by William D. Sunderlin

Indonesia has been experiencing economic shocks, policy reform, and political transformation on a scale that would have been simply unimaginable as recently as early 1997. These changes will undoubtedly have a profound influence on the forest sector and on land use in general.

This paper documents some of the changes and speculates about possible consequences for forest conservation and management, drawing largely on media reports and on general knowledge about the effects of macroeconomic change in developing countries. The observations are preliminary, superficial, and tentative, because as yet there are few data and research results available on the effects of the changes underway.

This is the fourth iteration of this paper, and the first since President Suharto stepped down from power in late May 1998. The paper will be revised and updated approximately every four months.

The paper is composed of three sections. The first section describes the background of the economic crisis and policy and national leadership changes. The second section discusses nine different modes of effects of these changes on the forest sector. These include: direct effects on the forest sector; indirect effects through the agricultural sector, transmigration, poverty and spontaneous migration, mining, and road construction; the joint effects of the drought, fires, and the crisis; policy changes; and the implications of national leadership change and the dawning of the "reform era." The concluding section summarizes the implications of these nine effects on the conservation and management of Indonesia’s forests.


For three decades Indonesia has had one of the most rapidly growing economies in the world with an average 5-6% annual increase of per capita GNP. Through the effects of the monetary crisis now affecting the country, Indonesia’s economy will probably contract by 10-15% in 1998. Among all Asian countries, Indonesia has been the hardest hit by the crisis. Its national currency (the rupiah) has declined in value more than 70% from Rp. 2,450 to the dollar in July 1997, to Rp. 11,000 to the dollar in mid-September 1998. The prices of essential commodities have skyrocketed and the numbers of people below the poverty line are increasing dramatically. Fahmi Idris, Minister of Manpower, said that unemployment would reach 15.4 million by the end of 1998, representing 17.1% of the country’s 90 million person workforce. Much of this new unemployment is occurring in sectors of the economy (notably construction, manufacturing, and industry) that are highly indebted because they are tied to the dollar economy through loans or through dependence on imports.

Expansion of agriculture is seen as one of the main ways to overcome the crisis. There are five features of agriculture that make it an attractive option. First, it has been relatively independent of the dollar economy and has therefore in certain ways not been as badly affected as other sectors. Second, provision of adequate basic needs commodities (which include agricultural products) is a strategic priority of the government in order to preserve the conditions of stable rule and legitimacy. Third, the agricultural sector functions as a "social safety valve" by absorbing unemployed people forced out of the manufacturing and industrial sectors, as well as new entrants to the labor force unable to find work in urban areas. Fourth, agricultural expansion can help reduce costly imports of rice (made all the more necessary because of drought-related crop failures), wheat, and soy. Fifth, and most important, agricultural export income is lucrative because the drastic currency depreciation makes Indonesian commodities cheap on the international market, and because earnings are in US dollars while costs are in local currency. This last point applies in varying degrees to the timber, mining, and fisheries sectors as well. It is important to note that not just agriculture is being promoted as a way out of the crisis, but also more generally those industries that make use of Indonesia’s natural resources.

Another major means of confronting the economic crisis has been access to loans through the International Monetary Fund (IMF). In exchange for a $43 billion rescue package through the IMF, the Indonesian government has agreed to various policy reforms. Ten of these reforms have implications for the forest sector and are discussed later on in this paper.

The severity of the economic crisis forced President Suharto to step down from power on May 21, 1998 after 32 years as head of state. Suharto’s successor, B.J. Habibie, has promised to support the IMF policies and to implement reforms that would, among other aims, eliminate the rampant practice of corruption, cronyism, and nepotism that characterized Suharto’s New Order regime. If these reforms are implemented, they will have far-reaching consequences for the way Indonesia’s forest sector is managed.


It is still too early to state with precision what the effects of the crisis and policy and political changes will be on the forest sector. Nonetheless it is possible to surmise likely effects based on news reports, preliminary research reports, and on knowledge of the ways economic crises affect natural resource sectors in developing countries. The strongest effects appear to be happening as a direct consequence of the depreciation of the currency and the more competitive position of Indonesian commodities on the international market. Policy changes have had relatively little effect to-date, in part because they are at the early stages of implementation. In this section we describe likely effects in terms of: (1) commercial logging and the forest sector in general; (2) agricultural expansion; (3) transmigration; (4) poverty and spontaneous migration; (5) the expansion of mining; (6) a possible slowdown in road-building; (7) the multiplier effects of the crisis, drought, and forest fires; (8) IMF-imposed policy changes; and (9) the beginning of "reform era" forest management under Habibie’s Minister of Forestry and Estate Crops, Muslimin Nasution.

1. Increasing pressures within the forest sector

In January through March 1998, it appeared that the pressures on forests from within the commercial timber sector would decrease for an indefinite period. Demand for Indonesian plywood from Japan, South Korea, and Taiwan (accounting for a large share of Indonesian plywood exports) had collapsed, the international price of plywood had dropped from $500 per m3 in 1997 to $ 300 per m3 in April 1998, many plywood mill employees had been laid off, and plywood mills were on the verge of bankruptcy. It was anticipated that the volume of exports would drop from 8.5 million m3 in 1997 to 6 million m3 in 1998. Almost six million cubic meters of logs had been stockpiled and risked rotting in the forest.

A sudden turnaround in April 1998 suggests the possibility of increasing pressures on forests from the commercial timber sector. Demand from China for Indonesian plywood has surged following implementation of a new Chinese policy requiring that logging be reduced by 60%. With the cost of Chinese plywood rising rapidly, Chinese mill owners have found it cheaper to import Indonesian plywood. In April, Indonesian mill workers were hired back and producers were optimistic that the volume of exports for 1998 will equal that of 1997. Increased demand for Indonesian plywood results not just from the new demand from China, but also from significantly increased demand from other Asian countries, and from the fact that Malaysia has recently decided to restrict its exports. Demand from the Middle East, European countries, and the United States are currently strong as well. In spite of the upward trend in demand, current estimates of the Association of Indonesian Wood Panel Producers (APKINDO) show that the 1998 volume and value of plywood exports will be somewhat less than the 1997 levels. Nonetheless, it is predicted that the 1998 export target of US$8.3 billion of forestry products will be met, in part because of a large contribution (US$3.5 billion) from the pulp and paper industry.

The revived demand for Indonesian plywood is good news for the economy, but it is raises concerns about forest protection, for several reasons. Prior to the economic crisis and forest fires the plywood sector was facing grave supply difficulties because of overharvesting and inadequate silvicultural practices. The fires have reportedly ruined large amounts of timber and a supply shortfall of 14.5 million m3 (about 30% of consumption) to wood processing industries is predicted for the next five years. The combined effect of the low price for Indonesian plywood and potentially high demand, and restricted supply resulting from the fires means that producers will search for stems in ever more remote and inappropriate places. The potential for increased damage in production forests and unauthorized logging in recently-logged production forests and some protection forests appears to be high.

The potential for increased unauthorized logging was made clear with Titus Sarijanto, (now former) Director General for Forest Utilization warning on April 29, 1998 that timber companies must not fell more than their annual quota. Soemarsono, Director General of Forest Conservation and Protection in the Ministry of Forests and Estate Crops, acknowledged in early August that looting of forest resources has been getting worse in connection with the continuing economic crisis. In parts of Central Java, people have been felling teak trees, in some cases greatly outnumbering the police and soldiers trying to prevent the unauthorized logging.

The increased cost of commercial hydrocarbon cooking fuels is also putting pressure on forest resources. There is preliminary evidence that some people are now using wood fuel because of the high cost of kerosene.

2. Agricultural expansion at expense of forest cover

As noted above, there are strong incentives for increasing reliance on the agricultural sector as one means of facing the economic crisis. Some of this agricultural expansion will take place at the expense of forest cover, either through the spontaneous decisions of farmers, or through large-scale forest clearing for plantations. Over the years and until the present, the Ministry of Forestry and Estate Crops has issued "agreements in principle" and "decisions to release control" to 454 businesses to clear four million of the 26.6 million ha of forest lands categorized as being available for conversion to agricultural uses. The most important commodity with respect to planned, large-scale forest clearing is oil palm. Cocoa, coffee, shrimp, rubber, and pepper production may also have an effect on forest cover through spontaneous forest clearing.

The area of oil palm plantations was 2.4 million ha at the beginning of 1998 and plans have been underway to establish 1.5 million additional ha by the end of the year. There are 50 foreign investment projects (80% of which are in collaboration with Malaysian companies) with a plan to establish 900,000 ha of oil palm through US$3 billion in investment. As of mid-year only 600,000 ha had been established; the main obstacle is the time it takes to get land allocations processed through the Ministry of Forestry and Estate Crops. Most new oil palm lands will be in eastern Indonesia where land is said to be more abundant.

Indonesia’s palm oil production is expected to increase from 5.3 million tons in 1997 to 5.9 million tons in 1998. Although the momentum toward expansion of oil palm lands predates the crisis, it has been greatly stimulated by the crisis. Among the reasons for strong interest are that a high international price ($680 per ton) and low production costs in Indonesia mean an extraordinary profit margin. On April 23, 1998, PT Astro Agro Lestari announced it expects a 200% increase in its net profits in 1998 as compared to 1997 because of increased palm oil production and high international market prices. Exports of Indonesian edible oils surged 59% (including a 75% increase in the export of crude palm oil) in 1997 to $2.23 billion. In February 1998 the plantation sector was the "primadonna" of the stock market in Indonesia with shares posting gains of 29.5%. Derom Bangun, Chairman of Indonesian Oil Palm Association stated on August 21 that future oil palm expansion would be restricted because the export tax was raised from 40% to 60%. It is unclear as yet if this claim is based in fact or whether it is a stratagem to reduce the tax rate.

The rapid pace of the oil palm development has implied increased threats to natural forest cover and to forest-dependent peoples, for five reasons. First, some government officials perceive tree crop and timber plantation developers as being those most responsible for the devastating forest fires of 1997-1998. Second, although oil palm plantations established on forest lands may only be established on lands designated for conversion to agriculture, temptations have been strong to burn depleted "permanent" production forests in order to force reclassification to conversion forests. Third, although tree crop plantations established on forest lands may only be established on lands designated for conversion, some have actually been allocated within protection forest areas. Twenty-one such cases were reported in June 1998 in East Kalimantan. Fourth, some oil palm and rubber "developers" are interested only in the timber profits obtained through clearing land for the alleged purpose of establishing oil palm plantations. In West Kalimantan, the head of the Plantation Service is threatening to revoke the licenses of 21 businesses that have engaged in such activities and has warned 29 others. Fifth, although oil palm development is intended to raise the standard of living of people living in forest communities, this is not always the case and there are disturbing reports of people suffering from oil palm development.

For example, it is reported that 347 families who have lived for nine generations in the Tigapuluh Hill National Park (Riau province, Sumatra) have been forced off their land to make way for an oil palm plantation. In East Kalimantan, the potential for increased rattan production is limited by the fact that much rattan-producing land has been converted to industrial timber estates and oil palm plantations.

A six-fold increase in the producer price of cocoa between mid-1997 and January 1998 has greatly stimulated production. It is estimated the area of cocoa lands in South Sulawesi (where most Indonesian cocoa is currently grown) will increase from 160,000 in 1997 to 220,000 ha in 2000. Annual production may grow from approximately 305,000 tons in 1997 to 500,000 tons in 2005. Production in 1998 will be restricted to 310,000 tons because of the El NiŅo phenomenon.

Interest in coffee production has been greatly stimulated, notably in Aceh (North Sumatra), the center of Indonesia’s arabica coffee production. By mid-1998 coffee had become the commodity with the brightest trading prospects, enabling it to surpass Vietnam as Asia’s leading producer. In Lampung, Sumatra, the booming price of coffee has hampered government efforts to reclaim and reforest conservation forest areas. For years, an estimated 26,000 families have been living in conservation forests, some of them cultivating coffee. The government had made some headway in relocating families to other sites, but when the price of coffee rose, many families returned because it was more profitable to keep producing coffee than to grow crops in the relocation areas.

In addition to cocoa and coffee, pepper, rubber and shrimp are additional export commodities that have created a small class of "new rich" among producers in South Sulawesi, Lampung (Sumatra), Bangka Island, North Sumatra, South Kalimantan, and other areas of Indonesia. It is reported that in South Kalimantan, hundreds of hectares of mangroves have been cleared by people aiming to establish shrimp ponds and hoping to take advantage of the phenomenal increase in the export price of shrimp.

3. Transmigration in the service of agricultural expansion

Economic crises in developing countries typically lead to a decline in government spending on directed settlement programs and this, in turn, tends to alleviate pressure on forest cover. Indonesia’s spending on directed settlement in 1998-1999 will probably not decline, however, because the shortfall will be compensated by foreign aid. The Department of Transmigration has a shortfall of seven percent in this year’s budget compared to last year’s, but this will be partly offset by support from the IMF and other sources of foreign aid.

The principal function of transmigration will be to support agricultural development and agro-industries. Over the years and through mid-1998, approximately 500,000 ha of conversion forest have been allocated through "agreements in principle" for the establishment of 355 sites, and approximately one million ha of conversion forest have been allocated through "decisions to release control" for the establishment of 279 sites. In 1998-1999, 86,000 families will be transmigrated to the outer islands (mostly to eastern Indonesia). 13,500 families have been transmigrated to the controversial one million ha peat land site in Central Kalimantan. The one million ha project may be stopped because it has proved to be unsuitable for agricultural production.

4. Poverty, spontaneous migration and food crop agriculture

There is preliminary research evidence that some unemployed people in the urban sector are migrating to rural areas in search of employment, and that entrants to the labor market who otherwise might have migrated to urban areas are remaining in the countryside. A survey by the Central Bureau of Statistics showed that agricultural employment had grown from 36.7 million in February 1997 to 42.3 million (15.2%) in February 1998; employment in five urban sectors (industrial processing, electricity, construction, transportation, and finances) have declined from 18.3 million to 16.4 million (10.4%) in the same period. This trend makes sense both because of the collapse of employment in the industrial, manufacturing, and service sectors, and also because of agriculture’s potential contribution toward alleviating the crisis (see above). Research by Jan C. Breman in five villages in Java shows that there has been a substantial flow of migration to the countryside in response to layoffs in the formal and construction sectors. (There is, however, contradictory evidence indicating some harvest labor shortages in West Java in spite of increased wages.) Though there is no evidence of net urban-rural migration, it is probable that the rate of urban population growth (5.36 percent on average in 1980-1990) has slowed. In February, Minister for Manpower Abdul Latief estimated that part-time employees in the agricultural sector would increase from 9.1 million in 1997, to 18.4 million in 1998.

Although an increasing rural population need not necessarily imply pressure on forests, it may well do so in the case of the Indonesian crisis for three reasons. First, as noted above, the incentives to expand agro-export lands are strong. Second, there are clear price incentives to produce food crops domestically that would otherwise be imported. On March 16, Minister of Agriculture Justika Sjarifudin Baharsjah said she would substantially boost the production of rice, corn, and soybeans to reduce costly imports. The new Minister of Agriculture Soleh Solahuddin has launched a crash program, in response to the crisis and to the drought of 1997, that would increase the area of rice by 500,000 ha, the area of corn by 117,000 ha, and the area of soy by 164,000 ha. Third, a shortage of capital for inputs may well encourage extensive agriculture. Although the government has been trying to maintain input subsidies to small farmers, there have been problems. The Ministry of Agriculture has admitted that much of the subsidized fertilizer intended for small farmers has been diverted to plantation companies.

5. Expansion of mining

Mining, like agriculture for export, is an attractive option in the midst of the crisis because most of the revenue will be in US dollars while most of the costs other than machinery are in rupiah. Mineral resources in Indonesia’s forest areas are substantial and include coal (204 million tons and 6.7 percent of national coal reserves), iron ore (370 million tons and 51 percent of national iron ore reserves), and nickel (375 million tons and 71 percent of national nickel reserves). On February 19, 50 contracts of work for mining were awarded for the exploitation of gold, nickel, diamonds, and coal. An additional 34 contracts were delayed because more time was needed to assess the applications. There are presently a total of 269 contracts of work for mining in force, including those approved recently and those approved in previous years. Kuntoro Mangkusubroto, Minister of Mines and Energy, said on March 16 the ministry’s top priority would be to improve the investment climate in order to boost the government’s dollar based earnings from the sector. Aburizal Bakrie, chairman of the Indonesian Chamber of Commerce said on April 21, 1998 that foreign investors are interested in the mining sector because of Indonesia’s "very large potential."

Of particular concern is the fact that some of the contracts of work and applications are in protection forest areas. For example PT Tambang Damai Mining has a 100,000 ha coal concession in the 198,000 ha Kutai National Park in East Kalimantan. There are six mining concessions in Kutai National Park and three in Bukit Soeharto Recreation Park. Nabire Bhakti Mining and Montague Mimika have been allowed to conduct explorations in the Lorenz National Park in Irian Jaya. The head of Irian Jaya’s Mines and Energy Office says five "huge" coal mining sites have been identified in the province.

6. Slowdown of road-building?

Major roads are planned or under construction in Kalimantan and Sumatra that might substantially increase pressure on remaining natural forests. For example in Kalimantan, a road has been planned that will run the length of the international border between Indonesia and Malaysian Borneo and that will go through or near forests in conservation areas. In addition, a Trans-Kalimantan highway has been planned between Balikpapan and Pontianak, and other roads are planned as well to link major urban areas. In addition to its direct impact on conservation areas, road and bridge construction contributes to tropical deforestation by enabling logging and the establishment of plantations in areas that were formerly inaccessible, and by facilitating spontaneous and directed settlement.

The economic crisis, however, is forcing major budget cuts in the public works programs. The original level of expenditure for ongoing projects in the Public Works Department was Rp. 6 trillion (US$545 million at the current exchange rate) for the budget year 1998/99 and that has been reduced to Rp. 3.4 trillion (US$309 million). Moreover, the Government and IMF have been reviewing the Public Works budget as one possible way of dealing with an anticipated deficit in the national budget. Not just new construction, but maintenance will be affected. A 200 km section of the Trans-Kalimantan highway between Palangkaraya (Central Kalimantan) and Banjarmasin (South Kalimantan) was closed in mid-August because of poor road condition and insufficient funds to conduct repairs; until at least early 1999, traditional ferries will serve as a substitute means of transport.

In spite of grave difficulties Indonesia faces to construct and maintain roads in the outer islands, it is not clear this will diminish pressure on natural forests – for two reasons. First, improvement in the quality of farm roads is one of the priority uses of Public Works funds, in keeping with the goal of prioritizing the development of agriculture. Farm roads are sometimes located in forested areas. Second, private funds may compensate for the lack of government, bilateral, and multilateral funds. PT Senong Corporindo has announced plans to build a US$500 million railroad network in East Kalimantan by 2003 that would be used to transport coal and forest products; the project would receive funding from foreign private investors and also from the World Bank and the Asian Development Bank.

7. Multiplier effect of drought, fire, and crisis

The effects of the economic crisis on the forest sector would be bad enough if they were happening in a normal year. The simultaneous occurrence of the crisis, the drought, and the fires has meant catastrophic effects for forest resources. It is important to note that the effects of these phenomena are not merely additive, but also mutually reinforcing in the ways described below:

  • The 1997-1998 drought resulting from the El NiŅo Southern Oscillation (ENSO) phenomenon created the preconditions that made devastating forest and land fires likely. Some people took advantage of dry conditions to clear land cheaply; the dry conditions made it more likely that fires would burn out of control.
  • The economic crisis made it attractive to use fire as a land-clearing tool to quickly meet growing agricultural demand.
  • Although there is no scientific consensus on this issue, the clearing of vast areas of forest may create the preconditions for reduced future rainfall by modifying weather patterns. (It is known that forest cover generates atmospheric moisture and precipitation.)
  • The economic crisis lowered the Indonesian government’s ability to mobilize a response to the fires, both because attention was diverted to "more pressing" issues, and also because of decreased availability of government funds.
  • The 1997-1998 forest fires may have increased the impact of the economic crisis in various ways. Some reports say the fires have led to direct costs and lost revenue on the order of hundreds of millions of US dollars. These estimates should be viewed cautiously because it is exceedingly difficult to assess with any degree of precision the direct costs and lost revenue resulting from the fires.
  • It is possible the forest fires, in combination with the La NiŅa (excessive rain) phenomenon, might lower national agricultural yields. A.M. Saefudin, State Minister of Food and Horticulture, says flooding of food crops might happen especially in areas where forest fires have damaged forests’ capacity to perform their watershed control functions.

8. Policy changes

The following is a listing of ten of the policy changes imposed through the IMF loan agreement that have a bearing on Indonesia’s forests. The first six are those that we believe have special significance in relation to goals for improved conservation and management.

  1. Remove restrictions on foreign investment in palm oil plantations. This was implemented in early 1998.
  2. Remove the ban on palm oil product exports and replace it with an export tax of 40%. Implemented on April 22, this policy was to have been reviewed regularly for a possible reduction of the tax rate to 10% by the end of December 1999. However, the export tax on palm oil products has been raised to 60% in an effort to guarantee adequate domestic supply.
  3. Reduce land conversion targets to environmentally sustainable levels and implement a system of performance bonds for forest concessions. This policy is to be implemented by December 31, 1998.
  4. Reduce export taxes on logs and rattan to a maximum of 30% ad valorem. Implemented on April 15, the aim is to reduce export taxes to 20% by the end of December 1998, 15% by the end of December 1999, and 10% by the end of December 2000.
  5. Create new resource rent taxes on timber resources. This regulation came into effect on May 5, 1998. It replaces the tax known as the forest products fee. The level of the tax has been set at 6% of timber sales.
  6. Increase timber stumpage fees charged to forest concessions, implement an auction system to allocate new concessions, and allow transferability of forestry concessions and delink their ownership from processing for new concessions. These policies (with one exception) were implemented on June 30, 1998. The introduction of an auction system has been delayed. (See below under "reform era forest management.")
  7. Eliminate the Indonesian Plywood Association (APKINDO)'s monopoly over plywood exports. Implemented March 30, 1998.
  8. Transfer control over all government-owned commercial forestry companies from the Ministry of Forestry to the Ministry of Finance. Implemented in early 1998.
  9. Incorporate the reforestation fund into the national budget, use money in the fund only for reforestation purposes, and charge reforestation fees in rupiah rather than dollars. Implemented in early 1998. (Previously, the fund was managed as an off-budget account by the Ministry of Forestry, and occasionally used for non-forest related purposes.)
  10. Increase the proportion of the market value of land and buildings assessable for tax purposes to 40% for plantations and forest property. Implemented March 31, 1998.

The combined effect of policies 1 and 2 concerning oil palm will be to greatly stimulate interest in, and capability for, the establishment of new oil palm plantations. As indicated earlier, this is one of the principal threats to forest cover resulting from the economic crisis. It is noteworthy that policies 1 and 3 are potentially in contradiction with one another. Rapid and widespread development of oil palm plantations potentially undermines the goal of reducing land conversion targets to environmentally sustainable levels.

Policies 4, 5, 6 are the "conventional wisdom" of policy reform long embraced and promoted by the World Bank in Indonesia and other developing countries. Implementation of these policies may lead to modest improvement in the management and forest conservation practices of some concessionaires. However, it is difficult to imagine how these reforms will modify in any meaningful way the incentives that currently promote over-harvesting and that maintain past patterns of destructive logging practices.

9. "Reform era" forest management

Since Suharto stepped down as President in May 1998, a tide of policy reform has been sweeping all levels and sectors of the Indonesian economy. One key theme of the reform movement has been to dismantle the practice of "collusion, corruption, and nepotism" that characterized the Suharto era. (This is commonly abbreviated as "KKN" for "kolusi, korupsi and nepotisme.")

Muslimin Nasution, the new Minister of Forestry and Estate Crops under President B.J. Habibie, has issued a series of policies and declared intentions, most of which are in the spirit of the anti-KKN reform movement. Among these policies and intentions are the following:

  • Timber concession permits that have been obtained through collusion, corruption, or nepotism will be cancelled and management of the concession will be transferred to a cooperative.
  • The implementation of an auction system for the allocation of new concessions (required under the terms of the IMF agreement) will be delayed in order to create a bidding mechanism whereby concentration of ownership by large timber companies and damaging silvicultural practices will be avoided.
  • The maximum size of timber concession management units will be 39,000 ha. At present, the range of concession management unit areas is between 22,000 to 560,000 ha. (There are nine ownership holding companies that have total concession areas in the range of 1.3 million ha to 3.5 million ha.)
  • No new forest concessions will be awarded in order to prevent further deterioration of the country’s forests. The areas auctioned will be limited to forests where the concession permit has been revoked by the government.
  • The Minister will seek the return of Rp. 23 billion transferred from the Reforestation Fund in 1996 to the state-owned aircraft manufacturer PT Industri Pesawat Terbang Nusantara (IPTN).
  • The government will investigate past use of the Fund to finance businesses of the Suharto family and their associates. Other than financing IPTN, the Fund was also used to provide Rp. 250 billion to Bob Hasan (a close friend of Suharto) for the establishment of a pulp and paper mill; Rp. 80 billion to Ari Sigit Hardjojudanto (Suharto’s grandson) for fertilizer manufacturing; and Rp. 527 billion for the establishment of the controversial one million ha project in Kalimantan, among other uses. According to Harsono, Director General of Reforestation and Land Rehabilitation, only 10 percent of the Reforestation Fund has been used for reforestation.
  • In late August, Minister Nasution cancelled permission given previously to the Salim Group to establish a 100,000 ha oil palm plantation in a biodiversity-rich forest in East Kalimantan. The area will be reclassified as a conservation forest instead.
  • Minister Nasution has acknowledged that some areas of production forest, and possibly even protection forest, might have to be used for agriculture in Java given the large number of people who have become unemployed because of the economic crisis.

In addition to the above policies, the Ministry of Forestry and Estate Crops has begun a process of thoroughly reviewing and reforming existing forestry laws and policies. The Ministry is giving stronger emphasis to community-based forest management than was the case under previous administrations.


On one hand, the economic crisis appears, overall, to be increasing the danger faced by Indonesia’s natural forests and the communities that depend on them. The essence of the new danger is Indonesia’s need to increase its foreign exchange earnings through the export of timber, tree crops, and other natural resources that put pressure on forests.

On the other hand, the opportunities have never been greater for fundamental forest policy change that might lead to improvements. The essence of the new opportunity is a forest policy reform movement that aims to break with certain bad practices of the past, and to greatly improve the stream of forest benefits and management responsibilities to relatively small companies, to cooperatives, and to forest communities.

How will it be possible for positive policy changes to avoid being overwhelmed by the economic crisis? Will the imperative of "foreign exchange" undermine even the most well-thought-through and principled resource management plans? There are grounds for deep concern and also for hope. One reason for concern is that the principal threats to the forest and forest-dwelling people are coming from outside the forest sector proper, so forest policy reform alone may not adequately address the challenge. On the hopeful side, redirecting the stream of forest benefits to small businesses, cooperatives and forest communities -- at least in theory -- alleviates direct pressures on forests while prioritizing the incomes of those most in need.

For the full text of this article including references,
click on the title below:
Between Danger and Opportunity:
Indonesia's Forests in Era of Economic Crisis and
Political Change


The following people provided comments on this version of the paper: Carol Pierce Colfer, Dennis Dykstra, Hariadi Kartodihardjo, Daju Pradnja Resosudarmo, Jeffrey Sayer, John Turnbull, and Lini Wollenberg. I alone am responsible for any errors of fact or interpretation that may remain in the paper.

Comments are welcome. Full documentation available on request. The paper is also available in Indonesian. For more information, contact William Sunderlin ( or Daju Pradnja Resosudarmo ( at the Center for International Forestry Research, Bogor, Indonesia. Telephone: (62-251) 622-622. Fax: (62-251) 622-100.

This paper should be cited as:

Sunderlin, William D. 1998. Between Danger and Opportunity: Indonesia’s Forests In an Era of Economic Crisis and Political Change. September 11, 1998.