather than the solution. The state’s broader economic and political agenda drives its primary forest policy objectives and this agenda is largely incompatible with the objectives of sustainable management. Moreover, the state’s forestry institutions are ill-fitted to undertake the participatory and flexible approaches necessary to enact sustainable forestry work on the ground. Therefore, even if these institutions were free from the demands of the timber industry, which they are not, they would be ill-equipped to sustainably manage Indonesia’s forest resources.

 

New Order Forest Institutions and Policy-Making

 

The Colonial Heritage

The basic ideology and assumptions of New Order forest policy stem from Dutch colonial practice in the nineteenth century. Concerned only with the teak forests of Java, the Dutch developed an ideology and system of forestry based on “scientific” production, state ownership and control over forestlands, and the closing off of traditional local community access to forest resources. According to Nancy Peluso,
The ideology of “scientific” forestry was embraced by the colonial state and its foresters, while local institutions of forest access and property were gradually phased out of the legal discourse. The ideas of this period, and the impacts of these policies on the lives of forest-dwelling people, remain significant today; the last forest laws effected by the Dutch government were drawn up in the late 1920s and continue to dictate contemporary Indonesian forestry.

This period was also the beginning of the foresters’ great concern with their eminent rights of domain over land, timber, and the demarcation of forest boundaries. Their possessiveness is seen today in the persistent use of the terms of exclusion that criminalize customary rights of access to forest products and land: “forest theft,” “encroachment,” “squatting,” and “illegal grazing.¹⁴⁹
The 1870 Agrarian Law (Domeinverklaring) declared all land that villagers could not prove that they owned (that is, any uncultivated land, or land that had lain fallow for three years or more) to be property of the state. A number of laws in succeeding years have strengthened this state claim. Although cloaked in conservation rhetoric, the colonial state’s basic objective was to profit by cultivating teak plantations. The relationship of a teak monoculture to a forest’s ecological and hydrological functions — let alone the welfare of local communities — is dubious at best, but “to many nineteenth century Europeans the ideology of forest conservation justified state control of key forest lands and masked the reality of production forestry in Java.”¹⁵⁰

The colonial state’s seizure of forestlands and other “common” resources fit well with the integralist views of the framers of the 1945 Constitution. Supomo, a leading integralist of the time, argued that in the new Indonesian state there would be no separation between the state, individuals, even “other creatures.”¹⁵¹ Accordingly, the Constitution states “land, water and the natural riches therein shall be controlled by the State and shall be made use of for the greatest welfare of the people.” However, state policy had little impact — negative or positive — on forests or forest-dwelling communities until the advent of the New Order.

The Forestry Bureaucracy and Policy-Making Process

Like the rest of the government, Indonesia’s forestry agency is highly centralized. The Ministry of Forestry, its regional offices, provincial forestry services, and the four state-owned forestry corporations together employed about 47,000 people in 1989: 3,700 in ministry headquarters; 29,000 at the provincial level; and 14,000 in the four state enterprises (upwards of 12,000 just at the State Forestry Corporation that manages Java’s forests). More than 200,000 people work in private forestry enterprises,¹⁵² including many who carry out logging under subcontract for state-owned logging firms in the Outer Islands and are thus de facto employees of the state forestry apparatus.

Within the Forestry Ministry, the Directorate General for Forest Utilization is the most influential office, with jurisdiction over logging concessions and forest industries activities and revenues. Other divisions deal with land and watershed rehabilitation, planning and mapping, research and development, nature conservation, and other functions. Numerous regional offices that report directly to the minister represent the ministry in the provinces, and the four parastatal corporations are also basically under the ministry’s control. Another set of provincial forestry offices, under the authority of the governors, carry out many line functions.

Three elements influence how the forestry bureaucracy makes policy: the nature and functions of law in Indonesia; conflicting bureaucratic management styles; and the prevailing norms, assumptions, and priorities of the forestry professionals who staff that bureaucracy. These three elements are discussed below.

As noted, the New Order regime puts great stock in “the rule of law” as the ultimate justification of its political authority and as the governing principle of public life. In New Order ideology, laws and regulations form part of a coherent whole that orders the state apparatus itself, social organization and action, and the relationship between state and society. But Indonesian laws are also empirical rules: a complex, overlapping, and constantly changing body of laws, decrees, and administrative regulations that are often applied erratically and personalistically. Forests and forest policy are thus governed on the one hand by an unassailable core of exclusive and comprehensive authority granted by the constitution and held by the state bureaucracy. The corporatist and authoritarian bureaucracy leaves little space for legitimate disagreement or resistance. On the other hand, the day-to-day operation of forest law and policy places great discretionary power in the hands of the bureaucracy. This bureaucracy can apply a vast body of indeterminate and often contradictory laws and regulations as they see fit, without any effective mechanism for appeals from citizens aggrieved by their decisions.

In R.M. Unger’s terms, the New Order is characterized by “bureaucratic law” rather than a true “legal order.”
The commands of the sovereign in a system of bureaucratic law often take the form of rules applicable to very general categories of persons and acts. But this will simply be a generality of political expedience, a way to get things done most effectively. It may and will be violated whenever the considerations of administrative efficiency that led to its adoption point the other way. In other words, there are not commitments to generality in lawmaking and to uniformity in adjudication that must be kept regardless of their consequences for the political interests of the rulers.¹⁵³
The forestry bureaucracy vacillates between the ideal of rational bureaucratic management and the day-to-day reality of patron-client relationships discussed in Section III. Under the bureaucratic ideal, a formal hierarchy coordinates action for specific purposes, law is central to the system, and experts make, interpret, and carry out laws and regulations within a clearly defined mandate. In practice, the bureaucracy does not live up to this ideal. However, the ideal does powerfully influence assumptions and discourse concerning how forest policies are and should be made. The numerous forestry sector reviews and action plans produced in recent years¹⁵⁴ describe the bureaucratic ideal and only hint at the undertow of patron-client relationships within the bureaucracy. The formal rules and regulations are not a facade, but many important deals and decisions are made in the back room with scant reference to these rules. The ideal bureaucracy is thus constantly at odds with the patron-client system.

The third important element is the “culture” of Indonesian foresters and forestry institutions, characterized by:

• A centralized, hierarchical process for decision-making on projects and expenditures;
• Strong reliance on traditionally trained professional foresters in top management positions;
• A close relationship between the forestry service and timber industry;
• An urban and upper-middle class bias among policy-level foresters;
• A strong colonial forestry tradition and background;
• Patterns of forestry sector development assistance that are technically based and executed in cooperation with the forestry bureaucracy; this assistance tends to reinforce existing structures and ways of doing things;¹⁵⁵ and
• The belief that good forest management is best guaranteed through the creation of legally gazetted forest reserves. These reserves would be managed by a professional forestry service that utilizes multiple-use, sustained-yield practices. Local land use practices are believed to be destructive, and local access and use of forest resources should be limited and the state should adopt a policing role.¹⁵⁶

In the field, this approach has serious limitations and contradictions. First, the legal mandate of the ministry dwarfs its capacity to manage, or even monitor, forestry practices. With the exception of Java, there is only one professional staff per 127,100 hectares of production and protection forest, and one per 111,000 hectares of park and reserve forest. In East Kalimantan, the ratio of staff to hectares of production and protection forests is one per 314,000 hectares.¹⁵⁷ The Gunung Leuser National Park, Sumatra’s largest remaining block of primary rainforest, has only sixty-seven field-level personnel to manage and guard an area of nearly 1 million hectares.¹⁵⁸

Second, the numerous forestry laws and regulations¹⁵⁹ are complex and, in some cases, self-contradictory. However there is no formal process to appeal a bureaucratic decision or obtain an authoritative interpretation that is binding on the bureaucracy.

Third, government policies assume that public officials hold sway over forest management, but the timber industry plays a major role both in the field and in the policy process. Moreover, the millions of local people who practice forest management on a daily basis go unrecognized — or are condemned as interlopers — in the official policy environment.

Finally, policies rely heavily on technical approaches to silviculture and criminal-law approaches to enforcement. Yet the conflicts between local people living in and around forests and the agents of government policies are not easily amenable to either approach.

 

The Sources of Forest Resource Scarcity

Natural resource scarcity, as discussed in Section I, can arise from a decrease in supply, an increase in demand, and changes in access or distribution which create relative scarcities. All three forces are at work in Indonesia’s forests.

The Shrinking Resource Base

As already noted, Indonesia’s forests shrink at a rate somewhere between 600,000 to 1.3 million hectares per year. In the absence of an accurate forest inventory, or reliable information on actual harvest levels,¹⁶⁰ no analyst can say with certainty that “Indonesia will be logged-out by year X.” Nor can analysts predict when scarcities of nontimber forest products such as rattan, or diminution of environmental services, will reach crisis levels. Nevertheless, some simple calculations show that even commercial logging will likely contribute to severe absolute scarcities approximately within the next decade.

For yields to be sustainable in Indonesia, analysts estimate 1 cubic meter per hectare of commercial species can be removed from productive forests annually.¹⁶¹ If this rule and good logging practices were utilized, then supply would be roughly in balance with current demand levels from industry, now and into the future. But, this scenario is unrealistic for several reasons.

• Much “production forest” is actually “Limited Production Forest” largely because of steep slopes or inaccessibility. The level of sustained yield, even under ideal conditions, is thus much lower than the 46 million cubic meters claimed by the government.¹⁶²
• Collateral damage to standing stock and waste is very high in Indonesian logging operations. For every cubic meter cut, at least an equal amount of usable wood is left behind.¹⁶³ In all, some 8 million cubic meters of wood annually is left rotting in the forest.¹⁶⁴ Damage to surrounding trees averages 50 percent, soil compaction by heavy machinery impedes regeneration, and favored species are “creamed” from stands.¹⁶⁵
• Logging road construction and clearing of adjacent areas removes large, undocumented areas of forest. The 500 kilometers of logging roads in one large East Kalimantan concession, for example involved “day lighting” clearance of some 40,000 hectares.¹⁶⁶
• Logging regulations allow a second cut only after thirty-five years, but no concessions are this old. It is also unlikely that second-cut concessions will be able to produce at the levels of their first cut. In neighboring Malaysia, studies speculate that a second cut is possible only if residual stand damage is 30 percent or less — a condition that is not met in Indonesia.¹⁶⁷
• Few concession-holders follow the selective cutting system mandated by their concession agreements. Some observers believe that even a 100-year concession would not provide incentives for better management since concessionaires are simply not interested in a second, less profitable cut that would require years of costly interim management and protection. The possibility of converting “degraded” concessions to timber plantations, with a generous government subsidy, further reduces incentives for long-term natural forest management.¹⁶⁸
• Logging roads and operations open forestlands to migrant farmers, whose activities make sustained yield — or even maintaining forest cover — in these areas impossible. In 1990, analysts estimated that nearly 3 million hectares of production forest and almost 9 million hectares of “conversion” or unclassified forest were under some kind of agricultural occupation,¹⁶⁹ and the actual figure may be higher.

The World Bank review cited above concluded that under such conditions an annual cut of about 22 million cubic meters might be sustainable. This study warned that harvests are officially 50 percent higher than sustainable yield and may actually be nearly 100 percent higher if unreported removals are incorporated into the estimate.¹⁷⁰ Aggregate figures for the whole nation mask regional differences in deforestation rates and forest loss. Sumatra and Kalimantan have the highest rates of deforestation — and thus are experiencing the most acute shortages of timber and other forest goods and services (see Table 1). These regions have the greatest concentrations of timber concessions and timber processing industries.

Table 1: Relative Rates of Deforestation for Major Forest Regions

Region	Land Area (ha)	Forest Cover (ha) 1982	Forest Cover (ha) 1990	Forest Loss (ha) 1982-90	Forest Loss (%) 1982-90
Sumatra	47,361,000	23,320,000	20,380,000	2,940,000	12.6
Kalimantan	53,946,000	39,620,000	34,730,000	4,890,000	12.3
Sulawesi	18,922,000	11,270,000	10,330,000	940,000	8.3
Maluku	7,451,000	6,350,000	6,030,000	320,000	5.0
Irian Jaya	42,198,000	34,960,000	33,650,000	1,310,000	3.7
Source: Government of Indonesia (GOI) and the United Nations Food and Agriculture Organization (FAO), Situation and Outlook of the Forestry Sector in Indonesia (Jakarta: 1990).

Aggregate figures do not reflect the disproportionate deforestation rates in the biodiverse- and timber-rich lowland rainforests. Sumatra, for example, has lost over 70 percent of its original lowland rainforests.¹⁷¹

Absolute scarcity of commercial timber is thus growing steadily, largely as a result of state policies. But timber is not the only forest resource that is shrinking. Nontimber forest products are important for the local economy in many parts of the country, and some of them have significance in the national economy as well. For example, rattan produced export earnings in excess of $200 million in 1988.¹⁷² Rattan is currently growing scarce from over-collection in many localities (compounded by the effects of logging, burning, and shifting cultivation). A 1990 study warned that these factors have “resulted in the supply of rattan, and its genetic resources, from natural forests in danger of exhaustion or depletion.”¹⁷³

Forest-based medicinal plants, which form the basis for both the large commercial jamu medicine industry and the medical systems of most rural communities, are also becoming scarce.¹⁷⁴ Again, key factors are over-harvesting and the destruction of the forest habitats where medicinal species grow. The situation is particularly serious because 42 percent of medicinal species come from the fast-disappearing lowland rainforests.

Finally, the absolute quantity of arable land suitable for conversion to permanent agriculture within the legal forest estate is declining. Most soils of the Outer Islands are not suitable for permanent cropping. Those areas which are suitable have been long-occupied by local communities, or have been utilized for transmigration sites and estate crop plantations. Land still available for agricultural expansion is thus quite limited, and in many cases would require high-cost inputs to make it productive. At the same time, progressive land degradation — caused by poor logging practices, unskilled slash-and-burn farming, and improper site clearance practices at many transmigration locations — erodes the available land base.

In short, the supply of forest resources is decreasing in absolute terms, whether one looks at commercial timber, nontimber forest products, or potentially arable land within the forest estate. Even if demand remained constant, Indonesia would face growing absolute scarcities of key forest resources. Unfortunately, demands on those resources are multiplying in number, and growing in intensity.

Demand-Induced Forest Resource Scarcity

Heightened demand on forest resources arises from three sources: the timber industry’s continuous demand for wood, the growing pulp and paper industry, and current plans to increase the mining of coal, vast deposits of which lie under the forests of Kalimantan and Sumatra. Not only do these three sources independently increase demand-based scarcity, they also compete with each other. The imminent depletion of Indonesia’s oil reserves and resulting push for alternative sources of both energy and export earnings are powerful driving forces behind forest depletion.

In addition, general population growth and continuing net migration to the Outer Islands compound these pressures. Indonesia’s total population grew from about 119 million in the early 1970s to about 180 million in the early 1990s. And although the national average annual growth rate dropped from 2.33 percent in the 1970s to 1.96 percent in the 1980s, some of the most forest-rich provinces had markedly different population trends. The populations of Riau and Bengkulu provinces (in Sumatra) grew at more than 4.2 percent annually in the 1980s, while East Kalimantan grew at 4.3 percent annually in the same period.¹⁷⁵ Since provinces with high growth rates do not correlate with areas of especially high fertility rates,¹⁷⁶ it appears that much of this growth is due to net in-migration from Java. Indonesia’s overall population is expected to increase to over 250 million in the next two decades.¹⁷⁷ Therefore, population pressures on the Outer Islands’ forest frontiers will inevitably intensify the many other pressures on forest resources, such as the growing demand for timber.

The Sixth Five-Year Development Plan establishes national targets for the production of timber for the period 1994 to 1998. During this time, the state plans to produce a total of 188.3 million cubic meters of logs, about 37.7 million cubic meters per year. This production goal is well above current sustainable yields. However, according to the plan, only 22.5 million cubic meters of the annual cut will come from the 64 million hectares of permanent production forests. The remainder will come from clear-cutting of areas slated for conversion to nonforest uses (3.7 million cubic meters per year), timber plantations (2.7 million cubic meters per year), and “community plantations and gardens” (8.7 million cubic meters per year).¹⁷⁸ Nevertheless, these projections seem unrealistic. It is unlikely that the plantation target can be fulfilled (development fell short of the target in the previous Five-Year Plan), and most plantation investments target the development of fast-rotation pulpwood plantations¹⁷⁹ instead of timber species. In addition, the demands of the forest products industry may be considerably higher than the plan projections. Indeed, the chair of the National Development Planning Board (Bappenas) noted in a 1994 seminar that “the rapidly increasing capacity of the timber processing industry cannot be met by the raw materials supply, which according to the sustainable rate is only able to provide 61 percent of the national processing capacity.”¹⁸⁰

The government also has ambitious plans to turn Indonesia into a major pulp and paper producer by the end of the decade; their goal is to increase annual production capacity by 200 percent in the next five years. One industry executive told the press that in 1995, the industry would export pulp worth about $2 billion, up from $700 million in 1994.¹⁸¹ Feedstock for this intense program will eventually come from short-rotation plantations on already-degraded forestlands. Thirty-three potential pulpwood plantation concessions of 300,000 hectares each (a total area larger than Portugal) had been identified by 1993. However, the World Bank notes that only 60,000 to 80,000 hectares of each concession will be planted. The remainder of these plantations, usually logged-over but sometimes unlogged primary forest, will be logged to supply the designated mill operation until the rotation planting can supply pulpwood.¹⁸² Demand for pulp feedstock will thus compete with timber demand — for investment decisions on plantations (pulp versus timber species) and also for standing forest timber. If all planned pulp and paper mills actually come onstream, as much as 30 million cubic meters of natural forest will be needed for pulpwood until the year 2000.¹⁸³

The importance of the pulp and paper program to the government is reflected in a 1992 Ministerial Decree. This decree stated that all permanent forest within 100 kilometers of a planned pulp mill, regardless of condition, may be used for pulpwood plantation development (under the “cut four hectares, plant one” system discussed above). If this right was granted to all twenty planned pulp mills, 62.8 million hectares of forestland would be affected, fully one third of the nation’s land area,¹⁸⁴ a scenario that seems improbable.

Current demands on forests from logging concessions and timber plantations are thus already high, and will increase. The subsequent scarcities are likely to be further compounded by government plans to vastly expand the scale of coal mining over the next decade. The development of mining since the 1960s has already been quite dramatic.¹⁸⁵ Coal mining in particular will impact forestlands and resources. Most mining operations lie within the boundaries of designated forestlands, and regularly overlap all forest categories. Indonesia’s proven coal reserves (4.4 billion tons) and estimated reserves (27.7 billion tons out of the estimated 35 billion tons in all of the Association of South-East Asian Nations [ASEAN] countries) lie largely underneath remaining areas of rainforest. Annual coal production, mainly centered on Sumatra, rose from approximately 337 thousand tons in 1980 to 22.5 million tons in 1992,¹⁸⁶ and current plans call for boosting annual production to 71 million tons by 1999.¹⁸⁷

Increased government attention to the conservation of biological diversity places additional demands on forest resources as large tracts of protected areas are set aside. The area of forest designated for protection of nature (reserves, national parks, etc.) has steadily increased since the late 1970s, and currently stands at almost 10 percent of total land area (19 million hectares). An additional 30 million hectares (15 percent of total land area) are designated as Protection Forest, for the purpose of maintaining hydrological systems and retaining soil on steep or otherwise fragile lands. Most of these reserves exist solely on paper; they suffer systematic and widespread encroachment by local communities, government projects, and the activities of private firms.¹⁸⁸ However, their protected status largely takes them out of the resource stream available for local livelihoods or economic development projects and activities.

In short, rising and conflicting demands on forestlands and resources clearly contribute to the overall scarcity of forest resources; more and more claimants demand a piece of a finite resource base. Demand-driven scarcity obviously compounds the growing absolute scarcity of forest resources discussed above. Pervasive distributive scarcities, caused by New Order forest policies, exacerbate overall scarcity. In the coming decade, these scarcities will likely intensify.

Distributive Scarcity of Forest Resources

Relative or distributive forest resource scarcities are mainly caused by the progressive seizure of forest resources by the New Order state, and their allocation to a coterie of private sector firms and state enterprises for commercial production. As discussed above, state control over all forestlands and resources is deeply rooted in the ideological and constitutional basis of the regime, and also in the policies of the colonial regime. Only in the New Order period, however, has this legal regime impacted the millions of people who previously had access to forest resources under the systems of adat rights and resource management discussed in Section III.

With the advent of the timber boom in the 1970s, nearly one-third of the nation’s territory passed into the hands of timber concession-holders (HPHs). Local residents lost access to timber, nontimber forest products, and lands available for swidden cultivation. The regulations on timber concessions clearly limit access for local communities. The 1967 Basic Forestry Law declares that “the enjoyment of adat rights, whether individual or communal, to exploit forest resources directly or indirectly . . . may not be allowed to disturb the attainment of the purposes of this Law.” A 1970 implementing regulation further elaborates (and weakens) adat rights in HPH concession areas. This regulation stated:

1. The rights of the adat community and its members to harvest forest products . . . shall be organized in such a manner that they do not disturb forest production.
2. Implementation of the above provision is [delegated to the Company] which is to accomplish it through consensus with the adat community, with supervision from the Forest Service.
3. In the interests of public safety, adat rights to harvest forest products in a particular area shall be frozen while forest production activities are under way.

A variety of more recent laws and regulations governing timber-plantation, rattan, sago, and nipah concessions remain silent on adat. Yet complex adat systems of rights and obligations throughout the Indonesian archipelago govern the ownership and harvesting of, for example, rattan and sago palms. However, the logging concession precedent suggests that new rights pertaining to these species invalidate conflicting adat rights.¹⁸⁹

Curiously, the Sixth Five-Year Development Plan clearly acknowledges the hardship that forest policies visit on forest-dependent communities.
Forest exploitation by concession-holders is often to the detriment of the needs for forest resources of communities living in and adjacent to the forest. The cause of this is the limits on their access to forest resources [in the concessions]. [These communities] are also largely unable to benefit from employment opportunities arising from these forestry enterprises, with the result that the gap in economic status between local people and outsiders increases, giving rise to social tension.¹⁹⁰
Transmigration sites opened 1.7 million hectares of agricultural land and brought some 8 million people from Java and Bali to the Outer Islands between 1969 and 1993.¹⁹¹ These sites contribute to relative scarcities for local populations. Not only do such local populations lose access to the forests and lands appropriated for these sites, they also must compete for resources surrounding the site with new arrivals. This competition intensifies in the many cases where agricultural failure leads transmigrants to seek resources (swidden lands, nontimber products, and game) in adjacent forests. (Of course the government also argues that transmigration decreases scarcity on Java and Bali.)

Local forest-dependent communities in the Outer Islands have been the clear losers from the New Order program of enclosure. The winners are equally clear. In timber exploitation, most of the available economic rent — the profits exceeding the minimum that an investor needs to earn to make a given project worthwhile — flows to the 500-plus firms holding concessions. If calculated on the basis of $145/m³, the total profit Malaysia receives on the same or comparable species, available rent is approximately $99/m³. In 1989, the Indonesian government captured only 8 percent of this rent in fees and royalties, while a fee increase in 1990 raised the percentage to 17 percent. In 1993, the government increased royalties by 47 percent to an average of $22 per cubic meter. However, according to the World Bank this figure is “still below the $30 level royalties would have reached by now had they been adjusted from 1985 levels by the wholesale price index for the forestry sector and, hence, is well within the capacity of the industry to pay, particularly considering the recent sharp increases in world log prices.”¹⁹²

The government captures 85 percent of total rents in the oil sector. If the government received equivalent rents from the logging industry, one study estimates these contributions would have totaled nearly $2.5 billion in 1990, five times the $416 million actually collected. This revenue would have been more than half of Official Development Assistance received that year. In fact, from 1984 to 1989, total fees and charges levied on forestry operations accounted for no more than 0.2 percent of the government’s total domestic revenue and no more than 0.1 percent of the annual government budget.¹⁹³

Along with low levels of rent capture, artificially low domestic log prices have caused “environmental degradation, inefficiency in both logging and wood-processing industries and a lack of market diversification.”¹⁹⁴ In 1992, export taxes replaced the ban on log exports, but the impact on resource use has been negligible. The taxes are so high, they effectively constitute a ban. As a result, while prices for Meranti logs (a favored commercial species) exported from Sabah (Malaysia) have averaged around $160 per cubic meter since 1986, with 1993 prices topping $300, equivalent logs in Indonesia averaged about $90 per cubic meter in 1993. The actual price may be less, since most plywood operations are affiliated with concessions, and thus obtain logs at cost.¹⁹⁵

Although most direct financial benefits have flowed out of the forest areas and into the hands of private concession-holders, the government argues that considerable indirect benefits accrue to local and provincial economies. The government claims direct charges on forestry production, the “development of backward and remote regions,” and “trickle down” employment all benefit local communities.¹⁹⁶ But a recent study on the regional and local economic impacts of the timber industry in East Kalimantan suggests that such benefits are fairly minimal.¹⁹⁷

Instead, the top circles of the New Order regime receive a significant indirect flow of benefits. First, the government uses concessions and other resource exploitation rights to reward political clients, coopt potential opponents, and fund (and ensure the loyalty of) both the civilian bureaucracy and the military. Many of the early concessions in East Kalimantan, for example, were given to military-owned ventures. More recently, virtually all the top players in the timber industry are connected personally and financially with members of the president’s family. The political utility of concessions for patronage purposes partly explains the government’s long-time acquiescence to the high levels of rent capture by timber concessionaires. A few years ago, a bank owned by foundations connected to the president announced it lost $430 million. At Soeharto’s request, major timber concessionaires came to the rescue with ready cash to compensate for the losses.¹⁹⁸ Politically, this represents an unorthodox but nonetheless real form of “rent capture” and reflects the personalistic, patron-client nature of the New Order. When needed, the “excess rents” accumulated by logging conglomerates were tapped to resolve a significant crisis for the financial stability and credibility of the regime.

In summary, the overall scarcity of forest resources in Indonesia is increasing due to three related factors. First, the resource pool itself is shrinking, due to forest and land degradation, deforestation, and over-harvesting of some commercial species. Second, the demands on forest resources are growing: from industry, for conservation, and from general population growth and per capita consumption coupled with net in-migration to the Outer Islands. Third, the access to forest resources that many rural communities previously enjoyed has been curtailed. The systematic enclosure of forestlands and resources and their appropriation by commercial agents and licensees of the state as well as by government-sponsored activities (such as nature reserves and transmigration) have severely limited local access. The growing scarcity resulting from these linked processes gives rise to higher levels of social and political conflict.

 

The Varieties of Forest Resource Conflict

Conflicts over forest resources fall into two major categories. First, conflicts occur between local communities and the state or its clients over forestlands and resources on which the community depends in one way or another. These conflicts often give rise to disputes within communities as well. Second, recent intraelite disputes erupt over the control and use of rents from forest exploitation.

Local Conflicts Over Forest Resource Access

Conflicts between local communities and logging concessions, timber plantations, transmigration sites, mining activities, and other state-sanctioned forest resource activities have become endemic throughout Indonesia. Such conflicts are inevitable given the vast scope of New Order forest enclosure and resource appropriation in a context where tens of millions of rural people depend on forest resources for their livelihoods. However, these struggles are not a sign of organized political action to unite aggrieved peasants and restore a more equitable balance of forest resource access and control. Some local protests involved physical action by local villagers (such as tearing up plantation seedlings or burning loggers’ basecamp buildings), but there is not even an echo of the “unilateral actions” promoted by the PKI in the early 1960s in Java. Nevertheless, conflicts are undeniably widespread.

Recent government efforts to rapidly establish industrial timber plantations have caused some of the most heated conflicts. Although disputes with logging concessions continue to flare in many locations, plantations are inherently more conflictual for two reasons. First, while concessions — particularly poorly managed ones — damage the forest and sever local communities’ access to resources, logging does not completely destroy the forest, and is a one-time effort by the loggers in any given area (although a second illegal cut occurs in many instances). A plantation, in contrast, clear-cuts and burns large areas. The firm responsible for the plantation occupies the land. Local communities completely lose access to forest resources and total resource losses are much greater. Second, due to the “marriage of convenience” between the plantation and transmigration programs, resettlement schemes provide a labor pool for plantation projects. Local communities not only lose resources and land access, but must also compete with new immigrants for jobs. The following cases illustrate the dynamics of local conflict over forest resources.

Pulau Panggung, Lampung

In the Pulau Panggung area of Lampung Province (Sumatra), the state informed a number of local communities in early 1988 that their crops (mostly coffee) and homes were illegally sited on state land slated for reforestation. Community residents could join a resettlement program in another province or buy private land outside of the designated forest area. Some residents willingly signed up for the resettlement program. Yet the registration process stalled due to onerous registration procedures and allegations of local officials trying to extort various “fees.” According to investigations of the Indonesian Legal Aid Institute, between November 1988 and June 1989 local officials took matters in their own hands. Officials ransacked or burned over 500 homes, destroyed hundreds of coffee trees, demolished coffee-hulling and other machinery, and confiscated tons of dried coffee beans. The local military commander temporarily put a stop to the destruction, but the attacks began several months later, and local residents were eventually forced to move.¹⁹⁹

Yamdena Island, Maluku

Yamdena is a small but ecologically valuable island of 535,000 hectares, situated in eastern Indonesia’s Tanimbar Islands. In 1971, the government decreed the whole island a protected forest and research area, and expressly prohibited commercial forestry. But in April 1991, the state granted a concession to log 164,000 of the island’s 172,000 hectares of forest to P.T. Alam Nusa Segar (ANS). Logging began in January 1992, which raised a storm of protest from the island’s people. Islanders claimed that the ANS had not consulted the community and the state gave no prior notice that a concession was to be issued. Islanders brought their protests to the national Parliament in July, but logging continued.

In September 1992, some 400 islanders attacked ANS’s barracks and camps. One person was killed, and several people were injured. Thirty-nine people were arrested, and by some accounts were beaten. The bishop of the mainly Christian province sent strong letters of protest to the government, asserting that government troops “acted with iron hands and extra-judicially against the people they are supposed to protect.”

The Ministry of Forestry eventually recognized the volatility of the situation. In late 1992, the ministry froze all timber operations on the island for six months, pending the outcome of an environmental review. In early 1993, the minister announced a series of public consultations to determine the wishes of the community before deciding if logging would continue. In August 1993, a parliamentary commission returned from a fact-finding visit and recommended that the logging freeze be lifted as it was “hurting the local economy.” Meanwhile, representatives of the Tanimbar Intellectuals’ Association (ICTI), a local NGO, continued to argue that further logging would spell environmental disaster. The minister nevertheless decided to lift the freeze, albeit with a likely reduction in the concession’s cutting area to be announced after “further studies.” In addition, the minister announced that state-owned corporations and cooperatives would be given partial ownership of the ANS concession to ensure local participation and benefits. ICTI remains opposed to logging as they believe its resumption will damage the island’s fragile environment and fracture its social peace.²⁰⁰ As of 1996, the situation was still unresolved, although logging operations were suspended.

Bentian, East Kalimantan

The Bentian Dayak people of the Middle Mahakam region in East Kalimantan Province earn their livelihoods from a combination of swidden agriculture and the sale of cultivated rattan. In 1981, the Georgia Pacific Corporation built a logging camp on traditional Bentian lands to service its neighboring logging concession. Conflicts immediately arose. The company, with government support, resettled villagers, destroyed ancient grave sites, and ruined rattan and fruit gardens in the process. Local streams were dammed along the 100 kilometers length of the company’s logging road. These dams cut flows to the main local river (which made transportation difficult) and created swampy areas in which malarial mosquitoes thrived. Georgia Pacific pulled out of the region in the mid-1980s, and subsidiaries and subcontractors of the conglomerate controlled by Soeharto-crony Bob Hasan took over the concession. Concessions in the area have produced ongoing conflicts since that time, and Bentian petitions to the government for return of their adat lands have not been successful.

A 1990 law required concessions to provide development services for at least one village in their area, or lose their license. Hasan’s concession chose the village of Jilmu Sibak to fulfill this obligation, and initiated pro forma development activities. However, these activities increased soil erosion and further angered villagers. Meanwhile, Hasan’s company also planned the development of an industrial timber plantation and the accompanying transmigration of some 200 families. The company apparently feared that its logging concession might be revoked if it did establish the required plantation. In July 1993, the company sent bulldozers accompanied by armed military personnel into Jilmu Sibak. These bulldozers ruined some 150 hectares of rattan and fruit gardens and destroyed more Bentian grave sites. Renewed protests to the government only resulted in increased levels of intimidation, official statements in the press that “no problems” existed, and a visit by government investigators who met only with company officials and local military and police officers. The next month, accelerated land clearing in a neighboring village took place. Two other companies operating in neighboring areas undertook similar land clearing for their planned timber plantations at the end of 1993. This land clearing destroyed numerous rattan and fruit gardens and was backed by threats, intimidation, bribes, armed guards, and the local police.

With assistance from Jakarta-based NGOs, community representatives took their case to the ministers of Transmigration and Environment. The ministers expressed shock and promised official assistance, including a visit to the site by the National Commission on Human Rights. Instead, another government “investigative team” arrived in Jilmu Sibak. This team convened a meeting to announce that 200 transmigrants would soon be settled on Bentian lands and that 100 Bentian households would become “local transmigrants,” — give up their land and move onto small plots in the bulldozed areas. The Bentian had no opportunity to present their grievances, or speak at all. At the conclusion of the meeting, local police took several Bentian leaders to the company basecamp. They were interrogated for twelve hours, and pressured to sign papers turning over Bentian land for the project and a letter revoking the power of attorney granted to the Legal Aid Institute. They were also ordered to produce 100 local families for the transmigration site. (Under duress, one of the leaders signed the letters, but refused to place the stamp of his organization on them, making them invalid in the community’s eyes.)

Numerous investigative teams have since visited the area, one leader was brought to Jakarta to meet with Bob Hasan, and representatives of both the Legal Aid Foundation and the National Human Rights Commission have pressed the communities’ demands on the governor. Land clearing continues: fifty families have been drafted for local transmigration, and the arrival of ninety families from Java is imminent. Petitions to the government and peaceful protests have essentially gotten the community nowhere.²⁰¹

Sugapa, North Sumatra

The Inti Indorayon Utama corporation (IIU), a pulp and paper company, is one of thirty companies owned by the Raja Garuda Mas conglomerate. This company began operations in 1989 in the region around Lake Toba (North Sumatra), which is the largest lake in Southeast Asia and home to the Batak people. IIU registered profits of $53.6 million in 1989, and Raja Garuda Mas plans to expand the Lake Toba operation and to build new plants and plantations in other parts of Sumatra, in order to become one of the country’s largest paper-and-pulp producers.

IIU gets its raw materials from aging pine plantation stands that date from the Dutch colonial period, and from its 150,000-hectare logging concession. The company has clear-cut and replanted eucalyptus in parts of these concessions without appropriate permits. The firm also cuts forests in the region’s crucial water-catchment areas, even though these are formally zoned as Protection Forest. As IIU’s raw material needs expand, it seeks new areas to either log or plant with eucalyptus.

IIU has quarreled with local communities from the start of its operations. A landslide that killed thirteen people and forced a whole village to relocate, and air and water pollution caused by its operations have triggered these disputes. Indeed, a massive spill from IIU’s waste pond produced the first environmental lawsuit in Indonesian history — nongovernmental groups, which eventually lost the case, charged the company with failure to comply with environmental impact regulations.

IIU’s restrictions on local access to forestlands and resources have also caused conflict. Woodcarvers on Lake Toba’s Samosir Island, for example, are forbidden to collect wood from community forests, and villagers in one area strongly protested IIU’s planting of eucalyptus on their ancestral graveyard.

A particularly divisive conflict erupted in 1987 in Sugapa village. IIU obtained a three-year lease on 52 hectares of land that served as a village commons — utilized for grazing, fuelwood, and gathering berries sold in the local market. Because the land transfer violated local customary tenure, the villagers did not recognize the transfer. For the loss of this land — and thus of their ability to raise water buffalo — the village was paid only $6.35 per hectare, less a $5 charge every time a buffalo wandered back into its pasture. Eventually, the villagers were forced to sell their herds — a great loss considering that families kept five to ten buffaloes and sold one a year for $400 to $600.

After the villagers protested to the company, several village men were harassed and beaten. In April 1989, when two plantation workers were accused of attempting to rape a village girl, villagers retaliated by uprooting 16,600 eucalyptus seedlings. Police arrested only the ten women involved (and not the alleged rapists). Although the company refused to recognize customary law when they acquired the land, the company later used these laws to support criminal charges for property destruction brought against the ten women: Since local adat places land ownership in the hands of men, the women could not claim to be defending their property. They were sentenced to six months in jail for destroying property and “obstructing national development.”

The women appealed, and the court offered to excuse them from jail if they promised to commit no further “criminal acts.” Maintaining that they had not committed a crime, the women rejected the court’s decision and appealed to the National Supreme Court. Several other villagers filed a civil suit against IIU and the local government for abuse of customary tenurial rules and procedures. IIU has offered to settle the case by paying rent for the land. However, the many villagers who do not want a plantation under any conditions are continuously harassed by local officials. Meanwhile, the case has divided the village into three hostile factions — those for, against, and undecided on the rental offer.

In at least eight other villages, IIU has taken advantage of weak documentation of ancestral community land rights. The government, IIU, and the courts have jointly intimidated and even prohibited local NGOs from assisting these communities. Without explanation, the government closed one local NGO that advised the Sugapa villagers for six months. The NGO was allowed to reopen only on the condition that it stop dispensing legal aid.²⁰²

Benakat, South Sumatra

Prayogo Pangestu’s Barito Pacific conglomerate holds some 5.5 million hectares of timber concessions — an area the size of Switzerland — which makes it the largest timber company in Indonesia. Its concessions and associated wood-production facilities are estimated to be worth some $5 to $6 billion. When Prayogo placed the company on the Jakarta stock exchange in 1993, it became the exchange’s largest single component with 12 percent. In 1991, Prayogo embarked on a joint venture with President Soeharto’s eldest daughter and two Japanese firms to develop a $1 billion pulp and paper complex in South Sumatra. With the personal intervention of the president (documented in a letter leaked to the Far Eastern Economic Review), Barito Pacific rapidly obtained the permits needed for not only the mill complex, but also for an adjacent 300,000 hectare timber estate and transmigrants to serve as plantation labor.²⁰³

The area granted for the plantation included 3,000 hectares of forest under the traditional ownership rights of the Benakat clan group. More than 5,000 members of this clan live in seven villages in the Muara Enim area of South Sumatra. Although their ownership is based on adat rights, the community has had a written grant of ownership from the Dutch colonial government since 1932. The biologically diverse forest has long provided a wide variety of goods and services to the community, including timber, nontimber forest products, watershed protection, and sites of ancestral and spiritual significance.

In 1992, the local Sub-District leader gave a group of farmers (not part of the Benakat clan group) permission to clear 300 hectares of the forest. P.T. Musi Enim Lestari (MEL), the Barito Pacific subsidiary formed to manage the plantation, told the farmers they would be paid to plant acacia trees. In return, farmers would be able to intercrop annual species while the trees were young.²⁰⁴

The people of Benakat protested with letters to various officials and direct appeals to the farmers clearing the land. Seven hundred families signed one letter. The state responded with a variety of repressive actions, ranging from continual visits from armed police and military personnel to the beating of one village headman by agents of the local government. Meanwhile, the forest continues to be cut. As a result, the people are deprived of access to land and forest resources, while logging within the watershed has caused the reduction of water supplies, alternating with severe flooding.²⁰⁵

In 1994, the communities approached the provincial office of the Indonesian Legal Aid Institute (LBH), which became the focal point for the “Benakat Solidarity Committee.”²⁰⁶ LBH reports that the Benakat case is one of a series of similar conflicts arising from Barito Pacific’s efforts to occupy, clear-cut, and burn thousands of hectares of crop- and forestlands previously held by local communities. According to LBH, Barito Pacific’s activities violate the 1990 regulations governing industrial timber plantation projects. Those regulations state that plantations should only be sited on critically degraded lands and forest areas with productive capacity below 20 cubic meters of timber per hectare per year. Most of Barito’s sites “are in productive forests or productive croplands held by local communities . . . the proof of this is evident to see, since there are log ponds at almost every location.” LBH also argues that Barito’s companies failed to conduct the obligatory surveys or set boundaries, and did not complete the required Environmental Impact Assessment, despite the fact that the project is well underway.²⁰⁷ As of July 1996, LBH was still documenting environmental damage, legal deficiencies, and underpayment of agreed compensation to villagers, yet the project was moving ahead unimpeded.²⁰⁸

State Responses to Local Forest Conflicts

Although these local conflicts are pervasive, they do not particularly disturb the government. Local conflicts are largely treated as local matters. When a particularly egregious case (or an especially brave and organized community) receives attention from the press, national NGOs, or sympathetic members of Parliament, a parliamentary or executive agency “team” is dispatched to the location. However, these teams usually report that the whole matter has been blown out of proportion. At the local level, a cohesive alliance of timber firms, local governments, and the local police and military apparatus controls the communities in question through a combination of repression and cooption offers of land compensation, jobs, or outright bribes.

It is unclear, however, if this band-aid strategy will continue to be effective as the industrial timber plantation program picks up speed. Firms already find it difficult to locate uncontested lands to clear, burn, and plant. Given the scale of plantation development that is envisioned for the next decade and beyond, the majority of the local population in some districts may find itself suddenly without access to land and resources. Firms must grow trees, not just clear and burn the land and get seedlings in the ground (although for this they get a healthy government subsidy, in addition to use of the land and the right to sell the timber they clear-cut). Over the past century, experience in the teak plantations of Java shows that even where overt resistance is rare, aggrieved peasants frequently resist by burning and cutting plantation trees.²⁰⁹ In short, while conflict over timber projects may not erode the state’s capacity to establish plantations, it could very likely reduce the state’s opportunity to realize an economic harvest from those plantations.

Conflicts Over Control and Use of Forest Resource Rents

More immediately threatening to the New Order leadership are several brewing conflicts over the control and uses of the rents derived from commercial exploitation of forest resources. Disputes have erupted over the allocation of the $1.3 billion “Reforestation Fund” derived from levies on logging. The efficiency and fairness of Apkindo has also provoked controversy. Apkindo is a powerful plywood producers association and marketing board controlled by Soeharto-crony Bob Hasan, that dominates virtually every aspect of the pricing and marketing of Indonesia’s $4.2 billion (1993) annual plywood exports. In a regime where the policy-making elite, its business partners, and the higher reaches of the bureaucracy are the only meaningful political players (while the masses “float”), these elite disputes raise more political concern than the wholesale evisceration of the livelihoods of thousands of rural communities.

The Reforestation Fund Dispute

In 1980, a Presidential Decree established a Reforestation Guarantee Deposit Fund (DR). All concessionaires were required to contribute a $4/m³ levy on the timber they cut to the fund, which was reimbursable with evidence of reforestation and plantation forestry activities. The levy was treated essentially as a tax, and the system spurred little investment in reforestation. In 1989, the levy was raised to $7, and was made nonrefundable. In 1990 it rose to $10, and then to $15 in late 1992. The levy was increased again in 1993 to a slightly higher average rate under a system in which different regions and species are taxed at different rates. By the end of November 1993, the DR fund held $1.3 billion. Interest from this fund has financed around 40 percent of Ministry of Forestry operations over the past five years, and contributed most of the funds flowing to administration (45 percent) and subsidies for the timber plantation establishment (33 percent). By contrast, only 2.2 percent of the fund has actually been invested to protect natural forests.²¹⁰

In June 1994, President Soeharto issued a decree that mandated the transfer of $190 million from the DR Fund to the account of the IPTN, the state aircraft company. This company is the crown jewel of the economic nationalists and is headed by their strongest current leader and Soeharto favorite, B.J. Habibie (who is also Minister of Research and Technology).²¹¹

On 25 August, six Indonesian environmental NGOs represented by the Indonesian Legal Aid Institute filed a lawsuit in the National Administrative Court. The NGOs accused Soeharto of illegally diverting the DR Funds to IPTN, and asked the court to cancel the Presidential Decree as it conflicted with the laws and regulations of the DR Fund. This lawsuit was the first ever filed against Soeharto directly, and his reaction incited considerable interest (not least on page one of the Asian Wall Street Journal). His attorneys replied to the lawsuit in late October asking the court to dismiss the case on several grounds, all procedural. First, they argued that the plaintiffs had not shown damage to their financial or other interests, and therefore had no standing on which to sue. Second, they argued that the decree was not “final” as the implementing provision for the actual transfer of funds to IPTN had not been completed. In their final and most interesting argument, they disputed the jurisdiction of the Administrative Court, arguing that a presidential decree holds the same legal rank as a law passed by the Parliament, and the president is not answerable to the courts for his decisions. Predictably, the NGOs lost the case — on several of these procedural grounds. No one seriously expected the Administrative Court to abrogate a presidential decree, and Soeharto took his revenge by “blacklisting” all of the NGOs who joined in the case, as noted in Section III.

Meanwhile, in February 1995 Soeharto transferred an additional $270 million of DR Funds to serve as reserve backup for the 1995/1996 national budget, in case the price of oil should fall below the levels predicted in the budget.

The DR dispute raises a number of interesting issues. NGOs challenged the president openly with some degree of impunity — they are blacklisted, but have not been forced to shut down or arrested. This inaction shows divisions within the elite, where Soeharto’s unilateral decision-making and resource allocation has prompted some dissatisfaction. And the clout of the economic nationalists is on the rise, as shown by the apparent ease with which Habibie obtained the money (the Asian Wall Street Journal reported that by his own account, Habibie went to the president to inform him that IPTN was short of cash, and Soeharto immediately decided to lend the DR funds). The nationalists’ influence will be tested by Soeharto’s reaction to IPTN’s announcement in March 1995 that it required an additional $600 million in government support to begin the development of a jet aircraft. In the longer term, the extent to which the DR fund is utilized for nonforest uses will diminish the resources available to subsidize the ambitious timber plantation program. As subsidies shrink, plantation firms will have to cut corners to make a profit — more than likely by maximizing the amount of natural forest they can clear-cut, and minimizing the compensation and services they provide to impacted local communities. These factors will likely further increase the number and intensity of local conflicts.

The Apkindo Dispute

In the early 1980s, the state mandated Indonesia’s transformation from a log producer to an exporter of plywood and other finished goods. This transformation caused a great deal of chaos at the outset. Concession-holders raced to construct new mills, but were inexperienced at international marketing and incompetent managers. Prices fell as many enterprises, desperate to pay back the $2 billion aggregate investment in mills, dumped plywood at low prices. Into this situation stepped Mohamed “Bob” Hasan, a major logging concession-holder and Soeharto’s close friend since the 1950s. At the government’s request, Hasan established and ran Apkindo to increase plywood prices and expand overseas markets. Although nominally a private business association, Apkindo was granted the sole authority to license all plywood exports, determine each producer’s quota, and levy a variety of charges on producers. As noted previously, Apkindo was very successful. Indonesian plywood prices rose from around $200 per cubic meter to more than $350, peaking in 1993 at $560, and Indonesia now essentially controls the market in tropical plywood.

Hasan is the undisputed and autocratic ruler of Apkindo. According to industry expert Rizal Ramli, “The line between Bob Hasan and Apkindo is pretty hard to distinguish.” Director of an Apkindo member company adds: “Bob does rule Apkindo like a king ruling an empire. He makes the rules and nobody may question them because he’s so powerful.” Hasan has also become very wealthy through his plywood businesses, numerous joint ventures with Soeharto’s children, and with businesses controlled by the military. He recently set up a number of overseas firms which act as the sole importers for Apkindo products in its major markets — Japan, Korea, Taiwan, and Europe. Apkindo timber is carried in ships from ship-lines that he controls and is insured by another of his subsidiaries. In the words of one foreign economist with long experience, “Where Apkindo is concerned, timber executives say his word is law.” A timber executive seconded this, saying “in the world there’s no industrial organization as strong as Apkindo.” Hasan himself put it more bluntly to the press after finishing a 1994 round of golf with the president and visiting film star Sylvester Stallone: “I told Rambo, I’m the king of the jungle.”²¹²

Hasan, the most powerful unofficial forest policymaker, appeared to have a seemingly unassailable basis of power in the New Order regime. Therefore, it surprised most everyone to see Hasan and Apkindo come under concerted attack in the early months of 1995. Calls came from the Minister of Trade, parliamentarians, East Asian governments, NGOs, and even Apkindo members for the cartel to be dismantled or at least restructured.

The reasons for the shift in attitude toward Apkindo are straightforward. Indonesia’s external debts amounted to $87.6 billion in December 1994, while its debt service ratio was above 30 percent. To attain the government’s target of reducing that to 20 percent by 1998, the country needs to both boost exports and expedite debt repayment. Oil and gas export earnings, fell from 56 percent to 23.7 percent of total earnings from 1986 to 1994, and cannot contribute much to the export push, mainly because of OPEC quotas. The government has successfully increased nonoil and gas exports. In 1994, however, there was a precipitous decline in export earnings in the textile and wood-based products (mainly plywood) sectors, two of the major nonoil foreign exchange earners. Plywood was hardest hit as declining sales volumes combined with lower prices.

Some observers estimated that plywood exports could drop by as much as $1 billion in 1995. Many blamed the Apkindo monopoly for this decrease. In response to Hasan’s creation of sole marketing agents, customers boycotted Indonesian plywood, while Japanese and Indonesian customers cut back their orders. Many Apkindo members say the system prevents them from meeting customers, cuts quality, stifles innovation, and adds to their costs. Members also suspect Hasan of skimming profits through the agent firms at their expense. Malaysia and other exporters have seized the opportunity to increase their share of the market in China, Japan, and South Korea. These three markets together account for 50 percent of Indonesia’s exports. Meanwhile, the chairman of the East Kalimantan chapter of the Indonesian Forestry Society complained that “Hundreds of thousands of cubic meters of plywood are piled up in warehouses because companies cannot export them or sell them domestically. If the difficulties go on until the end of this year, 90 percent of the twenty-three plants operating in the province will probably stop operation.”²¹³

Environmentalists and economists contend that the close connection between logging concessions and plywood mills means that domestic log prices are far below world market prices. Low prices undervalue the resource and encourage waste. According to some economists, the effective loss from log undervaluation is in the range of $2.5 billion per year, and this excessive loss results in substantially higher logging rates. “Basically, we see Apkindo as being a real problem for the whole forestry industry,” concluded one economist. “The whole structure has outlived its usefulness. We need to get away from these structured monopolies . . . because this resource (timber) is worth three or four times that of (Indonesia’s) natural gas and oil.”²¹⁴

Hasan and his defenders dismiss the critiques of the Apkindo system and blame the current difficulties on an economic downturn in some of Indonesia’s principal markets. Indeed, the controversy cooled off as plywood prices and export volumes recovered in 1996. But if the critics are correct and Apkindo’s structure is the root of the problem, the controversy will remain. However the dispute is resolved, it reveals growing cracks in both the timber industry and the policy-making elite. The New Order must deliver continual and tangible economic growth to the masses to maintain its legitimacy. The regime must also sustain macroeconomic stability to satisfy its elite constituents, and provide economic opportunities for the growing entrepreneurial class represented in this case by Apkindo’s restive membership.

The high profile of Bob Hasan — the most visible Soeharto crony — at Apkindo, ensures the debate over its future role is more than an argument on how to best profit from the plywood trade. Rather, in the oblique fashion of Indonesian political discourse, this debate is on Indonesia’s interlocking structures of political, personal, and economic power at the center of one of the nation’s most important industries. The Apkindo controversy and the dispute over the Reforestation Fund, demonstrate that the appropriation and elite use of forest resource rents without public debate or challenge cannot be sustained. The forest industry has become too important in the national economy. In addition, the number of people with enough interests and clout to dissent has grown appreciably, in large part due to the rapid process of economic development presided over by the regime.